Facebook PROVES Its Ads Actually Work
Facebook (NASDAQ:FB) advertisement and its ability to earn the company revenue has been the subject of critical debate over the past few days, but a new report finds marketing on the social network actually does influence consumer behavior. The study says people who see brand messages on the site spend more money on those brands and they act quickly. Unfortunately, the study largely focused on “earned media,” or messages that Facebook users share with each other on their own, not the ones paid for by brands.
comScore’s “The Power of Like 2: How Social Media Works,” commissioned by Facebook, studied the experiences of brands including Best Buy (NYSE:BBY), Starbucks (NASDAQ:SBUX), and Target (NYSE:TGT) on the social network.
According to the report, users who saw unpaid marketing messages about Starbucks bought something at the coffee store chain within four weeks, 38 percent more often than those who didn’t. For Target, fans who saw the messages were 21 percent more likely to buy goods at the retailer than the group that didn’t see the messages, while their “friends” were 27 percent more likely. These included people who had “liked” the brand on the website, as well as their Facebook friends.
Setting up brand pages is free for businesses on Facebook, and once users click to “like” the page, companies can post messages to their News Feeds.
While Facebook would want to use the report to prove the success of advertising through its platform, the results also add credence to the action of General Motors (NYSE:GM) last month. Just before Facebook’s IPO, the automaker had delivered bad news for the company by announcing it was pulling $10 million worth of paid advertising from the social network. However, it added that it would continue to promote its brand on the Facebook through unpaid measures.
Facebook also released its own internal research of more than 60 ad campaigns on its site, saying 70 percent of paid campaigns showed a return on ad spend of three times or more, while 49 percent of campaigns showed a return on ad spend of five times or more.
“It’s a myth that Facebook advertising doesn’t work,” Brad Smallwood, head of measurement and insight at Facebook, told Wall Street Journal. “We heard we have to do a better job of demonstrating” returns on investment, but “we’re in the early days of helping advertisers on this journey.”
Facebook’s stock debuted at $38 a share, but has fallen about 27 percent since. Facebook, which generated $3.1 billion in ad revenue last year, will need to improve on that to fulfill its current market capitalization of about $74 billion.
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