Facebook is seen as a threat to Google’s advertising business, but a closer look at the differences between the two models shows Facebook to suffer some big disadvantages.
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I discuss why Facebook is not as well-suited to advertising revenue as other platforms such as Google’s (GOOG) famous search network. Key points:
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Interesting perspective, however, you seem to be viewing google and facebook as competing for the same types of ads. I think there are some fundamental differences:
* Google is the undisputed leader in ads that respond to demand. If I’m looking for car insurance, I will likely google some car insurance related term and Google’s ad machine will provide highly compelling ads for me to explore. Facebook does not do this, nor would I go to facebook to find car insurance options. Understanding how each platform is used will drive you towards their usefulness for ads.
*Google has been unable to identify a way to generate demand. You go to Google when you are already looking for something. Facebook on the other hand is a place where people interact and spend time. Similar to television, Facebook is a place where demand can be generated. For example, my wife has her own business and is a holistic health coach. One of the challenges in her work is people are very interested in her services once they see or learn about them but having people find out about her is the trick. On facebook she could target working women, with one or more kids, in the Cleveland Metro area and have a better chance to reach her target demographic. Not many people searching Google for a holistic health coach and thus it’s hard to leverage Google for generating leads.
*Facebook ads can be interactive, fun, and social. These allow company’s to build brand loyalty and a connection with their consumers. While this doesn’t create the same direct return on investment that a Google ad does – arguably this is valuable. The challenge here is to identify an attribution model that would allow for measurement of this type of value.
*We shouldn’t assume that facebook is less sophisticated from a targeting perspective. Facebook has a ton of information about it’s users that can be used for targeting. That said, Facebook is a platform and as such the person creating the ads is often responsible for identifying the target demographic. If the person who creates an ad targets a specific Japanese city without specifying the users language and the ad is in Japanese – that is not the fault of facebook. In this situation Facebook would be delivering the ad as it was sold.
* The value of socially interactive behavior should not be underestimated! If you are able to tap into it the right way, results from the socially interactive behavior can be exponentially more valuable than a direct ad in response to a search. Farmville, a Facebook application/game has over 80 Million users. This type of adoption is a direct result of the social behavior and the ability of facebook to communicate to your friends what you are doing. If a similar game was advertised through Google, it would only reach a subset of users who are searching for games. I see tremendous potential when people/businesses are able to tap into this.
To be clear though, I believe Google ads are best-of-breed for what they do. I think the key is for any interactive marketing strategy to understand the platforms available and leverage them appropriately. With the right strategy and approach Google and Facebook (as well as several other channels) can be used in conjunction to get the best ROI.
Now Facebook’s silly valuation is a whole different story…
An excellent counterpoint, Jacob.
We’ll have to wait for real results to see if the value of generating demand on Facebook is as high as the value of responding to demand on Google. One thing I stand by, however, is that the view that Facebook is somehow a threat to Google is misplaced. As you point out, even if Facebook succeeds in its ad environment, it will do so by creating a new kind of ad marketplace rather than taking away from Google’s ad marketplace.
That’s in the main. On YouTube and some of its other non-search properties, Google does try generating demand with ads that are present in an area of the user’s interest rather than in response to a user’s search query. However, such ads represent a small portion of Google’s overall ad revenue.
I agree that an advertiser won’t choose one online ad channel over another, but will rather use several and come to learn through trial and error which channel is best for which types of campaigns. For what it’s worth, the coffee shop I co-own in Colorado found that neither ads on Facebook nor Google come anywhere near the effectiveness of a well-placed outdoor sign. That’s probably true for most real-world businesses where customers walk in.
Thank you for the thoughtful comment!
As for the coffee shop – maybe a location based technology like foursquare would draw people in? Neither Facebook or Google have seemed to put much of a dent in foursquare’s dominance with their location based offerings as evidenced by the 3400% growth. Of course, I mean that in addition to the signs – low tech is certainly still effective.
Our coffee shop has tried the location-based services as well, such as Foursquare and Yelp, and found that they weren’t nearly as useful as advertised. It seems to me that online campaigns are best for online products or products requiring extensive research, such as a car or house.
Relatively few people “research” where to have coffee beyond seeing a shop in the normal course of their day, trial-and-error by going to different shops they know, talking to friends, and so on. I realize that’s a generalization, but one that’s held true in my experience.
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