Why Facebook will boost advertisers' brands

Advertising on the social network influences users to buy products in stores, according to a research report released this week.

By TheStreet Staff Jun 14, 2012 10:20AM

By Nathalie Pierrepont 


Despite all the concerns about Facebook's (FB) business model, the social network will deliver significant results for advertisers, according to a research report released this week by comScore, a digital marketing research company.


"We found Facebook fans had significantly higher percentages of purchasing," Andew Lipsman, comScore's VP of industry analysis, told Forbes on Tuesday. "It proves Facebook earned media and advertising are driving purchase behavior."


Doubts about the effectiveness of Facebook's advertising, which accounts for most of the company's revenue, have been partly responsible for dragging the firm's share price down almost 28% since its much-anticipated IPO in May. However, comScore said that the research methods used to support popular conclusions about Facebook's advertising are flawed.


The report, entitled, The Power of Like 2: How Social Marketing Works, is comScore's collaborative effort with Facebook to explain social marketing and how brands can evaluate the impact of their efforts in the space.


Facebook's management anticipated that advertisers would need time to adjust to the non-traditional platform. "We believe that most advertisers are still learning and experimenting with the best ways to leverage Facebook to create more social and valuable ads," the company explained, in its S-1 filing with the Securities and Exchange Commission earlier this year.


Dr. Jacob Shama, CEO of Mintigo, a San Francisco-based lead-generation service said, "Where there's money to be made, people will learn. If you're a big company trying to build a brand, you're going to figure out Facebook."


"I don't think there's a brand marketer in the world who isn't working Facebook into their strategy right now," Shama added. "Facebook isn't a question - it's a requirement. But marketers are really just starting to figure out how to use Facebook correctly, and it's a very different approach than traditional banner ads."


There are two potential audiences for branded content on Facebook, which accounts for 90% of all time spent on social networking sites, according to comScore: Those who have explicitly "liked" a brand, known as Fans, and the Friends of those Fans. There are "significant untapped benefits by reaching Friends of Fans," said comScore's report. However, simply accumulating Fans or Friends of Fans is not sufficient for changing audience perception of a brand, according to the research.


The impact of Facebook advertisements is cumulative exposure to a brand or a message over weeks or months. But because the average time spent on the Web site by each visitor climbed 16% this year, less than the 23% increase a year earlier comScore reported, engaging Fans and generating discussion about a brand or a message amongst Fans is essential.


"Marketers need a holistic approach: find fans, reach fans in their newsfeeds, and showcase content with premium ads," said Shama.


Fans and Friends of Fans of Starbucks (SBUX) exposed to Starbuck's ad campaign on Facebook, for example, showed statistically significant increases in in-store purchases, according to comScore's research. The same was true for Fans and Friends of Fans of Target (TGT).


Even if it takes time for Facebook to generate maximum revenue from advertisers, as Shama said, "It's worth remembering that Facebook might grow other sources of revenue besides ads, such as games and e-commerce."


Alliance Bernstein analysts Carlos Kirjner and Ram Parameswaran, however, initiated coverage of Facebook with an "underperform" rating and a 12 month price target of $25 per share on Tuesday. The analysts explained that it will take time for brand advertisers to determine the effectiveness of social advertising.

"While we believe there is material medium-to-long-term potential from the impact of social on display advertising and from new businesses the company could enter, we think Facebook is likely to get limited credit for this potential upside until we see a reversal in the revenue growth rate decline or traction in specific, incremental initiatives," the analysts wrote, in their report.


"We do not expect these to happen during the next several quarters as it will take time for new businesses to become more than ideas, for advertisers to learn how to best use social ads, and for Facebook to address some of the key challenges it faces, such as monetizing mobile inventory or deploying analytical tools that will allow brand advertisers measure the ROI of their Facebook campaigns effectively."


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