We recently spoke with an executive with lots of experience and connections in the advertising industry. This source told us that there’s grumbling among many ad buyers at agencies about Facebook. Not just specific complaints, but about the Facebook ecosystem more generally, which can be boiled down to “Show us the ROI.”The problem with advertising on Facebook for many agency people, our source said, is that it’s too contained on Facebook: brands will buy ads to get people to like their platform. “I’m buying ads on Facebook to promote Facebook” was one complaint.
The bigger problem is that in the online world where everything gets measured, Facebook delivers poor advertising ROI versus the gold standard, which is Google. Facebook might be great at generating “buzz” or “engagement”, but at the end of the day advertising is meant to generate sales. “There are too many steps between your Facebook buy and the transaction you want, and so the value gets fuzzy.”
“‘I’m getting 100,000 likes a month!’ Who cares? That doesn’t move the needle for a very big company.”
Facebook has now introduced ads on their logout page, which our source views as an early sign of desperation. “It’s brute force. It’s like Google putting a banner ad on their homepage.”
This source said that while many agencies’ Facebook budget is growing, “If you ask an agency what their Google budget is, they don’t have a budget: it’s unlimited.” Agencies spend as much as they can, as long as it delivers clear ROI, because it delivers clear ROI. Facebook is a long way from there with agencies.
We responded to our source with Facebook’s standard response to this, which is that ROI is the world of bottom-of-the-funnel advertising, which seeks to fulfil demand, whereas Facebook is going after top-of-the-funnel advertising, which seeks to create it, and is much less ROI-constrained. That may be true, our source countered, but many agency folks just don’t see it that way. And they need to if Facebook wants to deliver the kind of revenue growth it will need to justify its expected IPO valuation.
There is another related problem with Facebook’s relationship with agencies, our source said, which is arrogance. “Any time a new hot shot company emerges, there’s arrogance and presumption. ‘You’re going to do this our way,’ ‘We’re going to force people into packages.'” Agencies don’t like that, especially when Facebook’s ROI can be so weak.
BOTTOM LINE: Many people at ad agencies feel that, in the words of our source, “the value of Facebook is not as great as Facebook thinks it is.”
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