One of the things that I’ve been spending time looking into recently is the potential of the Facebook ad platform and the implications of that in my job as an venture investor. To the former, I recently ran two campaigns on Facebook with the purpose of increasing the number of fans to the associated fan pages. Campaign 1 was for a reasonably well known Hearst brand while Campaign 2 was for an unknown business that I created just for these types of tests. Here are the aggregate results:
- Dollars spent: $148.56
- Impressions: 486,426
- Clicks: 135 clicks
- Actions (fans): 31 actions
While the average CPM of $0.31 was attractive from a branding perspective, the cost per click (CPC) of $1.10 and cost per fan (CPF) of $4.79 were much higher than I anticipated. Obviously the ad copy and type of business that I was promoting played a role. That said, it was interesting that the campaign promoting the Hearst brand performed more poorly on most metrics, including the CPC ($1.29 vs. $0.82 for campaign 2) and CPF ($6.95 vs. $2.77 for campaign 2).
Copy for campaign 2:
I strongly believe that Facebook fan pages are under leveraged by most brands (and small businesses) and I expect these pages to become even more popular with companies and users. In my opinion, Facebook will benefit most significantly if it can get these businesses to advertise on the platform to drive more users and fans to their fan pages where they can then be monetized. In many ways, this is a similar strategy to what it is being deployed by the social gaming companies (i.e. Zynga, Playdom, etc.) who have tailored their content to the Facebook platform and are spending tremendous amounts on Facebook ads to drive usage.
With better copy, offers and optimization, my guess is that I could achieve a CPC and CPF somewhere in the $0.50 and $1.00 range, respectively. Leveraging the viral characteristics of the Facebook platform, these costs would ultimately be lower as fans and visitors would promote the page to friends. At these CPC and CPF levels, I believe the Facebook ad platform becomes a viable competitor to Google. Instead of diverting dollars from search, however, I expect businesses to take money from less effective forms of advertising, including online display and traditional media.
Getting to how this test adds value to me as a venture investor, I believe that companies that can help businesses make their fan pages more viral and engaging will play a key role in the ecosystem since, by doing so, they lower the effective CPC and CPF. Companies such as Involver, Buddy Media and Wildfire are already making real money doing this and I am bullish on these types of businesses. I also think that companies that can better optimize Facebook ad campaigns present compelling investment opportunities. I have yet to find anyone doing this well and think a comparable in the search industry is Efficient Frontier.
In closing, I don’t think this type of advertising is exclusive to Facebook and expect Twitter and other social platforms to benefit in similar ways. As such, ecosystem companies that can solve businesses needs across these platforms will be the ones that build the most scalable and defensible businesses. Should multiple social ad platforms develop, efficiency players also become interesting (think Clickable but for social media advertising instead of search).
There are obviously lots of other implications as well (including new content brands specifically tailored for social media platforms-Zynga, Playdom and Playfish have already done this for gaming), but I’ll save that for another post. Thanks for reading and I’d love to hear your thoughts.
