Many believe the US$108 billion valuation of Facebook, which started off at US$38 a share and has fallen back to around US$31 a share, was based on “option value”; on the future money-making potential of what Wired writer Steven Johnson feels is becoming a monopoly. The social networking behemoth has certainly been under the pump in the media since the IPO, but research released yesterday about the powerful effect both earned and paid messages have on purchase behaviour offered some welcome good news.
According to this article, Google’s revenue is ten times bigger than Facebook’s and Google has more cash flow than Facebook has revenue. Despite that, the market still valued Facebook at half that of Google. But the findings of the two studies go some way to vindicating the price the company fetched.
The first piece of research was carried out by comScore in collaboration with Facebook (as some reports have pointed out, Facebook is a comScore client) and was presented at the Advertising Research Foundation conference in New York. As it says on the comScore blog, “Facebook represents a massive marketing platform with unique characteristics, including the ability to combine the effects of paid and earned media, but much of its value is still being unearthed”.
For too long, brands’ focus on fan acquisition as a primary indicator of success has ignored the ways in which social marketing actually works to achieve marketing objectives, like reach, brand resonance, and ultimately sales. By understanding the core elements of maximising reach on Facebook, like fan reach, engagement and amplification, brands can benchmark their performance against other brands and devise strategies to improve on these dimensions and deliver measurable social marketing ROI.
Strangely, the Facebook folk and their Australia-based PR agency N2N weren’t too keen to talk about the recent Hack for a Cause event in Auckland, but they were happy to set up an interview with US-based Elisabeth Diana, advertising communications manager at Facebook, to talk about the findings.
She says the first Power of Like report that was put out a year ago showed there was a correlation between being a fan of a brand or a fan’s friend and buying from that brand. But the second iteration—The Power of Like 2: How Social Marketing Works—has been able to prove that being a fan or a fan’s friend of a brand actually causes them to buy more from that brand in-store and online. And Diana says that’s the bit that hasn’t been done before.
To conduct the study, which involved Target, Starbucks and a major un-named US-based retailer, two groups were studied. One group, made up of fans of the brands and their friends, saw ‘earned messages’ about the brand that ran in news feeds and the like (according to the report, most brand exposures on Facebook occur through users’ news feeds or earned media, rather than visits to dedicated brand pages on Facebook).
The second group was made up of Facebook users who weren’t fans and saw no messages. Both groups had identical purchase behavior prior to the study and purchase data came from loyalty clubs, credit card companies and third-party collectors, with the permission of the study participants.
n the case of Target, in the four weeks after seeing Target messages on Facebook, fans and their friends overall bought there 21 percent more frequently than the control group. And as for Starbucks, fans of the brand and their friends overall bought there 38 percent more frequently than the group that didn’t see the messages.
As it says on the comScore blog:
Why are these findings so significant? First, they provide quantifiable evidence that earned media exposure can be valuable in influencing consumer behavior—and specifically the sort of behaviors that brands most want to induce, such as purchase. Secondly, they demonstrate that there is a latent branding effect that continues to drive increasing lift in purchase behaviour weeks following exposure. Both of these conclusions provide more evidence that Facebook can be very valuable as a branding medium.
While GM recently pulled its approximately $10 million budget out of Facebook advertising after deciding the ads had little impact on car purchases (it has continued to use the ‘free’ pages) and a Reuters/Ipsos poll showed four out of five Facebook users haven’t bought a product or service as a result of advertising or comments on Facebook, the study also showed that fans of the mysterious major retailer and their friends overall bought 16 percent more frequently in the four weeks after seeing a paid ad on Facebook and they bought 56 percent more frequently online.
Diana says much of this was known intuitively at Facebook HQ and, much like the mix of organic and paid for search, it has long told advertisers that it’s important to use earned media to build loyalty and paid media to add to the overall effect and drive sales increases. But it’s nice to have some proof of a causal link, she says.
While these studies deal with major US companies, she says the same policy applies to smaller businesses. GrabOne, for example, has shown some impressive results through the channel, with Facebook Connect users purchasing 19.7 percent more deals,Facebook generating 93 percent of all sales driven from social media channels, and deals that are shared/recommended having a 52 percent increase in conversion rate.
- Download the full GrabOne Case Study.
“We know that friends recommending something to friends can be more powerful than a brand talking to people about a product or service,” says Cambpell Brown, GrabOne’s marketing director. “With sponsored stories, GrabOne was able to easily display to people on Facebook that their friends had liked our page, building credibility for the brand among large networks of friends as we launched in New Zealand.”
Being a listed company means Facebook needs to be more transparent and, perhaps as an indication of that, it has for the first time also made public some of its own research into ROI at the behest of what Diana calls a “client council”. And it would seem the timing of its release just after the IPO isn’t entirely coincidental.
Over 60 campaigns using a variety of third party methodologies like panels and mix media models were studied and it showed that in all the studies that have been run on ROI to date (Diana says the campaigns weren’t cherrypicked, it was across the board), 70 percent of the campaigns showed a return on ad spend of three times or better and 49 percent of campaigns showed a return on ad spend of five times or better.
No doubt GM will be getting that memo.