A publisher creates inventory, whether it’s in a newspaper, over the airwaves, by the side of the road or online. They sell part of that inventory to companies who want to get their products and brand names in front of an audience.
Though it seems like a simple equation, there are a lot of ways it could go wrong, especially in the dizzying world of online ads.
If publishers create too much inventory, it drives prices down. If they make advertising too prominent or invasive or unpleasant, it drives the audience away. If they don’t make it prominent enough, the ads are worthless. And of course, since you’re asking companies to take it on faith that advertising is a worthwhile endeavor, you’ve also got to know how to manage and treat clients well (the Pete Campbell side of the business).
Up until now, Facebook, a company that is wholly supported by advertising dollars served based on your personal information, still hadn’t figured any of that out.
I’ve written pretty extensively about Facebook’s woeful ad offerings in the past, primarily its Sponsored Posts, which essentially extort money from fan pages after throttling the percentage of fans who see a post from a page. Facebook’s announcement last week that they were eliminating half of their nearly 30 different advertising options is an opportunity to have a more extensive conversation about the baffling incompetence of this multibillion dollar public company.
Let’s take “Sponsored Stories” (not to be confused with “Sponsored Posts”), which have been a major source of controversy for Facebook since they launched. These ad units take users’ Facebook habits as “social context” to make them unwitting endorsers of ads on Facebook.
The flaws in this idea were best illustrated last year when a man posted a link to a rather preposterous item on Amazon: a 55 gallon drum of natural lubricant. Then, a few weeks later, he was informed by his friends and co-workers that Facebook was running ads for Amazon highlighting that he “liked” embarrassingly large quantities of sexual lubricant.
For this reason and others, Facebook quickly attempted to settle a class action lawsuit over the units for $20M. As part of the settlement, it was also forced to allow users to opt-out of the ads, a pretty basic feature that previously was not permitted. So it makes sense that when the company discontinued most of its ad offerings last week, the much-hated Sponsored Stories was the first to go.
Except it wasn’t.
As Facebook told AdAge, “Sponsored stories as an idea doesn’t go away. Sponsored stories as a product goes away.” Despite the lawsuit, user concerns and the weak connection between the “context” and the products they associate users with, Facebook is actually doubling down on the unit. Now, every ad will be a sponsored story ad; according to Facebook’s announcement, they will now “automatically add social context to boost performance and eliminate the extra step of creating sponsored stories.”
Another great example: for years, Facebook claimed that the value in its platform would be all the data it gathered from customers. It made sense–they know what we like, who we know, what kind of things we click in our News Feeds. That was supposed to translate into Google-level revenue.
Except it didn’t. The average Facebook CPMs (cost per thousand views) is still around .25. Not all that much better than Myspace’s notorious .10 CPMs back in 2006.
Which is why Facebook recently had to open up its platform to retargeting. And though Facebook has gotten some good PR out of the move, it is actually an acknowledgement of an abandonment of its core business model.
If you’re not familiar with retargeting, the concept works like this: You visit Zappos.com and look at some Nike shoes. Zappos and its retargeting network hit you with a pixel; now, whenever you visit a site that works with that network, you’ll see an ad for Zappos–and in some cases, for the very pair of shoes you were looking at.
Well, now you can buy retargeting ads on Facebook. The reason that’s a bombshell is because by opening up their inventory to such buys, Facebook is effectively admitting that its own data is worthless. All the knowledge it has on its users is not as valuable as simply knowing what sites someone has visited outside Facebook.
Retargeting now dominates Facebook. As I write this, four out of seven of the ads in my FB column right now are clearly a result of retargeting. (One of these ads–unbelievably–is actually advertising for the retargeting network AdRoll.) Why wouldn’t they be? Buying these ads through third parties is cheaper than buying directly from Facebook–and it works better, too!
The final point about Facebook’s weak understanding of advertising is the units themselves. Whether we are talking about Sponsored Stories or the retargeting ads on the right hand column, Facebook ad units are the bane of the existence of all but the scammiest of advertisers. Constrained at 100×72 pixels–literally the size of your thumbnail–it’s next to impossible to do anything creative or interesting in that space.
Everything looks low-rent when you shrink it down to half the size of a postage stamp. As a result, Facebook ads are rarely interesting, rarely memorable, and at best, a reluctant medium for advertising and marketing firms who want to do great work.
Facebook is a terribly run business. In a world of increasingly fractured and niche-driven culture, Facebook is the one thing we all have in common. We don’t all watch the same TV shows or even use the same mobile operating system or the same search engines, but the one thing we all depend on every single day is Facebook. We all use it.
In other words, with more than one billion addicted users, Facebook should be the single most lucrative and effective advertising platform on the planet.
But it’s not. Not even close.