As required in its IPO filing, Facebook has released its ad revenue, for 2009-2011. Ads brought in $3.2 billion in 2011, a year-over-year (YOY) growth of 69% from $1.9 billion in 2010, leading Business Insider’s Jim Edwards to declare, “Wow. This is a massive ad sales business.”
In terms of volume, there was a 42% increase in the number of ads delivered in 2011, and, an 18% increase in the price of ads.
In its prospectus, Facebook described its value to advertisers: “Advertisers can engage with more than 800 million monthly active users (MAUs) on Facebook or subsets of our users based on information they have chosen to share with us such as their age, location, gender, or interests. We offer advertisers a unique combination of reach, relevance, social context, and engagement to enhance the value of their ads.” In terms of growth, Facebook claims those 845 million MAUs as of December 31, 2011, is a YOY increase of 39% as compared 2010. Facebook went on to describe how it creates value for advertisers, with—
- Relevance, as ”Advertisers can specify [user subsets by] demographic factors and specific interests that they have chosen to share with us on Facebook or by using the Like button around the web.”
- Social Context, which highlights a user’s friends’ connections with a particular brand or business (e.g., that a friend Liked a product or checked in at a restaurant). We believe that users find marketing messages more engaging when they include social context."
- Engagement, as the shift to the more social web “creates new opportunities for businesses to engage with interested customers. Any brand or business can create a Facebook Page to stimulate an ongoing dialog with our users.”
The Economist summed it up this way in a poll: “It collects huge amounts of data about its 800m plus users, can serve up creepily well-targeted ads.”
But does it work?
Advertisers use Likes as a kind of social media “Nielsen rating,” but the ratings can be disappointing. In terms of engagement, only slightly more than 1% of Facebook users who “Like” brands like Procter & Gamble or Coca-Cola actually engage with the brands, according to research. And engagement can include reposting a clever ad from YouTube—good for branding, but without measurable sales.
Earlier this month, TBG Digital (TBG) in its Global Facebook Advertising Report observed “considerable savings” were possible in cost-per-clicks (CPCs), up 45%, for advertisers on Facebook. But, those advertisers must keep the clicker within Facebook: directing a visitor away from Facebook and onto the advertiser’s own website drives up the CPC.
So the ad revenue is impressive, as are the claims. But as an effective ad platform, Facebook still defies analysis. Likely it will have to come up with more solid figures for its annual investor calls.