Brand building with Facebook?

On a recent trip to Canada, a former boss and mentor (In fact to think about it…a lot of my former bosses are now friends and mentors!) shared this article with me which is really an interesting article about Brand building on the web, Facebook’s latest performance and companies like GM dropping Facebook. I mean c’mon now…GM dropping FB! Is this the beginning of a new trend? Is this the beginning of ‘Facebook bashing’?

Typically I would attach the link and wish you ‘good reading’ but this time with this article I thought maybe you‘d like to go through the same experience I did.

The fellow, Robert V. Green is writing about Marketing. So in order to make this interesting (no peeking) while you read this article, think about these questions:
1) Is this fellow a marketer? Either MBA or perhaps a Marketing prof? Perhaps he’s a CMO for a large multinational?
2) Do you agree with his belief on FB?
3) I would like to see attendees ask this question to our lineup of Marketing heavyweights at Leaders in Marketing in Bucharest, Romania on Oct 18, 2012. (http://leadersinmarketing.ro/). In fact, as moderator I intend to make this a topic of debate in one of our panels.

Hint: At the end of the article I will reveal what Robert V. Green does for a living.

In the meantime enjoy the article like I did. It’s a bit long yet thought provoking for anyone who considers him/herself a Marketing Pro.

Ahead of the Curve

Updated: 02-Aug-12 09:49 ET

Facebook and the Great Internet Advertising Dream

The collapse of Facebook since its IPO is generally being attributed to shares being overpriced originally. However, there may also be other reasons. Is there perhaps an extreme oversupply of advertising space, not just on the Internet, but in the media in general? How much advertising can we really absorb as consumers? Is Internet advertising even effective? Here are some thoughts, and how it applies to Facebook.

Advertising on the Internet – The Great Promise

Advertisers have always sought to direct their message to precisely the persons most likely to absorb the message and be motivated by it.
This concept is called targeting, which means that information about the type of person who is likely to see the message is known to the advertiser. The more accurate and more detailed the information about the user can be, the more effective the advertisement can be, presumably.
The great promise of the Internet, since the very early days, has been the idea that advertisers could accurately target their message to the user. The pursuit of this dream has been the foundation of many a startup company.
After all, the Internet is the greatest spying tool ever invented for advertisers. By tracking a user’s actions on the web, a detailed profile of the user can be created.
Television show audiences are measured by surveys of individual users that are extrapolated to a larger audience. The content of the show and the ratings metrics are then used to create a demographic profile of the entire viewing audience. This has always involved an element of uncertainty, which the Internet has promised to remove.
To date, the company that has done the best job of fulfilling this dream of the Internet as supreme advertising vehicle has been Facebook.
But is this dream actually real?

How Facebook Targets Advertising

Targeting an audience has always been important, even before the Internet.
The key elements for targeting an audience know the particular demographics of that audience, from which the likelihood of an ad being effective can be estimated.
DoubleClick was the first company to truly begin to target individual users by developing a detailed profile.
DoubleClick did this by tracking the surfing history of a user, recording each visit to a page where a DoubleClick ad was displayed. The ad is drawn from the DoubleClick database, but the database also records the unique ID of the user (stored in a cookie) and tracks the user over time.
DoubleClick’s value proposition was that improved targeting could be provided by the detailed profile created by a history of surfing. Using this profile, an ad most likely to appeal to that user could be displayed.
This value proposition was so strong that Google bought the company in 2007 for $3.1 billion.
DoubleClick’s value proposition was eclipsed by Facebook, however, as Facebook promised an even more detailed and more accurate profile.
This profile is created in part by the user themselves, as data such as birth date, education history, geographic location, and much more is actually given up freely by the Facebook user.
Furthermore, since the “like” button can be placed on other web sites, or persons can sign in to other sites with their Facebook profile, Facebook promises an even more precise profile than DoubleClick can create, since the user themselves has defined the details of their interests.
Add to this the incredible number of users that Facebook has been able to sign up – almost one-quarter of the adult persons on earth – and it seems like Facebook has finally cracked the problems faced by all advertisers.
At least, that is certainly what the advertisers buying space on Facebook believe, or are led to believe.
Does it actually work, though? Or is the Facebook promise more of an illusory dream of perfect advertising?
To answer this, it is first important to consider the various types of advertising.

The Types of Advertising

Historically, there have been three main types of advertising:
• Name recognition
• Sales generating
• Brand building

The Internet has created a fourth type, which can be called “traffic generation.”
Name recognition is simply the idea that the advertiser’s name becomes common and accepted in the potential customers perception of the everyday world. Little, if anything, is conveyed about the product, service, or company except the name.
Companies that purchase the naming rights for stadiums, for example, are not able to communicate anything about their product or service except for the idea that they are large enough to spend millions of dollars annually simply to place their name on the team’s stadium.
Name recognition is the least effective of all advertising in terms of generating revenue for the advertising purchaser. It is very difficult to measure the effectiveness of name recognition advertising.
Sales generating advertising is a very specifically targeted message that is intended to generate immediate revenue. Coupons are the most obvious example, although media advertising promoting lower prices or promotional financing rates are also in this category.
Sales generation advertising is generally easily measured, as the promotions usually have expiration dates and revenue during the sales promotion period can be compared to those before and after the promotion.
Brand building advertising is the most powerful form of advertising, although measuring the impact in precise metrics is difficult. Nevertheless, this type of advertising is considered the best-spent
Brand building advertising, however, requires the “telling of a story.”

Brand Building Advertising

This type of approach generally uses a story, of whatever level of detail, to communicate a particular feeling. This feeling is then associated with the product or company, sometimes by no more than displaying the brand name at the conclusion of the story.
The best example of this type of brand advertisement is Budweiser beer, particularly the advertisements developed for the Super Bowl. These ads usually tell a short, humorous story that either provokes laughter or warm-hearted empathy. The story is then associated with Budweiser simply by displaying the brand name at the end of the ad.
Although some of Budweiser’s ads include the beer within the context of the story, it is very rare for the ads to make any type of statement about the features or qualities of the beer itself.
It is enough to simply associate the good feeling created within the viewer with the brand name. The hope is that this same feeling is then regenerated in the viewer at the moment of decision at the liquor store, either consciously or unconsciously. The purchase decision then revives the good feeling created by the ad’s story, resulting in sales.
This is the core concept of brand advertising: the telling of a story that evokes a certain emotion that is then associated with the product, service, or company.
The effectiveness of brand advertising is difficult to measure, except by comparing regional sales with and without a particular ad campaign. However, most companies choose to purchase brand advertising when they can afford it, particularly if overall revenues have been, and continue to, rise.
Perhaps the purchase of quality brand building ads makes the advertising companies feel good about themselves as well, just as it is intended to make potential customers feel good about themselves.

Advertising on the Internet

Brand building advertising’s greatest media vehicle has historically been television.
On the Internet, however, we would argue that no one has – at least, not yet – created a meaningful vehicle for true brand building advertisements.
In fact, the bulk of Internet advertising since the beginning of the world-wide-web in 1994 has been banner ads, which are primarily either name recognition or sale generation advertisements. In recent years, the development of traffic generation ads has become important, but the difference between traffic generation and name recognition is blurry.
Measuring the effectiveness of banner ads has been much easier than other types of advertising, however, as the user’s reaction to ads can be instantly tracked and measured.
This measurement, over time, has led to the now-common practice of extremely low prices for banner ad placement, with a much larger payment made for a “click-through” — which means that the user has intentionally seen and reacted to the ad (unless the click-through was accidental).
The Internet has developed its own type of advertising category, which can be called “traffic generation.” This category is intended to guide a user to a particular web site where that site can make its own value proposition without having to pay someone else for displaying the message.
The greatest seller of traffic generation ads has been Google, who sells advertisements based upon the information typed in as a search string by the user. The purchaser of the ad intends to steer that potential user directly to their site as a result of the prominent placement of the ad in the search results.
The market for this type of traffic generation ad has been so strong that Google can actually price the ad’s placement in accordance to how prominent it appears on the page. Higher placement in the list of returned links costs more than placement of the ad’s link on the side of the search results.

No Brand Building Advertisement Vehicles on the Web

Almost the entire amount of advertising displayed on the Internet since 1994 has been in the traffic generation, sales generation, or name recognition category.
We would argue that there has been almost no brand building advertising on the Internet, at least in a historical sense.
Why?
It is simply difficult to “tell a story” in the current incarnation of the wide world web.
The only real attempts at this have been short ads that precede a video that the user has requested, such as are now appearing on YouTube and other video-based information sites.
However, in almost all cases, the user has the option to “opt-out” of the ad after a short time period. We are curious how many users do this. Certainly it could be easily measured, but we have seen little public information about this practice.
Perhaps the absence of data on this practice is telling in itself.

Where This Leaves Us

The Internet, therefore, is primarily a vehicle for the least effective types of advertising: name recognition, traffic generation, and sales generation.
Even though Facebook has done the best job of creating a detailed profile of users for advertisers, they still haven’t created a meaningful vehicle for brand building advertising.
Furthermore, the continual creation of new websites whose business model is advertising has led to an almost incredible overcapacity of advertising sites.
We wonder if venture capitalists have any interest in supporting a new Internet startup whose business model is based upon banner advertising. We would not be surprised if they didn’t.
After all, the total advertising budget of all advertisers put together isn’t growing. When the potential supply for placing ads increases, it simply reduces the prices that websites can command for advertisements, particularly banner ads, which fall in the least valuable category of all advertising.
Perhaps now is the time for some young entrepreneur to start pitching the “I’ve solved the brand building advertising problem on the web” idea to venture capitalists (whether they actually have solved it or not).

GM’s Dropping of Facebook

Perhaps the greatest clue in how the industry is viewing Facebook and Internet advertising in general was the announcement by GM, just weeks prior to Facebook’s IPO, that they were canceling all ads on Facebook.
GM simply discovered that Facebook ads just weren’t selling cars.
And since Facebook has no vehicle for creating brand building advertisements, GM found no reason to purchase ads on Facebook.
We think that the primary impact of GM’s decision was to prompt other advertisers to start asking the exact same question about their own advertising budgets.
We suspect most people who buy ads on Facebook also buy ads elsewhere, probably in other mediums as well, such as magazines and television.
How many of those advertisers bought ads on Facebook simply because it was the latest fulfillment of the advertisers dream?
How many of those advertisers have actually started to examine the effectiveness of those Facebook ads, as General Motors did?
We wonder.
Certainly if they haven’t yet done so, they will eventually. No business entity makes ineffective purchase decisions forever, although many certainly do for short periods of time.

Conclusions

The decline of Facebook stock’s value since its IPO is being attributed to the IPO being overpriced and oversold to poorly informed retail investors. Those investors associated Facebook’s explosive growth with a near-certainty of future revenue growth, and value.
We have begun to wonder if the decline in Facebook’s value is instead associated with an increasingly prevalent re-evaluation of advertising on the web in general.
Certainly, GM’s decision to stop purchasing advertising on Facebook had nothing to do with Facebook’s IPO pricing. It was simply an informed advertiser’s assessment of Facebook’s effectiveness.
We think that the decline in Facebook stock has as a lot to do with a widening reassessment of the value of Internet advertising in general and, in particular, the absence of true brand building advertising on Facebook.
If such a reassessment leads advertisers to view Facebook as other than the fulfillment of the ultimate advertisers dream, and instead to view Facebook as yet another Internet promise that just didn’t last, then Facebook stock probably is likely to drop much more over time.

Facebook (FB) August 2, 2012: $20.37 -0.51 (-2.4%)
Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com

Answer: Robert V. Green is a Senior Investment Strategist for Briefing.com (http://www.briefing.com/corporate/our-experts.htm), not a Marketing expert!
Paul Renaud