11/27/12

It's no secret that I'm not a huge fan of Facebook. I thought it was a neat idea early on, but like just about anything else it loses its luster when your mom becomes aware of it. So like the rest of the cool kids on the Internet I migrated to Twitter, which is actually much better suited to meet the needs of finance and econ information junkies like me. I didn't delete my Facebook account (it's really the only way to keep in touch with my old Marine buddies), but I more or less left it in my rear view.

Part of what I did on my time off was soft launch a side project I've been meaning to get off the ground for a couple of years now. Naturally, I wanted proof of concept before I plowed a bunch of time and money into it. So my alternatives (as I saw them, anyway) were to advertise a landing page on Google and compete for some relatively spendy eyeballs, or give Facebook advertising a shot and see if I could achieve better results for less money.

How does this relate to Wall Street, you ask? Well, one of the primary arguments against Facebook stock recently has been their seeming inability to capitalize on mobile advertising despite the fact that better than 50% of Facebook users interact on mobile platforms. I'm going to cover my surprising mobile findings in a minute, but I wanted to give you guys a breakdown of Facebook as an advertising platform from an advertiser's perspective, and that might help you to better judge the value of the stock.

The biggest appeal to advertisers considering Facebook is Facebook's unique ability to target users with a laser focus. I have to admit that I was amazed at how narrow I got my target audience for an ad I ran for four days over the holiday weekend. I was able to screen users for location, language, age, family status, and a very specific interest. When it was all said and done, I had narrowed my target audience down to 32,880 Facebook users.

At first I went the CPM route, which means I bid X dollars for every 1,000 times my ad was displayed. I quickly figured out that this was getting me nowhere. Sure, I only spent $4.18, but that only garnered me 3 clicks for a miserable .003 CTR (click thru rate). The ad displayed over 110,000 times and didn't get any bites, so my cost per click on it was $1.39.

I changed it up a bit and bid on individual clicks, which looks more expensive but in reality it isn't. I bid $1 per click with a $10 daily maximum just to check it out. I was pretty amazed. By the end of the weekend I had 157 clicks with a .352% CTR, and my cost per click was down to 32 cents apiece.

Now here's the surprising thing (at least to me): 40% of my click thru traffic was mobile. I set up Google Analytics to track it because I was curious about the mobile reach. It broke down to 31% iPhone and 9% Android (another 50% Windows and the rest Mac and Linux).

So, obviously Facebook is reaching mobile users with advertising. And based on what I've learned about how mercenary Facebook advertising can be, I'm less inclined to think that mobile is going to be the long-term albatross that many analysts think it will be for the company. What do I mean about mercenary?

Well, Facebook has adopted a pretty Darwinian (some would even say Machiavellian) approach to ad sales. It's great for Facebook, it's even great for a lot of advertisers (I'm pretty pleased with my results so far), but there could be a lot to hate about it if you've spent a lot of money to build a following only to have someone else swoop in and steal them from you.

Case in point: Larry Kim, CEO of Wordstream, thinks it's pretty messed up that Coca Cola can target all the fans that Pepsi Cola has spent millions to develop. And he's got a point. Facebook advertising enables an advertiser to target users so specifically that it does make it easier to poach customers.

On top of that, Mark Cuban isn't exactly stoked about the way Facebook is driving advertisers to use their more expensive Sponsored Stories ads. I'm with Cubes on this one. There's no doubt that Sponsored Stories get results (my hit rate on the few I did was stellar), but they get expensive QUICK. And if you're battling an ad algorithm that thinks you suck for some reason, you're going to have a hell of a time getting in front of your target audience.

Overall, I've kinda changed my mind about Facebook. I'm still not a user (aside from posting the occasional FAIL compilation video), but I'll probably continue advertising and might even give the stock another look if it drops below $20 again.

Anyway, I've gone on longer than I meant to. If you guys have any questions, hit me with them in the comments.

P.S. The project I'm working on is just a little side deal. Trust me - nothing that's gonna put a dent in the universe. I can't go into details at the moment, just know that it's something I've wished was available for some time now and it looks like a bunch of other people wish it were available too, so maybe I'll sell a few.

Comments (20)

11/27/12

Good stuff, Eddie. Welcome back.

Maybe a dumb question, but when they clicked on your ad, what did they end up at? You running a survey of some sort? Or trying to compile a list of emails?

11/27/12
TheKing:

Good stuff, Eddie. Welcome back.

Maybe a dumb question, but when they clicked on your ad, what did they end up at? You running a survey of some sort? Or trying to compile a list of emails?

Getting beta testers for an app. I also set up a Facebook page for it so it got some "Likes" too. I was basically just testing the hypothesis that there's a market for the product, and it appears there is.

11/27/12

Interesting. Thanks for the insights.

11/27/12

Have the people doing click-throughs signed up for the app? I know I've clicked on several ads before on accident, either my fat fingers, or they move the ads in somewhere else where I'm about to touch (this has been for other apps, not facebook).

Best Response
11/27/12

Hi Eddie, remember to filter your mobile traffic for tablets, which are a major part (just check out the % ipad out of total mobile devices).

In my experience FB ends up 5-10x as expensive as SEM at equal daily spend in a developed country (EM folks behave differently, they react better to images so any display advertising including on FB does a bit better).

What SEM has that Facebook doesn't is intent - when you bid on "Campagnolo gears" you are already pre-selected in a way that Facebook can't let you "engineer". You want to buy gears, in fact you have a preference for Campagnolo over Shimano, all you need now is a shop that looks decent and professional and you will buy. Whereas when you are trying to reach that cyclist on Facebook, how do you do it? Male, age 25-35, professional, living in suburbia? How do you know he wants to upgrade his shitty Shimano Tegra groupset after his neighbour mocked him for buying a low end racer?

That was Google Advertising's genius - to bring market mechanisms not just on bidding, but also as a filter to bring you exactly the customer you want in a way no intentional approach can mirror. I have seen many toys come out of FB ads, like promoting your own posts, but they fail because when somebody is not ready to buy, he tunes you out. I'd go as far as to say that intent has the highest R squared with transactions; a channel like Retargeting is really good at bringing you to exactly the customer you want, and is cheap CPC, but ends up with high CPO because unlike the google search, the user does not need your product immediately.

11/27/12

EURCHF parity:

In my experience FB ends up 5-10x as expensive as SEM at equal daily spend in a developed country (EM folks behave differently, they react better to images so any display advertising including on FB does a bit better).

I had no clue that FB was really that much more expensive. I always thought of advertising on Facebook and Linkedin as the sleeper deal and Google being "old reliable" but never really looked into it.

Glad to hear you're converting on it Eddie, whatever it is.

11/27/12

When you say "mobile" are you referring to their mobile site (m.facebook) or a facebook app?

If you are referring to their app, I wouldn't get too excited. They have started placing ads in the middle of your news feed - people are constantly clicking on ads and liking companies by accident just by scrolling through the news feed and tapping the screen to stop it from scrolling.

My buddy liked some lingerie boutique the other day.

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

11/27/12

@EURCHF,

That's an interesting insight. Since what I am promoting is basically a service and not a product, that might explain my higher conversion rate. I'll have to give some thought to how I'd structure a SEM campaign. With Facebook it was easy to isolate folks who were likely having the same challenge I did, and would therefore be looking for a solution to it. It might take a little more finesse advertising-wise to reach the same audience from a Google search. Also, thanks for the heads up about tablets falling under mobile. I'll check that out.

@BigSwingingDave,

Yeah, they had to sign up with an email address, so that kinda eliminates bots. Plus a number of them have already been in touch with me personally, which is gratifying.

@Nefarious,

Considering I can't even get the Facebook app to work on my Android phone, I'd probably consider a mistaken hit a win anyway, lol. Good to know, though.

11/27/12
Edmundo Braverman:

@EURCHF,

That's an interesting insight. Since what I am promoting is basically a service and not a product, that might explain my higher conversion rate. I'll have to give some thought to how I'd structure a SEM campaign. With Facebook it was easy to isolate folks who were likely having the same challenge I did, and would therefore be looking for a solution to it. It might take a little more finesse advertising-wise to reach the same audience from a Google search. Also, thanks for the heads up about tablets falling under mobile. I'll check that out.

@BigSwingingDave,

Yeah, they had to sign up with an email address, so that kinda eliminates bots. Plus a number of them have already been in touch with me personally, which is gratifying.

@Nefarious,

Considering I can't even get the Facebook app to work on my Android phone, I'd probably consider a mistaken hit a win anyway, lol. Good to know, though.

Last I heard, Facebook was forcing its mobile app team to use android phones so they could see how shitty their android facebook app is and fix it.

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

11/27/12
Nefarious-:
Edmundo Braverman:

@EURCHF,

That's an interesting insight. Since what I am promoting is basically a service and not a product, that might explain my higher conversion rate. I'll have to give some thought to how I'd structure a SEM campaign. With Facebook it was easy to isolate folks who were likely having the same challenge I did, and would therefore be looking for a solution to it. It might take a little more finesse advertising-wise to reach the same audience from a Google search. Also, thanks for the heads up about tablets falling under mobile. I'll check that out.

@BigSwingingDave,

Yeah, they had to sign up with an email address, so that kinda eliminates bots. Plus a number of them have already been in touch with me personally, which is gratifying.

@Nefarious,

Considering I can't even get the Facebook app to work on my Android phone, I'd probably consider a mistaken hit a win anyway, lol. Good to know, though.

Last I heard, Facebook was forcing its mobile app team to use android phones so they could see how shitty their android facebook app is and fix it.

I'd like to see how shitty it is myself. I can't even get the fucking thing to install.

11/27/12

Cool insight....I tried FB ads early on and the results were pretty mediocre. I think EURCHF hits the main reason why FB isn't even worth ~1/2 of what it's currently trading at. The users are not seeing ads when there is direct intent to buy, so the performance is much lower. (Disclosure: I own Jan 2014 Puts @ $15 and have been getting crushed by the trade lately, but still feel there is not way this stock should be over $15/sh...remove tablets from mobile and you think they can still monetize on true mobile at the same rate?)

There is no way to mimic an environment with INTENT to buy unless they successfully go into search...which I don't see as possible. How are they going to use their walled garden of content to deliver better search results from around the entire internet. Just because my buddy liked Bonobos, doesnt mean I want to read a salesly article by bonobos when I am searching for thermal underwear.

11/27/12

Patrick, that's spot on and I think that was what Cuban was getting at.

Another thing I was really surprised by was the reach of my ad. I would have thought by now that everyone had AdBlock installed. I mean, who sees ads anymore? Apparently lots of people.

11/27/12
Edmundo Braverman:

Patrick, that's spot on and I think that was what Cuban was getting at.

Another thing I was really surprised by was the reach of my ad. I would have thought by now that everyone had AdBlock installed. I mean, who sees ads anymore? Apparently lots of people.

Well considering a lot of people still use internet explorer instead of the better alternatives, i'm not surprised if only 5%-10% of the web-browsing PC users have some sort of ad blocks

11/27/12
ladubs111:

Well considering a lot of people still use internet explorer instead of the better alternatives, i'm not surprised if only 5%-10% of the web-browsing PC users have some sort of ad blocks

Don't have data (not my own, anyway) outside Asia but here, the majority is Firefox, Safari or Chrome. E.g. one local country for the last week: 35% Safari, 25% Chrome, 20% IE, rest split between legacy browsers, rarer browsers like Opera, and things like BB or Android default browser (none of which have more than 0.5%).

Around 1/3 of visits come from mobile (although we don't have a mobile site yet) and of those 70% come from Apple products (split half half iPhone/iPad) and 15% Samsung (1/3 of which are the SIII), 5-10% use ad block of sorts and less than 2% use Windows phones. That should answer your Android question ;)

11/27/12

Eddie, not sure if you're still looking for testers, but I (along with a lot of people here, I'm sure) would definitely like to help if any help is needed.

yellow t-shirt

11/27/12

So far, Facebook ads just trail what I've already bought/paid for with reminder ads. It lags any purchases I want to make in the future and never warrents a click (not that I would anyway) unless I was going back for a repeat purchase, in which case I don't need to be advertised to.

11/27/12

The problem with mobile advertising, in my opinion, is that while you may get clicks you will actually buy your product on their phone? When I check FB on my phone i just scroll down a page or two and look at my notifications and close the app. If I ever clicked on an ad I wouldn't be inclined to buy anything at that moment. Even if something caught my eye, unless it was an incredible product, I would probably forget about it within the next 30 minutes. There's a difference between the clicks you get from mobile and the revenue you bring in from your mobile ads. I'm more interested in the latter portion of mobile ads. I know it's easy for apps because you can click on the ad, buy the app with a credit from your iTunes account.

"If it were easy, everyone would do it"

11/27/12

OK, so I just spent an hour on the phone with Google setting up a split tested SEM campaign. For anyone doing this for the first time, I definitely recommend calling in rather than setting up your AdWords account yourself. I set mine up myself years ago and then never activated it, and Google would occasionally send me promo codes for free advertising, all of which expired. So I called in to see if I could talk them out of some free ad credit and they ended up walking me through the entire process (and kicking in $100 credit to boot).

The campaign that their guy laid out is WAY better structured than what I would have done by just watching how to videos on YouTube and trying to figure shit out on my own. With Facebook you can actually say exactly who you want to see your ads. With Google it's not as intuitive, but if you know what you're doing you can achieve the same laser focus AND gain more commitment from your clicks. I'm excited to see the results the campaign is going to produce, and another guy from Google is going to call me (yeah, they're gonna call me) next Wednesday to go over the results and make any necessary tweaks. I'll let you guys know what happens.

11/27/12

Edmundo Braverman:

P.S. The project I'm working on is just a little side deal. Trust me - nothing that's gonna put a dent in the universe. I can't go into details at the moment, just know that it's something I've wished was available for some time now and it looks like a bunch of other people wish it were available too, so maybe I'll sell a few.

$100 says it has something to do with alcohol...

11/28/12
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