Big Companies and Facebook’s ads – why spend if it’s free?

According to a new study conducted at the Center of Marketing Research at the University of Massachusetts Dartmouth, social media adoption by Fortune 500 companies may be leveling off. Researchers found that the number of companies using corporate blogs and Facebook and Twitter accounts stayed about the same compared with the number of companies that did so in 2010. For example, 289 of the companies (58%) have a Facebook page in 2011, a 2% increase from the previous year.

Contradicting the study mentioned above, according to its vice president of advertising and global operations, Facebook is experiencing “very strong adoption, growth and business results among the largest brands in the world.” The question is: how well is Facebook benefiting from the advertising campaigns from the big brand names who do have a presence on the site?

The article discusses how Facebook is losing marketing dollars from the big companies. Although Facebook’s $70 billion estimated market value is based on the assumption that companies will spend to advertise on the site, most of its revenue is driven by local business and small websites.

Take Ford’s Doug campaign to promote Ford Focus as an example. The company used Facebook fan page to attract 10,000 fans and went on to spend more than $95 million on TV, print and other media. The company did buy Facebook ads, but it is not difficult to predict it reflects a very small portion of the total marketing budget.

According to the article, Facebook will generate less than one-fifth the ad revenues per user that Google will this year, reaching $2 billion from 162 million unique users. It is important to note that Facebook’s strategy has been to attract advertisers with a combination of free options like fan pages and paid ads.

Will this pricing strategy be sustainable in the long term? Will Facebook be able to hold on to its valuation considering the perception that the company might not be exploring advertising opportunities from the big companies? Or do you agree that by limiting the number and size (which could be potentially a much larger revenue source for the site), Facebook is protecting its position as an “uncluttered” social network?


One thought on “Big Companies and Facebook’s ads – why spend if it’s free?

  1. Social media (and digital) advertising are still in the infancy stage, as compared to television or print. As Facebook and other platforms provide more analytics, metrics and best practices for brands, I think the pricing strategy will be sustainable in the long run. Despite the negative outlook of this article, I definitely still is a major opportunity for Facebook to capture more digital advertising dollars.

    I work in digital advertising and quarter over quarter, all one consistent message from brands is regarding the shifting of marketing dollars either directly to Facebook (to buy ads there), or to buy ads from media parterns to drive traffic to the brand’s Facebook campaign. If Facebook can continue to educate brands about the power of social, and provide the back end metrics and analytics that brands need to justify their buy, the more their share of digital marketing dollars they will capture.

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