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Facebook Ads: Is Anyone Clicking On Them?

AP  |  By Posted: Updated: 05/17/2012 10:43 pm

NEW YORK (AP) — Facebook's reach is wide but not deep. Few users surveyed in an Associated Press-CNBC poll say they click on the site's ads or buy the virtual goods that make money for it.

More than 40 percent of American adults log in to the site — to share news, personal observations, photos and more — at least once a week. In all, some 900 million people around the world are users. But many of them don't have a very high opinion of Facebook or trust it to keep their information private.

If Facebook the company were a Facebook user, it would have a lot of virtual friends but not many real ones, the poll suggested.

Users' distrust limits the value of the site's ads. Advertisers want to target their messages to the people most likely to respond to them. And the more Facebook knows about us, the better it will be at tailoring those ads to our interests.

Yet in the poll of U.S. adults published Tuesday, only 13 percent said they trust Facebook "completely" or "a lot" when it comes to keeping their personal information private. A majority, or 59 percent, said they trust Facebook "only a little," or "not at all."

Users' desire for privacy and Facebook's need to target advertising aren't necessarily opposing interests. Facebook doesn't expose information about its users directly to advertisers. Instead, it effectively accepts missions to deliver ads to groups of people, like "moviegoers" or "people planning trips to Europe." It's up to Facebook to figure out how to find those people.

But the company doesn't seem to be connecting very well. In the poll, 83 percent of respondents said they "hardly ever" or "never" click on the ads Facebook serves up.

The ones who did click through were enough to yield the company $4.34 per user in advertising last year. That's up from $3.07 in 2009. So the company is getting better at making money from its user base, but it has a long way to go to fill out the market capitalization of nearly $100 billion implied in its IPO pricing.

Google, another online advertising company that walks a similar line between ad targeting and privacy, makes more than $30 per user, per year. People also like it more. In the AP-CNBC poll, 71 percent of respondents had a favorable opinion of Google, compared to 51 percent for Facebook.

"Somehow Facebook still hasn't stumbled upon a model that's proven consistently successful for marketers, or that brings in the massive revenues to match the site's massive user base," Forrester Research analyst Nate Elliott said in a blog post.

The Wall Street Journal reported Tuesday that General Motors Co. plans to stop advertising on Facebook because the company has concluded that the ads are ineffective. The paper cited anonymous sources.

GM spokesman Greg Martin confirmed that the company doesn't plan to continue ads on Facebook, but said it will keep paid content on company pages that promote its products. He would not say why, but the company said it reassesses ads continually to measure how effective they are.

Debra Aho Williamson, an analyst at research firm eMarketer, said Facebook has plenty of opportunities to be a better link between advertisers and users. For instance, it can be more effective when it places an ad in a social context. People are much more likely to click on an ad if a friend has already "liked" it or if it consists of a comment a friend posted on the brand website, she said.

"This all fairly new and experimental. I don't think we've seen the full results of what adding social context means when it comes to the response to advertising," she said.

Advertising made up 82 percent of Facebook's revenue in the latest quarter. The rest came from the purchase of Facebook "credits" for the purchase of virtual goods, like cows in "Farmville" or chips in "Zynga Poker." But like advertising, this is a business that touches only a minority of Facebook users. Last year, 15 million users, or only 2 percent of the total, bought any credits at all.

If Facebook wants to help stores selling something other than virtual bling, it has to overcome skepticism among users first: The poll found that a majority of respondents, or 54 percent, would feel "not too safe" or "not safe at all" buying goods such as clothes or services such as travel from the site. Only 8 percent said they would feel "extremely safe" or "very safe."

The Associated Press-CNBC Poll was conducted May 3-7, 2012, by GfK Roper Public Affairs and Corporate Communications. It involved landline and cell phone interviews with 1,004 adults nationwide and had a margin of sampling error of plus or minus 3.9 percentage points.

___

Online:

http://www.ap-gfkpoll.com

http://facebook.cnbc.com

Take a look at the slideshow (below) to see some of the biggest risks Facebook has outlined in its pre-IPO regulatory filings.
  • Mark Zuckerberg Controlling Too Much

    Perhaps the most eye-popping risk listed in the S-1 is the idea that Mark Zuckerberg's bad decision-making could lead to a decline in company value. Along with "users fleeing" and "decline in advertising revenue," the following was listed as a major risk factor: <strong> <em>Our CEO has control over key decision making as a result of his control of a majority of our voting stock. </em></strong> Zuckerberg owns 58 percent of Facebook stock, which means that he "has the ability to control the outcome of matters" that come before stockholders. Furthermore: <blockquote>As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.</blockquote> Should stockholders fear the man who controls the company they hold stock in?

  • Personal Information Being Leaked

    Facebook knows that it holds a whole lot of its users' personal information and that if that information comes out -- either by hacking or by Facebook itself disclosing too much -- their brand could be harmed and users could flee. "Any incidents involving unauthorized access to or improper use of the information of our users or incidents involving violation of our terms of service or policies, including our Data Use Policy, could damage our reputation and our brand and diminish our competitive position," Facebook says. So even if Facebook doesn't see a moral or ethical reason not to leak your guarded secrets, at least it sees a financial one.

  • Users Fleeing The Site

    According to the filing: <blockquote>If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed.</blockquote> Just ask Rupert Murdoch and MySpace<a href="http://mediadecoder.blogs.nytimes.com/2011/06/29/news-corp-sells-myspace-to-specific-media-for-35-million/" target="_hplink"> what happens to a site's value</a> when all of the users flock elsewhere. One thing that happens: Advertising revenue drops (<a href="http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm#toc287954_2" target="_hplink">as noted in the S-1</a>), and given that 85 percent of Facebook's revenue came from advertising in 2011, a loss of visitors would (obviously) doom Facebook.com. Zuck and co. better hope those rumors of a <a href="http://www.cbsnews.com/8301-505245_162-57367971/teens-migrating-to-twitter-sometimes-for-privacy/?tag=content;siu-container" target="_hplink">mass teenage exodus</a> from Facebook to Twitter are untrue.

  • The Media Saying Bad Things

    From the S-1: <strong><em>Unfavorable media coverage could negatively affect our business.</em></strong> Facebook has seen its share of negative media coverage, especially due to privacy concerns and controversial design overhauls; if the media narrative becomes too overwhelmingly negative, Facebook fears that users may be turned off and may run away.

  • Patent Litigation Costing Too Much

    Facebook is currently being sued over some intellectual property by Yahoo, and the social network says that the cost of going to trial, and potentially losing the case, could hurt them in the long run. "If an unfavorable outcome were to occur in this litigation," the S-1 concludes with some gloom, "the impact could be material to our business, financial condition, or results of operations."

  • Smartphone Owners Ditching Their Laptops

    Facebook doesn't currently display ads on its mobile properties, which means that it is not making much revenue from its iPhone and Android apps. This also means that if there is a wireless revolution that sees members visiting Facebook via smartphone and tablet devices more often than desktop and laptop units, Facebook's ad revenue could decrease significantly. Since Facebook's annual ad revenue has never been lower than 85 percent, the company would find itself with a major cash-flow problem. Or, as Facebook puts it: <blockquote>[I]f users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected. </blockquote>

  • Acquisitions Being Unsuccessful

    Facebook intends to continue to make acquisitions -- such as that one billion dollar acquisition of Instagram from earlier in April -- and the company acknowledges that these acquisitions might not go as smoothly as it would like. "We plan to continue to make acquisitions, which could require significant management attention, disrupt our business, result in dilution to our stockholders, and adversely affect our financial results," the amended S-1 states. Why's that? <blockquote>Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired products, technology, or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges.</blockquote> Whether or not Instagram was "successfully evaluated," or Facebook is able to "utilitze" the currently revenue-less photo-sharing network to make money, will, to some extent, determine Facebook's future success.

  • Google+ Breathing Down Facebook's Neck

    "Our business is highly competitive," reads the S-1. "Competition presents an ongoing threat to the success of our business." Having successfully toppled MySpace and Friendster, Facebook knows what kind of a threat upstarts represent. And Facebook goes so far as to list, by name, the social networks it's watching: <blockquote>We compete broadly with Google's social networking offerings, including Google+, and also with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia.</blockquote> You might be snickering at the idea that Google+ is legitimate competition for Facebook, but Facebook doesn't seem to be laughing or <a href="http://www.slate.com/articles/technology/technology/2011/11/google_had_a_chance_to_compete_with_facebook_not_anymore_.html" target="_hplink">buying into the eulogies</a> for G+ that have already been written. Having <a href="https://plus.google.com/u/0/117388252776312694644/posts/9zr9iwmN4XL" target="_hplink">just passed 100 million users</a> (according to unofficial stats), perhaps Google+ really is a threat.

  • The Government Regulating Too Much

    Perhaps written by Facebook's Tea Party contingent, Facebook sees government over-regulation as a threat to its growth and success. Facebook lists Iran, Syria and North Korea as examples of countries where government has already stifled its business: <blockquote>It is possible that governments of one or more countries may seek to censor content available on Facebook in their country, restrict access to Facebook from their country entirely, or impose other restrictions that may affect the accessibility of Facebook in their country for an extended period of time or indefinitely.</blockquote> Facebook also pointed out elsewhere that "complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters" cost money to adhere and adapt to.

  • Design Changing Too Much

    Did you hate the new Facebook? How about the new new Facebook? The Ticker? The Newsfeed? The Timeline profile? Well, all of those changes over time -- and, yeah, they come often and they come in big ambitious chunks -- could also repel users, according to Facebook's filing: <blockquote>If new or enhanced products fail to engage users, developers, or advertisers, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected.</blockquote> (Mark Zuckerberg is currently listening to "Everything's Gonna Be Alright" on Spotify.)

  • Getting New Financing Too Difficult

    Facebook "cannot be certain that additional financing will be available on reasonable terms when required, or at all," which is obviously worrisome for a young company that often depends on outside financing. As long as Facebook is growing at such a robust rate, financing should be easy to come by; if it hits a rough patch, however, those investors and banks could disappear along with users.

  • Zynga Meaning Too Much

    Facebook makes 85 percent of its revenue through advertising. 12 percent of this revenue comes through Zynga, makers of Farmville, Cityville, Castleville, and a number of other incredibly successful Facebook platform-based games that both do and do not end in "-ville." Should Zynga's popularity falter -- or should the relationship between Facebook and Zynga sour -- Facebook could take a huge financial hit. Facebook's full reckoning as to what Zynga means to their success: <blockquote> In 2011 and the first quarter of 2012, Zynga directly accounted for approximately 12% and 11%, respectively, of our revenue, which was comprised of revenue derived from Payments processing fees related to Zynga's sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga's apps generate pages on which we display ads from other advertisers; for 2011 and the first quarter of 2012, we estimate that an additional approximately 7% and 4%, respectively, of our revenue was generated from the display of these ads. Zynga has recently launched games on its own website and on non-Facebook platforms, and Zynga may choose to try to migrate users from existing Facebook-integrated games to other websites or platforms. We may fail to maintain good relations with Zynga or Zynga may decide to reduce or cease its investments in games on the Facebook Platform. If the use of Zynga games on our Platform declines for these or other reasons, our financial results may be adversely affected. </blockquote>

  • China Being Too Closed

    China represents a gigantic user base that Facebook has yet to penetrate. It clearly views the huge Asian nation as the next frontier, though it remains unclear whether it'll be allowed to enter the market, and if it is, whether it will be able to unseat current Chinese social networking incumbents Renren, Sina and Tencent. From the S-1: <blockquote>We may enter new international markets where we have limited or no experience in marketing, selling, and deploying our products. For example, we continue to evaluate entering China. However, this market has substantial legal and regulatory complexities that have prevented our entry into China to date. If we fail to deploy or manage our operations in international markets successfully, our business may suffer.</blockquote> And later: <blockquote>China is a large potential market for Facebook, but users are generally restricted from accessing Facebook from China. We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government. </blockquote>

From our partners

technology@huffingtonpost.com -->
NEW YORK (AP) — Facebook's reach is wide but not deep. Few users surveyed in an Associated Press-CNBC poll say they click on the site's ads or buy the virtual goods that make money for it. ...
NEW YORK (AP) — Facebook's reach is wide but not deep. Few users surveyed in an Associated Press-CNBC poll say they click on the site's ads or buy the virtual goods that make money for it. ...
Filed by Catharine Smith  | 
 
 
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2 hours ago (11:15 AM)
First of all I have gotten used to reading "Newspaper" through the internet and give my opinion and throw away. Facebook is the new Generation of Communizum. I knew that they were going to bring up the Timeline;; but was not aware that they were not going to give you an option. As much as you want to delete it; they won't let you. I closed my account out and started Posting threw twitter or WordPress. I am a Commentor where need be. I was able to comment on Advocate Magazine at no charge. Now that I am not a member of Facebook, they are wanting to charge me to comment on it.
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Raglimidechi
standing on fishes
02:39 PM on 05/17/2012
What Facebook boils down to a shopper's newspaper, like the ones that are thrown into your driveway each week. What they have in common is that they're both free. But the free newspaper doesn't subject you to a full body scan if you look through it. And the newspaper can't haunt you after you toss it.
10:21 AM on 05/17/2012
I dont disagree with the article. I think people do and should have a healthly level of distrust in regards to companies who store and use their personal information for their own means. With that said, who really cares what GM does or says? The head of GM recently stated that global warming / climate change is a lie!
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HUFFPOST SUPER USER
brflux
Liberal, Progressive.
05:49 PM on 05/16/2012
I never have. I don't click ads on facbook, twitter, huffpost, yahoo, or anywhere on the internet.
I don't play Farmville or any games on FB. I block friends game request.
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HUFFPOST SUPER USER
Boissiere Parker
This isn't a term paper so stop correcting me!
04:25 PM on 05/16/2012
Facebook lost me awhile ago. Too corporate, less edgy, too invasive, enough said.
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02:07 PM on 05/16/2012
Tis why I quit and will not go back. Dropped them like a hot potato. This is as social as I get.
01:54 PM on 05/16/2012
"But many of them don't have a very high opinion of Facebook or trust it to keep their information private."

Very good!
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trumbull desi
If I have something pithy to say, see below
12:15 PM on 05/16/2012
I haven't seen a Facebook ad in ages (thanks AdBlock Plus!). However, before I installed that I would get targeted ads for items I had JUST purchased. So stupid. Do you think I'm really going to purchase a second coffee maker five minutes I just bought one? Ridiculous.
HUFFPOST SUPER USER
Jim NLN
Obama 2012 and beyond!
10:42 AM on 05/16/2012
What is this Facebook of which you speak?
10:22 AM on 05/16/2012
Advertising has no credibility and is almost completely ineffective at building a brand (there are very few exceptions, Altoids being the best example). Market analysts have known this for a long time, and it's no coincidence that ad agencies almost never advertise.

What they do is public relations, which is basically advertising in the third-person through the voice of a journalist or celebrity who is more likely to evade the perception of bias. PR has credibility, at least to the extent that consumers can choose which mouthpieces to trust.

The irony is that Facebook is not a very good advertising platform, but it may be the best public relations platform ever conceived. However it's difficult to make a boatload of money in PR. The biggest PR firms drive about 1% the revenue of the major ad agencies.

The massive potential of Facebook as a PR platform is that messages can quickly propagate across the social graph to large audiences as if by word of mouth.

What GM is saying is that they're not going to use Facebook as a paid advertising platform. They're going to use it as a PR platform, strategically posting unpaid messages designed to encourage Facebook users to like them and share them with their friends.

Most Facebook users are already familiar with these sorts of schemes, where they have to like a message or friend an account in order to get some coupon or enter some lottery. These PR tactics are increasing in sophistication and taking on characteristics of pyramid schemes.

The problem for Facebook is that these PR-oriented marketing strategies are way more effective than paid advertising, and the beneficiaries don't pay Facebook a cent!
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10:00 AM on 05/16/2012
Clicking on them? I don't even see them. AdBlock Plus. Install it.
10:00 AM on 05/16/2012
Of course no one is clicking them. It has to do with the subconscious phycological mindset of the audience of FaceBook. For example people go to FB to gossip NOT buy, therefore they are already mentally in "gossip/voyeur mode" per say, NOT purchase mode like they would be when they are say on Amazon or eBay. Also as a recent FB defector myself I can tell you with great certainty that a lot of people are leaving FB due to the fact they their continued disregard for user's privacy (as well as the launch of the awful timeline) has created resentment and distrust. FaceBook without your data is nothing, therefore they make it impossible for you to remove that data. Just try to delete any of the private messages you have with anyone, you CAN'T! How about deleting your account? It's darn nearly impossible! People are getting exhausted by looking at the same low quality recycled cough cough content: pictures of pets, oh so inspiring quotes, and let's not forget of people's breakfast, lunch and dinner. While it may be a tempting escape from reality for a while, it is just a matter of time before people lose interest and start seeking the next new fad.
09:53 AM on 05/16/2012
I consider FB ads spam and FB and its advertisers liars. I don't care who likes what. I resent FB and its advertisers telling my friends they should buy something just because I looked at something.
09:17 AM on 05/16/2012
Facebook has ads?
HUFFPOST SUPER USER
MTY INDACHI
08:35 AM on 05/16/2012
ads are meant for the average mindless dolt....and it just so happens that perfectly describes the average US consumer.