Facebook Ain't the Online Ad Market
By Ken Magill
In an exercise in pure bullshittery, the always provocative media columnist Michael Wolff published a piece in MIT’s Technology Review last week claiming Facebook is going to collapse and take the rest of the ad-supported Internet with it.
“At the heart of the Internet business is one of the great business fallacies of our time: that the Web, with all its targeting abilities, can be a more efficient, and hence more profitable, advertising medium than traditional media,” wrote Wolff. “Facebook, with its 900 million users, valuation of around $100 billion, and the bulk of its business in traditional display advertising, is now at the heart of the heart of the fallacy.”
From an ad perspective, Facebook is at the center of nothing.
Yes, Facebook may implode. And yes, the ad-supported Internet may implode. But the two events would be tenuously related at best.
Why? Because far from being a barometer of the health of online advertising, Facebook is an aberrant market condition that will live or die on its own.
Moreover, I happen to share a bed with living, breathing proof that targeted online advertising works: my wife, the media buyer.
Last year alone, she made $18 million for one client on a $500,000 ad spend targeting parents of children ages 2 to 6 on ad networks and demand side platforms.
[Demand side platforms are network-agnostic ad exchanges where buyers bid on inventory that meets their targeting criteria.]
My wife also buys space on specific, branded online properties when they make sense.
But there is one place on which she says she will never place a client’s ads: Facebook.
“I would never buy Facebook because I can’t track it,” she said.
One reason for the avoidance, she said, is that Facebook doesn’t allow its advertisers to use one of the independent ad-tracking platforms, such as DART.
“They created their own Dart-like object, but it’s suspicious because it’s theirs,” she said. “It’s not independent. I have no idea how it compares to other third-party ad systems. Dart is transparent because everybody uses it. The fact that they [Facebook] won’t let anyone use a third-party ad server means they don’t want to be accountable.”
What’s more, she said, Facebook’s customer service stinks.
“It reminds me of when I worked for Viacom and there was everybody and there was MTV,” she said. “Everybody would play nice in the sandbox except MTV. ‘We don’t have to do anything the way anybody else does because we’re MTV.’ Well, Facebook is the online equivalent of MTV. You can’t even talk to a human there unless you spend $25,000. Below $25,000 you’re on your own with a credit card.”
On the other hand, she plays Words with Friends with one of her network reps.
No accountability and crappy customer service is not the business model that will determine the future of online advertising.
Meanwhile, from the utterly clueless corner comes a blog post on SF Weekly by a writer named Dan Mitchell also claiming that Facebook will fail and that online targeted advertising doesn’t work.
“Basically, targeted ads address a problem that doesn't exist,” Mitchell wrote. “People who know what they want will seek it out. While targeted ads might work at the margins in some circumstances (you're a fan of Los Lobos, so an ad for an ad for an upcoming Los Lobos concert in your area is actually helpful), they don't work in general because ads are supposed to either strengthen brands, or else tell you about something you didn't know you wanted.”
The ignorance in that statement is breathtaking. Targeted ads can--and do--tell people about things they didn’t know they wanted but are likely to want based on their tastes, preferences and behavior.
Last October, the Direct Marketing Association projected Internet marketing would drive $651.8 billion in sales and direct mail would drive $642.4 billion in sales this year.
Message to Mitchell: Targeted advertising saved the Internet. And even before the Internet, the very foundation of direct marketing was targeted advertising. It has worked for decades.
For example, if I know you just moved—one of life’s larger marketing opportunities right up there with pregnancy—I can approach you with all kinds of offers based on your likely new needs. Yes, you already know you need all this new stuff, but I can help you find it faster and maybe cheaper.
More subtly, if I know you drive a Subaru, I can make reasonably accurate inferences about your tastes—probably concerned about the environment and drinks wine, for example.