Facebook advertising failing to click with users, according to new study

By Graeme Burton
16 May 2012 View Comments
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A new study examining the effectiveness of advertising on Facebook has indicated that it is up to eight times less effective than more conventional web advertising via Google.

Facebook will debut on the Nasdaq stock exchange in New York this Friday in one of the biggest-ever initial public offerings (IPOs), expected to value it at as much as $104bn (£65.2bn).

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Some financial experts have cast doubt on the true value of the company, given its less-than-stratospheric revenue.

Bob Rice, managing partner at Tangent Capital Partners LLC, said recently on on Bloomberg Television:

"It's very hard for me to get my arms around [Facebook's] valuation, [given that it made] a couple of hundred million dollars of profit in the quarter.

"When you look at what Facebook can charge for an online ad, it's about half of the industry average, so you have to wonder where any revenue growth is going to come from."

Search marketing company WordStream claims that the click-through rate of an advert on Facebook is a paltry 0.05 per cent, compared to 0.4 per cent for an advert on the Google display network.

The Facebook click-through rate is about half the industry average for online banner advertising, according to WordStream, while Facebook's charges per thousand impressions have been rising, pre-IPO. In the late-1990s, the click-through rate of web advertising had been as high as five per cent.

The Google display network positions display-contextual advertising on Google sites, including YouTube, Gmail and Blogger, as well as more than two million third-party websites across the internet. However, the advertising formats available on Facebook are more limited than Google's, and Facebook is not yet able to offer mobile advertising.

"So far, Facebook's advertising platform hasn't kept pace with the explosive growth of its social network, and it remains to be seen if CEO Mark Zuckerberg even wants to focus on advertising as a source of revenue. In his 2,500-plus word letter to shareholders this month, he mentioned advertising just once," said Larry Kim, founder and chief technology officer of WordStream.

The research coincides with the news that US car giant General Motors is pulling its $10m (£6.3m) advertising spending on Facebook because it feels that its advertising on the site has under-performed.

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