Facebook and cost of Advertising

AdNews asked a bunch of people this question: ( 21 September)

Is Facebook Overhyped?
Facebook has been described as the media sensation of 2007 and Rupert Murdoch laments its growing numbers against his own earlier social networking paradise, MySpace. Some believe advertisers should drop everything and get involved, but it is Facebook just another trendy site that will give way to the next big thing? Should Advertisers exercise caution?

…including Ben Taylor from Naked Communications, Iain MacDonald from Amnesia, Andrew Millar, BlackSheep, and David King, NetX for a response: This was Amanda Wise’s (Tequila) answer about the New Line Noise group:

  • Tequila has built and maintains a Facebook Sponsored Group for New Line Cinema. Here.
  • Launched Sep 1 now has 8,500 members. (actually 8,397 this morning – LP)
  • Sponsored Group costs are US$100,000 a month
  • Banner ads aren’t effective because Facebookers are immersed in profile content.
  • PR companies are setting up event based groups (free) but Facebook will blacklist you if you set up a brand driven group, or launch a brand app without authorisation
  • Build interesting group content and they will come, but you will need significant budget and maintenance commitment.

I’ve shortened it because I had to retype everything – AdNews doesn’t place this stuff up until a month or two have passed. We might, you know, link to them and give them free advertising. 🙂

Is 11 bucks per member a high cost of acquisition? What does it mean when I compare this case study with$238 my profile is worth to Microsoft and their 5% ( The Guardian ):

Is my Facebook profile really worth $238 to Microsoft?

Only if it were worth $237 (£117) – or even $237.99 – to Google. The Redmond giant was this week in talks to acquire part of the social networking site, which Nielsen/NetRatings said on Tuesday is the most popular in the UK, with 6.5 million users (up sixfold since December), ahead of MySpace with 6.3 million (up 20%) and Bebo (4.5 million, up 64%).What Microsoft is after is a slice of the hottest site online, and it is prepared to pay somewhere between $300m and $500m (£125m to £250m) for a 5% stake.

That would value the site as a whole at between $6bn and $10bn – and the site says it has 42m users worldwide. The upper valuation values each of them at a tidy $238.09 each. Slightly less, now that another dozen have joined while you read this sentence.

The question is: where exactly does that value reside? Facebook is profitable, expecting to turn a profit of $30m on revenues of $150m. But those numbers hardly put it among the leviathans of online commerce. That profit works out to 71 cents per user (slightly less now … ); to realise that $238 figure, either everyone will have to go on using Facebook for the next 335 years, or the site will have to dramatically increase the profit it makes per user. Charlene Li, an analyst with Forrester, thinks the numbers could add up: “Ad spending is roughly $2,500 per adult in the US. $250-$333 represents between 6% and 10% of ad spend. If people spend as much time as they potentially could within Facebook, those numbers are feasible.” But that does assume that ad spending holds up and that people don’t tire of Facebook in the meantime. (more)

What does it all mean? hey, don’t look at me! It’s only 8am and I’m heading out for coffee… if I think up something brilliant I’ll edit here. Otherwise figure it out amongst yourselves. 🙂 Hint: 93% Facebook users log in once a month. 62% log in daily. Another hint from Marky Mark himself:

Facebook.com's mastermind Mark Zuckerberg

Zuckerberg: Advertising works most effectively when it’s in line with what people are already trying to do. And people are trying to communicate in a certain way on Facebook — they share information with their friends, they learn about what their friends are doing —so there’s really a whole new opportunity for a new type of advertising model within that. And I think we’ll see more in the next couple months or years on that.

Anyway, I’m off to Cafe Il Fagiano – anyone want a latte?

Laurel Papworth

Named by Forbes™ Magazine in the Top 50 Social Media Influencers globally, named Head of Industry, Social Media (Marketing Magazine™) and in the Power150 Media bloggers (AdAge™). CERT IV Training and Assessment certified trainer (Diplomas and Certificates etc) Adult Education. Laurel has manager Facebook Pages for Junior Masterchef, Idol, Big Brother etc. and have consulted on private online communities for banks Westpac, not for profits UNHCR & governments in SE Asia. Lecturer, social media, University of Sydney for 10 years and Laurel has 11,000 online students. Laurel Papworth personally connects to 6 million followers online and has taught around 100,000 people in the last 10 years how to be social media managers.

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