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Facebook touts study showing advertising on site is effective

The social network is trying to combat doubts about its revenue prospects.

June 13, 2012|By Jessica Guynn, Los Angeles Times
  • Facebook is touting research that shows advertising on its site is effective.
Facebook is touting research that shows advertising on its site is effective. (Karen Bleier / AFP/Getty…)

SAN FRANCISCO — Facebook Inc., looking to boost its status on Wall Street after its botched initial public offering, is rolling out a public relations campaign to combat doubts about its revenue prospects.

The social network is touting new research that it says busts the myth that advertising on the site doesn't work, part of a new effort to silence naysayers and convince marketers that they are getting their money's worth.

"Facebook is trying to do a better job of telling its story," said David Berkowitz, vice president of emerging media at digital marketing agency 360i. "This is definitely going to be one of the more widely read studies to come out."

The effort didn't make much of an initial impression on Wall Street. Facebook shares inched up 40 cents, or 1.5%, to $27.40 on Tuesday.

Since filing for its IPO in February, Facebook has been restricted by securities laws in what it can say publicly. The so-called quiet period ended Tuesday and Facebook took full advantage to promote its advertising business, which has taken hits in the media since General Motors Co., the third-largest U.S. advertiser, said it was pulling its Facebook ads.

The automaker made the announcement just days before the IPO, sparking a debate about the effectiveness of paid ads on Facebook and contributing to the company's disappointing debut, analysts said.

Facebook, which made nearly all of its $3.7 billion in revenue last year from advertising, is under rising pressure to show it can pump up revenue to levels that justify its stock market value of about $58 billion.

Facebook shares, which launched at $38, have plunged nearly 30% since the IPO as Wall Street investors question whether Facebook can get advertisers to spend bigger chunks of their advertising budgets. Facebook alarmed Wall Street in April when the firm said its first-quarter ad revenue fell from the previous quarter.

"I think it's incumbent on the company to show investors that it took their money with the intention of growing it and turning it into something worth more," Wedbush Securities analyst Michael Pachter said.

Marketers flock to the wildly popular site to get their brands in front of Facebook's nearly 1 billion users. They build fan pages and get Facebook users to "like" them, but have been more wary about buying ads.

They say it's harder to gauge on Facebook whether users make purchases after seeing ads than it is on other sites such as Google and Yahoo. Most are still experimenting with how best to reach Facebook users and have told the firm that it has to do a better job of showing them that Facebook increases sales.

Facebook tried to supply some evidence Tuesday by releasing new research it says shows that marketing and advertising on the site does get Facebook users and their friends to open their wallets online and in stores. ComScore Inc. found "statistically significant positive lifts in purchase activity," said Andrew Lipsman, an analyst at the research firm.

For example, four weeks after seeing a Starbucks ad on Facebook, people who were fans of the brand, and those who were friends of those fans, increased the frequency of their purchases 38%, while Target fans and their friends increased the frequency of their purchases 21%, according to the joint study with ComScore.

Not all brands had such impressive results. Fans of Amazon.com's Facebook page spent twice as much as the average Internet user on the site, but their friends spent only about 8% more, ComScore found.

Some people questioned the study since it was put together with Facebook's help and Facebook is a ComScore client. It was released on the heels of another report from ComScore that found that the number of unique visitors to Facebook's website is growing at a slower pace.

Facebook also promoted its own internal research of more than 60 ad campaigns on its site. Facebook said 70% of campaigns showed a return of $3 for every $1 spent on Facebook ads and nearly half of campaigns showed a return of $5 for every $1 spent.

"Facebook is moving product off shelves," said Brad Smallwood, the firm's head of measurement and insights. "We have demonstrated the return on investment. Now the next step is to make campaigns better."

Analysts say the research is a good start but doesn't make a strong enough case to get brands to buy ads on Facebook. Most of the ComScore research dealt with messages that Facebook users share with one another, not messages that brands pay for. General Motors, for instance, still spends millions promoting its brand on Facebook, it just isn't buying Facebook ads.

"Until Facebook puts out more of that type of research, there are still going to be questions about the effectiveness of spending money on advertising on Facebook," EMarketer analyst Debra Williamson said.

jessica.guynn@latimes.com

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