What Does the Future Hold for Facebook Advertising?

The much-anticipated Facebook initial public offering has occurred, with disappointing results. Thanks to some technical glitches on the first day, and allegations that some negative information may have been withheld from small investors, the future of Facebook is not quite as glittery as it was a few weeks ago.

The decision by General Motors to cancel their advertising campaign a few days prior to the IPO probably didn’t help Facebook’s launch. GM, the third largest advertiser in the United States, recently discontinued their $10 million Facebook campaign. Company representatives claim the decision to cease the campaign was part of a routine evaluation of ad expenditures.

The move by GM may inspire other corporate advertisers to reconsider whether their Facebook ads are worth the cost. An exodus of advertisers could be disastrous for Facebook, since 80% of their $3.7 billion in revenue comes from ad sales.

At present, there is no internal system in place to determine the effectiveness of Facebook advertising. While ads may keep a company’s name in front of the public, there is no simple way to determine if those views translate into revenue. The limited research that has been done does not show Facebook in a positive light. The study by WordStream comparing Facebook and Google click rates found Google’s ads were clicked eight times more frequently than Facebook’s.

Facebook currently does not offer the ability to target ads to specific demographic groups. Ads are also not customizable. This is another factor that may not only limit their usefulness, but also be a turn-off for potential advertisers. The lack of analytic tools to determine sales created by Facebook ads is another potential impediment to growth in the use of ads.

What’s next for Facebook?

The use of paid advertising on Facebook is in its early stages, so it may be too soon to discredit its effectiveness. Future development of interactive tools could rejuvenate interest in the use of the site for marketing. The creation of interactive “Like” buttons is one possibility. By linking “Liking” a product with a live representative, an immediate sales opportunity could be generated.

Development of a mechanism to allow the purchase of merchandise directly from advertisers’ pages and advertisements would also create an opportunity for more sales. Direct sales would also provide accountability for marketing dollars. There would be a clear direct link between ads and revenue.

Sample marketing is another potential growth area for Facebook advertising. Creating opportunities to link the “Liking” process with products could become the next marketing trend. A potential customer could buy Facebook likes and in exchange receive promotional materials or samples of the advertiser’s products. Even the sale of products themselves could be directly linked with the “Like” process.

Facebook remains an exceptionally popular website. There is little doubt that corporations can reach out to and engage with millions of potential customers there. Even GM intends to maintain its presence on the site. The company currently spends about $30 million per year on maintenance of its page. Part of that budget is also used to develop applications to enhance their interaction with fans.

Certainly no one is writing off Facebook yet, in spite of a disappointing IPO and GM’s withdrawal. As Facebook develops more effective advertising tools and methods to directly link ads with sales, it is likely that ad revenue will grow. Targeted ads and increased interactivity with ads are just two areas of opportunity for the developers at Facebook. Perhaps GM’s move will be the wake-up call that Facebook’s marketing team needs.