Facebook:
Putting Social Marketing to Work
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hen Facebook issued its stock for
sale in an initial public offering
in 2012, it followed a very long
build-up of excitement based on the belief that the
company would turn into a marketing behemoth
to rival or exceed Google, Yahoo, and Amazon.
Facebook was, according to some analysts, the
next Google in terms of an advertising platform
and possibly even an e-commerce platform that
could compete with Amazon. Facebook raised $16
billion in the IPO, placing it in the "Big League" of
e-commerce stock offerings. Offered at $38 a share,
Facebook's share price fell dramatically in subse-
quent months to a low of $17.50 in September 2012
on investor fears that Facebook would be unable
to increase its advertising revenues fast enough to
justify its price. Flash forward to October 2016:
Facebook's shares have quadrupled their original offering price, having risen steadily
for most of the last three years. Facebook has continually implemented new ways to put
targeted ads in front of its increasingly mobile users. It appears to be succeeding, at least
for now.
Although Facebook initially flubbed its shift to mobile devices, the social network
giant has made steady progress toward an effective mobile strategy. Throughout 2012,
Facebook redesigned its Facebook app specifically for smartphones, introducing ads into
users' News Feeds, and creating a new kind of ad called "app-install ads," which are ads
paid for by Facebook app developers that encourage users to download their apps (usually
for free). App-install ads and in-app ads became Facebook's secret weapon that investors
had not even heard about. Facebook was aided by a shift away from mobile browsers to
apps. The time U.S. adults spend using mobile apps has grown over 110% over the past
three years, and now accounts for 58% of total digital media time spent; time spent on
the desktop now accounts for just 33%, and mobile browsers just 9%. U.S. adults are
spending over 96 hours a month (about 31/4 hours a day) within apps on their smartphones
and tablet computers.
Advertisers display ads within these apps, and Facebook shares the ad fees with
the app developers. App-install ads, and ads within apps, are the largest single source
of Facebook mobile ads. There are an estimated 10 million apps available on Facebook,
and users install nearly 30 million apps every day. These apps range from games like
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Candy Crush Saga, FarmVille, and Words With Friends, to music apps like Spotify and
Pandora, to charity-oriented apps like Social Vibe and Charity Trivia. In-app ads have
an advantage over standard News Feed ads: they are not perceived to be as disruptive or
annoying as News Feed ads, and users are more willing to experience the inconvenience
of being exposed to ads in return for a free game.
In 2016, Facebook has almost 1.6 billion mobile monthly active users, represent-
ing over 90% of its monthly active users. Mobile now comprises over 80% of its total
advertising revenues, up from 50% in recent years, and from nearly zero just a few years
ago. Another factor in Facebook's turnaround in social mobile marketing is its success
with small local businesses. Facebook has more than 3 million businesses advertising on
its platform in 2016, the majority of which are small businesses, and over 60 million small
businesses have Facebook pages.
Facebook has made a number of changes to its advertising toolkit in order to simplify
the process of placing and targeting ads on its site for small business owners without
professional marketing staffs. Its interface now allows advertisers to specify their objec-
tives, such as increasing likes, or increasing traffic to their website, or converting more
visitors to sales. They can also choose where to place the ads, either in the Facebook News
Feed or the right side column. Advertisers can target demographics, as well as general
characteristics that Facebook users indicate in their profile, such as age, gender, education,
and employment. Facebook has also added a tracking pixel, which allows advertisers to
track customers who visit their website as a result of clicking a Facebook ad.
One such business using Facebook's new advertising tools is Little Passports, a firm
created by two moms who wanted to design an inspiring and fun way for kids to learn
about the United States and other countries. Little Passports is aimed at parents of
young children ages 5-12, with newer options available for even younger children. Its
business model is a subscription service that sends children monthly packages that take
kids on virtual trips where they learn geography, history, and social life. Subscriptions
are $11.95 a month.
In 2014, Little Passports began a Facebook advertising campaign. The company ran
ads featuring a photo of its Explorer Kit. Surrounding text urged people to subscribe to
the service. Co-founder Amy Norman was able to choose who would see the ads based
on gender, interests, location, relationship status, education, whether the person was
expecting a child, and the type of mobile device used to access the ads (iOS vs Android).
She also used a feature called Custom Audience to reach out to mothers who had a
college background and read selected parenting magazines. Another tool that proved
useful was Facebook's LookAlike Audiences. LookAlike Audiences uses customer e-mail
addresses provided by advertisers, looks at the demographic and behavioral trends in that
group, and then generates a list of additional prospects based on its database of North
American Facebook users (about 260 million people). Facebook pushes the ad to these
"look-alikes." If this sounds spooky, it is. But Facebook assures us that all the personal
names are replaced with codes.
In just a few months, Little Passport's ads attracted over 1,500 user comments,
which were overwhelmingly positive. In June 2014, the company spent about $30,000 on
Facebook ads and its revenue for the month was about $130,000. After running the ad
for six months, in December Little Passports spent $150,000 on Facebook advertising
and its revenue rose to $700,000. Facebook advertising costs increased five-fold, and
revenue advanced by 5.4 times, a little faster than the cost. Norman believes the Facebook
campaign was worth the expenditure because it tripled Little Passport's customer base in
six months. Norman also felt that Facebook's tracking pixel was a game changer because
she could see exactly how well the ads were performing. In 2015, Little Passports sold
its millionth subscription package.
In 2016, Facebook unveiled new tools for small businesses, including the ability to
use LookAlike Audiences internationally to find promising markets. Little Passports used
this feature to find international markets where it expected to generate enough sales to
be viable, including France, Singapore, Sweden, and many other locations. The company is
now on pace to reach $30 million in revenue in the near future, with 15% of sales coming
from outside of the United States.
Investors in Facebook used to wonder if it would be able to continue to grow its ad-
vertising revenue. Marketers wondered if Facebook ads really worked. By 2016, Facebook
had quieted those doubts. Facebook's marketing success on both the desktop and mobile
devices is currently based on the insertion of ads in users' News Feeds and display ads in
the right column of the home page. Currently an estimated 3% to 5% of all News Feed
items are ads. If Facebook increases that percentage, how will users react? Zuckerberg,
along with investors and marketers, was concerned that putting more ads in the News
Feed was not the answer to sustaining future growth. One answer: video advertising using
short video clips, and of course, challenging Google's YouTube as a display platform for
full-length videos and TV shows. In 2014, Facebook introduced an Autoplay feature, which
allows videos to play automatically in the News Feed. Facebook has also reached out to
some of Google's video content producers and encouraged them to consider distributing
their videos on Facebook. Facebook's purchases of Instagram for $1 billion in 2012 and
WhatsApp for $22 billion in 2014 are also signs that Facebook is striving to become not
just a social network, but an entire ecosystem.
Facebook's financial results in recent years have quieted Wall Street's doubts that
it could become an advertising juggernaut. Facebook's 2015 revenue was $18 billion, up
significantly from $12.5 billion in 2014. In the second quarter of 2016, Facebook earned
over $6.4 billion in revenue, with mobile ad revenue accounting for a whopping 84% of
that figure. Very few marketers still have doubts about Facebook's effectiveness.
8, 2016; "The 2016 U.S. Mobile
App Report," by comScore,
September 2016; Facebook, Inc.
Report on Form 10-Q for the six
months ended June 30, 2016, filed
with the Securities and Exchange
Commission, 28, 2016; "One
Million and Counting! Little
Passports to Deliver its Millionth
Package This Spring," Marketwired.
com, April 16, 2015; "A Year Later,
$19 Billion for WhatsApp Doesn't
Sound so Crazy," by Josh Constine,
Techcrunch.com, February 19,
2015; "How Social Media Can
Make Your Small Business Go
Gangbusters," by Bruce Freeman,
Theweek.com, February 16, 2015;
"Facebook Extends Reach with
New Advertising Platform," Jack
Marshall, Wall Street Journal,
September 22, 2014; "Facebook
Tries to Muscle in on YouTube," by
Mike Shields and Reed Albergotti,
Wall Street Journal, September 11,
2014; "Facebook Is Shifting From
Being a Social Network to a Mere
App Platform," by Ben Austin, The
Guardian, September 2014; "How
Facebook Sold You Krill Oil," by
Vindu Goel, New York Times,
August 2, 2014; "Facebook
Answers Critics with a Mobile Ad
Surge," by Reed Albergotti, Wall
Street Journal, July 23, 2014; "A
Social Media Marketer Assesses
Facebook's Advertising Platform,"
by Eilene Zimmerman, New York
Times, January 15, 2014; "Face-
book Revamps Ads to Compete
With Google," by Eilene
Zimmerman, New York Times,
January 15, 2014; "Why Face-
book's Mobile Ads Are Working
Better Than Google's," Timothy
Senovec, Huffington Post.com, July
25, 2013; "Facebook Is Erasing
Doubts on Mobile," by Vindu Goel,
New York Times, July 24, 2013.
SOURCES: "Company Info,"
Newsroom.fb.com, accessed
October 24, 2016; "How We Built
a Global Business with Facebook,"
by Amy Norman, Forbes.com,
September 30, 2016; "Facebook
Wants to Help Businesses Expand
Internationally," by Hayley
Tsukayama, Washington Post,
September 8, 2016; "Small
Businesses Get a Boost Through
New Facebook Marketing Tools,"
by Zoe Henry, Inc.com, September
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