Advertising on Social Media: A Better Alternative?
We learned in class and in Chapter 15 about how keyword-based advertising works online. Google uses this type of advertising and charges based on number views and the clicked-on rate. This creates a market-based advertising, Google uses a generalized 2nd price auction. If we recall from Chapter 9, in a 2nd price auction, the dominant strategy is to bid your true value. If Google knew all the values that advertisers held for ad slots, they could uses market clearing prices as a baseline. However, since they generally do not, they use the 2nd price auction. While Google seems like the best option for specific advertisers looking to reach a certain audience, Facebook is an excellent alternative to reach and even larger, specific market. In class, we had the Director of News Feed Infrastructure, explain how certain items get shown on a user’s News Feed. Another key component on the news feed are the ads.
The key difference between Google ads vs. Facebook ads is the targeting system. While Google is based on advertising with “trigger words”, Facebook uses “Likes” and interests. Facebook uses and “estimated reach” to organize ad spots that are bid one, for a more accurate ad experience. This “reach” is based off of a user’s profile information and what they “Like” on Facebook. For example, an advertiser can specify their intended reach based on location, age, gender, relationship status, and “Like” topics. The estimated reach is based off of these parameters and gives a number of people the ad is expected to reach. Facebook ads can either charge by Pay for Impressions (CPM) or by Pay for Clicks (CPC). CPM is the price per 1000 times the ad is shown to a user, regardless of the number clicks. The CPM is the cost per the amount of times a user actually clicks on an ad, just like Google’s system. You can also optimize further by having multiple ads available for the same product. Facebook will use ad rotation, and pick the best performing ad to display. This auction works in a similar way as Google’s. Facebook takes into account both the ad’s success and the maximum bid. All ads compete against one another, and just like a 2nd price auction, Facebook encourages you to bid your true value and will suggest bids to help you “win”.
Facebook ads can be arguably a better option than Google ads for certain companies, although it is interesting to note what happens when the main parameter for the ads is disrupted. Beyond profile information, the ads are also based off of a person’s “Likes”. So what happens when a user no longer likes just their interests? What happens when they like everything? That is what this blogger from Wired.com did, with interesting results.
http://www.wired.com/2014/08/i-liked-everything-i-saw-on-facebook-for-two-days-heres-what-it-did-to-me/
This blogger found that their News Feed quickly turned into only ads and articles within a matter of time. Effectively, he was adding himself to more and more “estimated reaches” of ads. He became more applicable to ads, and was thus shown more. Experiments like this forewarn users about adding too many of their interests to Facebook, why bother if the end result is crowding the News Feed with ads instead of people?
For more info on Facebook advertising:
http://www.socialadstool.com/facebook-ads-guide/