What's Really Behind the Facebook Disappointment

At market's close today, Facebook's stock price stood at $30.97, significantly below the IPO price of $38. Talk continues to swirl around pending or potential shareholder lawsuits and even if the Facebook brass did not reveal to the general public what it did to private investors, trading at 100 times earnings should have had everybody's eyes wide open, or at least anyone old enough to remember the last dot com bubble.

What's really underlying the disappointment in Facebook I think, is a growing disillusionment with Facebook as an advertising and marketing vehicle -- a disillusionment that is at least partly the outgrowth of unreasonable expectations.  The dynamics of interactions on Facebook make it less than marketing or advertising friendly and recent Facebook format changes like the timeline make it even less so.

Based on my direct experience and other available data, display advertising on Facebook performs at par or at times below other properties on the Web, which is to say not all that well at all. The only truly consistent performer in online advertising, at least on a click-through-rate basis, is search advertising and as any search advertiser knows there's a big difference in performance on Google for ads based on search and ads displayed on Google's content network.

Now many Web properties, including Yahoo and AOL, have tried to compile the information they have on their users and combine it with their Web behavior to lift banner ad results, as in Yahoo's short-lived SmartAds program of a few years back. This has had limited effect and so far Facebook has refrained from using people's profile information (beyond location) to trigger ads, relying mostly on friend associations and Likes.

And then there's the social marketing aspect of it or as some would have it, the holy grail. All those millions of people are on Facebook, we should be able to sell them stuff right? As I used to say to my clients, constantly pitching what you have on Facebook is like going to a party on Saturday night and spending the entire evening talking about what you do and handing out your business card. You're unlikely to make many friends. The social space is great for starting conversations with clients and prospects, establishing relationships and getting direct and indirect endorsements via Likes. But it will never be a primary marketing driver and give you "free" results, any more than PR can replace paid efforts with "free" advertising.

What should be your primary marketing drivers then? A judicious mix (driven by your business goals) of on and off-line advertising, search, direct marketing, promotion, PR and yes, social. More on each of those in future posts.