Facebook marketing metrics

Is the social networking website Facebook really worth $50 billion? It’s just raised $1billion from clients of US investment firm Goldman Sachs who clearly think it is but that’s quite a jump from 2007 when Microsoft tried to buy the company at a valuation of $15 billion (well documented in this book).  It’s interesting to note that as Facebook is a private company it’s not subject to public exposure of its accounts.  So for the benefit of investors, and potential investors, who’ll be tempted by the initial offering when the company goes public in about a year’s time, I’ve examined some data that could be helpful in predicting Facebook’s future business performance. Facebook claims to have 500 million active users, but they give no definition of an active user.  Is it a daily, monthly or six monthly “active” user? Who knows? I’ve had a Facebook account for several years as I use the website for research, but I wouldn’t call myself an active user.  One thing I’ve observed in tracking social media usage of Facebook and Twitter is that as people get older, (unless they’re parents or grandparents using Facebook to communicate with children), they hardly use it at all.  At the top of the chart are the demographics of Facebook.  Now the source of this data is not from Facebook but from the company that has the contract to supply the infrastructure used to serve Facebook ads.  Yes, it’s Microsoft and yes, it owns a small slice of Facebook.  In 2007 Microsoft made a shrewd $240 million investment in Facebook when their bid to buy the company failed.  As part of the deal they also acquired the right to sell the advertising for the international versions of the Facebook service.  I’ve always found this specific data to be the most accurate of any of the data available to people planning Web advertising.  Web demographic information is the most difficult data to obtain with any accuracy, particularly gender.  “Nobody knows you’re a dog on the Internet” as Peter Steiner said in this very famous New Yorker cartoon.  So, do you really know if your website visitors are male or female?  Gender knowledge makes a huge difference in successful marketing as men and women have quite different triggers to make purchases. Without knowing who you are talking to, how can you communicate the right message? I’ve always found Microsoft’s demographic data to be much better than the alternatives.  And I’ve been lucky enough to be able to match this data with heavily visited commercial websites allowing me to compare their visitors with the demographics of the clients’ actual customer databases.  They have matched to within one per cent, more than accurate enough to be usefully employed in order to understand website visitors.   The reason for this level of accuracy is that Microsoft’s data is based on actual behaviour and the alternatives are only based on consumer panels e.g. Google Ad Planner and comScore.  This panel data gets interpolated and scaled up to represent the entire audience which can be very misleading.  The Microsoft data is based on tracking the actual behaviour of people who cross Microsoft’s Atlas advertising network, or on those who use a Microsoft product like HotMail, Live Mail, Instant Messenger or Skydrive.  Did you notice when you signed up for these services that you supplied information on your gender and age?  This is the same across many countries.  In the UK for example, it includes nearly half of the total online population. Microsoft’s demographic data shows that in the UK Facebook frequent usage has not really expanded outside the under-25 year old age group.  This isn’t surprising; remember it was originally created to cater for university and college students.  In fact, nearly 90% of frequent usage comes from this age group, and 30% of these are under 18 years old.  The gender split also shows that females use Facebook far more than males.  Young females talk more to other females online just as they used to hog the landline telephone, and latterly, the mobile at this age.  Increasingly, this endless chattering now takes place in Facebook’s appropriately named Chat facility.  Roughly for every five people visiting Facebook, four are under 25 years old and female.  These young females present a market for advertising on Facebook, and advertisers are increasing their spend in 2011, but the average under 25’s disposable income is limited. In the targeted world in which Web advertising is increasingly bought, expenditure has to relate to demographics.  For example, Facebook’s advertising tool, used to purchase advertising by agencies, doesn’t give a choice of specifically selecting people who have been active in the last 30 days.  One has to choose targeting based on the entire population of people who have ever registered for Facebook, which obviously inflates the numbers dramatically.  Web advertising tools are getting much better at showing the return on investment from social media advertising, as well as measuring the advertising effectiveness.  When Facebook’s honeymoon with the big advertisers is over, those advertisers will be demanding good returns on their expenditure.  Technology now under development will make Facebook’s performance more quantifiable so the company needs to expand their frequent usage beyond the younger demographic if it is going to depend on advertising revenue.  There are signs that Facebook realises this weakness and is beginning to copy TenCent the Chinese website, having seen how big the sales of “virtual goods” can be to their younger visitors.  It is also likely that Facebook can extract as much revenue from branded shops within Facebook as they will from advertising.  In Europe one of the first websites to open a Facebook store is ASOS, a fashion website whose customers match the young Facebook demographic. I should point out there is one thing that could skew the data on this chart.  A growing amount of Facebook access is via mobile phones and this data isn’t included because the tracking gets broken by the mobile phone network provider.  But very few people access Facebook solely via their phone, typical behaviour means that at least half of the visits in a month are made from a computer.  The same constraint also applies to the second chart on this slide.  This uses data from Statcounter and, to keep the comparison valid, I’ve just selected data from across Europe.  Statcounter tracks a very large sample of Web traffic across the world.  What this part of the slide shows is the decline in referrals that a large number of websites in Europe have received from Facebook.  From December 2009 to December 2010 the decline has been over 13%.  Using only UK data the decline has been over 25%.  Is this as a result of Facebook visitors increasingly limiting their Web time to Facebook rather than, to use the Facebook term “sharing the love” with other websites?  Or could it be that Facebook traffic could be starting to decline in the UK and Europe?  Remember The Well, Friendster, AOL, and even My Space anybody?  At one time in their history all these websites had well established communities. Google traffic data shows that Facebook usage has been very flat in the last year, unlike the US where Facebook traffic has risen.  Google UK traffic data shows that the websites also visited by Facebook visitors seem to fit very well with an under 25 year old demographic.  Interestingly, Google search data (not their panel demographic data) indicates that the profile of US Facebook visitors is a little bit older than the UK.  Facebook’s own API data shows that in the UK Facebook reaches 64.59% of the online population.  To do that there would have to be more 25-50 year old Facebook users than those below 25 years of age.  This is a situation that goes against observed reality: the websites Facebook visitors visit, and Microsoft’s and Google’s traffic data.  So is Facebook worth $50 billion? When it does eventually go public it may well be worth more.  But caveat emptor: as time passes many advertisers will find out that the Facebook data they’re basing their advertising expenditure on, is at best decidedly sub-standard. January 2011
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2011

Facebook marketing

metrics

Is the social networking website Facebook really worth $50 billion? It’s just raised $1billion from clients of US investment firm Goldman Sachs who clearly think it is but that’s quite a jump from 2007 when Microsoft tried to buy the company at a valuation of $15 billion (well documented in this book).  It’s interesting to note that as Facebook is a private company it’s not subject to public exposure of its accounts.  So for the benefit of investors, and potential investors, who’ll be tempted by the initial offering when the company goes public in about a year’s time, I’ve examined some data that could be helpful in predicting Facebook’s future business performance. Facebook claims to have 500 million active users, but they give no definition of an active user.  Is it a daily, monthly or six monthly “active” user? Who knows? I’ve had a Facebook account for several years as I use the website for research, but I wouldn’t call myself an active user.  One thing I’ve observed in tracking social media usage of Facebook and Twitter is that as people get older, (unless they’re parents or grandparents using Facebook to communicate with children), they hardly use it at all.  At the top of the chart are the demographics of Facebook.  Now the source of this data is not from Facebook but from the company that has the contract to supply the infrastructure used to serve Facebook ads.  Yes, it’s Microsoft and yes, it owns a small slice of Facebook.  In 2007 Microsoft made a shrewd $240 million investment in Facebook when their bid to buy the company failed.  As part of the deal they also acquired the right to sell the advertising for the international versions of the Facebook service.  I’ve always found this specific data to be the most accurate of any of the data available to people planning Web advertising.  Web demographic information is the most difficult data to obtain with any accuracy, particularly gender.  “Nobody knows you’re a dog on the Internet” as Peter Steiner said in this very famous New Yorker cartoon.  So, do you really know if your website visitors are male or female?  Gender knowledge makes a huge difference in successful marketing as men and women have quite different triggers to make purchases. Without knowing who you are talking to, how can you communicate the right message? I’ve always found Microsoft’s demographic data to be much better than the alternatives.  And I’ve been lucky enough to be able to match this data with heavily visited commercial websites allowing me to compare their visitors with the demographics of the clients’ actual customer databases.  They have matched to within one per cent, more than accurate enough to be usefully employed in order to understand website visitors.   The reason for this level of accuracy is that Microsoft’s data is based on actual behaviour and the alternatives are only based on consumer panels e.g. Google Ad Planner and comScore.  This panel data gets interpolated and scaled up to represent the entire audience which can be very misleading.  The Microsoft data is based on tracking the actual behaviour of people who cross Microsoft’s Atlas advertising network, or on those who use a Microsoft product like HotMail, Live Mail, Instant Messenger or Skydrive.  Did you notice when you signed up for these services that you supplied information on your gender and age?  This is the same across many countries.  In the UK for example, it includes nearly half of the total online population. Microsoft’s demographic data shows that in the UK Facebook frequent usage has not really expanded outside the under-25 year old age group.  This isn’t surprising; remember it was originally created to cater for university and college students.  In fact, nearly 90% of frequent usage comes from this age group, and 30% of these are under 18 years old.  The gender split also shows that females use Facebook far more than males.  Young females talk more to other females online just as they used to hog the landline telephone, and latterly, the mobile at this age.  Increasingly, this endless chattering now takes place in Facebook’s appropriately named Chat facility.  Roughly for every five people visiting Facebook, four are under 25 years old and female.  These young females present a market for advertising on Facebook, and advertisers are increasing their spend in 2011, but the average under 25’s disposable income is limited. In the targeted world in which Web advertising is increasingly bought, expenditure has to relate to demographics.  For example, Facebook’s advertising tool, used to purchase advertising by agencies, doesn’t give a choice of specifically selecting people who have been active in the last 30 days.  One has to choose targeting based on the entire population of people who have ever registered for Facebook, which obviously inflates the numbers dramatically.  Web advertising tools are getting much better at showing the return on investment from social media advertising, as well as measuring the advertising effectiveness.  When Facebook’s honeymoon with the big advertisers is over, those advertisers will be demanding good returns on their expenditure.  Technology now under development will make Facebook’s performance more quantifiable so the company needs to expand their frequent usage beyond the younger demographic if it is going to depend on advertising revenue.  There are signs that Facebook realises this weakness and is beginning to copy TenCent the Chinese website, having seen how big the sales of “virtual goods” can be to their younger visitors.  It is also likely that Facebook can extract as much revenue from branded shops within Facebook as they will from advertising.  In Europe one of the first websites to open a Facebook store is ASOS, a fashion website whose customers match the young Facebook demographic. I should point out there is one thing that could skew the data on this chart.  A growing amount of Facebook access is via mobile phones and this data isn’t included because the tracking gets broken by the mobile phone network provider.  But very few people access Facebook solely via their phone, typical behaviour means that at least half of the visits in a month are made from a computer.  The same constraint also applies to the second chart on this slide.  This uses data from Statcounter and, to keep the comparison valid, I’ve just selected data from across Europe.  Statcounter tracks a very large sample of Web traffic across the world.  What this part of the slide shows is the decline in referrals that a large number of websites in Europe have received from Facebook.  From December 2009 to December 2010 the decline has been over 13%.  Using only UK data the decline has been over 25%.  Is this as a result of Facebook visitors increasingly limiting their Web time to Facebook rather than, to use the Facebook term “sharing the love” with other websites?  Or could it be that Facebook traffic could be starting to decline in the UK and Europe?  Remember The Well, Friendster, AOL, and even My Space anybody?  At one time in their history all these websites had well established communities. Google traffic data shows that Facebook usage has been very flat in the last year, unlike the US where Facebook traffic has risen.  Google UK traffic data shows that the websites also visited by Facebook visitors seem to fit very well with an under 25 year old demographic.  Interestingly, Google search data (not their panel demographic data) indicates that the profile of US Facebook visitors is a little bit older than the UK.  Facebook’s own API data shows that in the UK Facebook reaches 64.59% of the online population.  To do that there would have to be more 25-50 year old Facebook users than those below 25 years of age.  This is a situation that goes against observed reality: the websites Facebook visitors visit, and Microsoft’s and Google’s traffic data.  So is Facebook worth $50 billion? When it does eventually go public it may well be worth more.  But caveat emptor: as time passes many advertisers will find out that the Facebook data they’re basing their advertising expenditure on, is at best decidedly sub-standard. January 2011
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