In the past month, we have all heard about GM pulling their $10MM ad budget from Facebook, and pundits are weighing in on whether social media is good for advertising or not. That Facebook's shares are down over 30% since the IPO high (as of writing of this blog) shows that at least part of problem is that advertisers are not convinced yet about the value of advertising on social media.
From our experience, we can share insight into this problem. A domestic car brand's nameplate with revenue of $2B spends $10MM in Social Media Marketing, which approximately breaks down as:
Total Social Media Spend, of which: | $10MM |
Content Production | $5MM |
Owned Media (FB fan page, Promoted Tweets, etc.) | $2.5MM |
Other (Payroll, Technology, Overhead etc.) | $2.5MM |
We also estimate that the brand has a reach of 16.5 million people a month on its owned media properties.
Two problems are evident from this example:
(i) Owned media is expensive. Depending on whether content production is counted as a part of the expense or not, in this example, the CPM ranges from $15-40. That's 3-5X what an average auto brand will pay for average TV media ads.
(ii) Content production for social media is expensive and brands have no way of experimenting with its intended audience, other than hoping that something goes viral.
We call this the "last mile" problem of social media. Social media provides a large audience (two plus billion people around the world and growing) and brands are producing a lot of good content. The "last mile" connection - connecting the right content to the right receptive audience - and an ability to experiment with what works and what don't, is missing. That, in our opinion, is one of the biggest sources of frustration for social media brand advertisers today.
Brands face challenges on Social Media
Brands today focus on responding to the social media conversations on their "owned" social media properties (i.e., listen and monitor their FB fan pages and own twitter handles), and employ a group of Brand Community Managers to engage with this audience. Such conversations are largely "outbound" and may or may not be contextual to the audience at that moment.
Most conversations around brands, on the other hand, happen outside a brand's owned media handle. As an example, coming out of the New York Auto Show and after being awed by the new the BMW M6 Convertible, I am not likely to go to Facebook, "like" BMW M6s page, and then post a comment about how much I liked the new car. More likely, I will tweet out something like "New BMW M6 is awesome..." to my friends. Such conversations about brands are more contextual and timely, and are often perceived to be more authentic than brand-generated messages on their owned social properties. These types of conversations also make up 80-90% of total volume of all social media conversations.
Most brands today lack the technology to both monitor and process the conversations in real time and engage this highly relevant audience at scale. The technology and expertise for this is sorely missing.