During its most recent conference call, Facebook (NASDAQ: FB ) COO Sheryl Sandberg told investors that click-through rates are a worthless measurement for advertisers. Of the people that saw a Facebook advertisement and then purchased a product in store, a whopping 99% of them never clicked on the ad. Although Facebook did not disclose what percentage of ads actually convert to sales, this data suggests that seeing an ad is perhaps enough to influence user spending behavior.
Re-educating the market
Marketers on the Facebook platform that are familiar with click-through rates need to be re-educated with metrics that more effectively measure advertising campaigns on the social media site. Facebook has been working closely with select retailers by helping them analyze their in-store sales data, allowing Facebook to better connect the online world with the offline world. Bridging the online and offline world is what many believe to be the Holy Grail of mobile advertising. Considering its 680 million monthly active mobile users, Facebook is in a unique position to greatly benefit from unlocking this value.
The tools to succeed
For Facebook to earn its trust among marketers, it needs to provide a robust set of tools that allows them to better measure advertising effectiveness. Developing improved analytic technology is a key focus area for Facebook in the years to come, which currently is still within its infancy. It wasn't until "late 2012" that Facebook was able connect sales data with advertisements. In the fourth quarter, the company launched conversion tracking, a still-beta service that allows marketers of all sizes to more easily measure the effectiveness of a Facebook advertising campaign. Investors and marketers alike should expect these tools to better differentiate Facebook from its competitors.
A past study from WordStream had suggested that Facebook's advertising effectiveness is nearly half of the industry standard. The study measured click-through rates, which clearly Facebook doesn't believe does it any justice. With social media being such a new medium, it's arguably not appropriate to measure advertising effectiveness with conventional metrics. For Facebook, the opportunity lies within developing new tools that will better analyze ad performance, which should ultimately win over the trust of marketers over the long term. If all goes to plan, these improvements may drive Facebook to become a more powerful advertising platform in the years to come.
After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.