Brands Don't Pay for Facebook's Most Powerful Ads: Report

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Facebook has been plagued by criticism of its slowing U.S. growth, the fact that it only recently started showing ads to mobile users, and questions about whether its ads work. But now ComScore is out with a study that validates the core of Facebook’s business model: social context makes ads more powerful.

Facebook users are much more likely to purchase after seeing messages about brands their friends like, according to this new study ComScore put together in collaboration with Facebook.

The positive news about the impact of brand messages doesn’t have a direct correlation to Facebook’s revenue, because the study focuses on unpaid messages people share — what Facebook calls “earned media.” ComScore reports that within four weeks of seeing messages about retailer Target, friends of Target fans were 27 percent more likely to shop at Target than average shoppers. Target’s fans were 19 percent more likely to shop after seeing those messages. A similar study of Starbucks fans and their friends found that they were 38 percent more likely to buy Starbucks coffee in the four weeks after seeing brand messages.

The good news for companies is that they can have this significant impact without spending a dime. That raises questions about whether they’ll stop buying ads like General Motors did. But Facebook’s ad model is built on the idea that companies will spend to amplify their free communications. Facebook allows marketers to pay for the guarantee that their messages will reach 75 percent of their fans. Marketers can also pay to make sure that friends of their fans see their messages.

And in this study ComScore and Facebook look to change the conversation about social advertising and to move away from click-through rates, the way online ads are usually measured. In its study, ComScore says criticism of the click-through rates of Facebook ads as lower than average is unwarranted, arguing that exposure to ads in a social context has a measurable impact over time.

The fact that ComScore’ s study focuses on the power of unpaid messages won’t satisfy many Wall Street investors who have watched Facebook’s stock drop nearly 30 percent in the past month. But ComScore says its study provides “more evidence that Facebook can be valuable as a branding medium.”

Facebook, which is just out of its quiet period today, is pushing to show the impact of paid ads. It’s presenting the results of a ComScore study it commissioned at the AM7 audience measurement conference in New York. The study of ads for an "unnamed retailer" found a 16 percent increase in purchases in-store, and a 56 percent increase in online purchases after a paid ad campaign. Facebook is clearly looking to legitimize its findings — saying it has put together studies with a number of third-party organizations, including Nielsen. Of the 63 ad campaigns Facebook studied, 70 percent of them had a return on investment of at least three times.

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