Facebook's E-Commerce Fail
Dec 7th 2012 6:01PM
Updated Dec 7th 2012 6:04PM
The results are in, and Facebook didn't contribute anything valuable to the Cyber Monday mania.
According to Adobe Systems, social media accounted for just 2% of total advertising referrals on Cyber Monday. For those keeping track at home, Cyber Monday was the busiest day for online shopping in history. Companies like eBay and Amazon saw sales increase more than 50% from last year. Although social media saw a 100% increase in year-over-year referrals, it still doesn't bode well for its advertising effectiveness.
Brand association fail
Simply put, Facebook is not a primary shopping tool in the minds of its users. They log on with the intent of consuming media, making Facebook a form of cheap entertainment. This helps explain why social media was barely utilized on Cyber Monday. Boil it down and that's the key difference between Facebook and Google's core advertising model.
When Internet goers utilize Google Search, they have a specific intent, giving Google a better opportunity to serve relevant advertisements. This reason alone is why Google's advertising effectiveness is three times greater than the industry average.
But there's potential!
Facebook may know intimate details about our lives, but it knows far less about our preferences and spending behaviors. Unless users outright proclaim how they feel about a brand or a product, it's proven to be more challenging for Facebook to serve relevant ads. According to one study, Facebook's conversion rate is nearly half the industry standard. This all didn't matter when Facebook was a private company, but adding shareholders to the mix has brought on a sense of urgency to ramp up its business model.
The shotgun approach
Facebook has adopted a philosophy that believes more bullets aimed at a target will increase the chances of success. What started as a social network has now transformed into a fully fledged advertiser. The ads have been continuously ramped up, with the latest being Suggested Posts. It's basically another Sponsored story within your News Feed. I think it should be increasingly clear that the News Feed has become Facbook's path to squeeze a few more pennies out of its users.
Facebook ought to be careful how many bullets it shoots, because if it fires too many, it may one day regret it.
Without question, social media is an invaluable tool for society because it established an openness and availability of information like never before. But what's valuable for society doesn't always translate into a great investment. There's a long way to go before social media can become a highly coveted advertising platform. And until that happens, it remains to be seen if it's even possible at all.
Still, 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.
The article Facebook's E-Commerce Fail originally appeared on Fool.com.Fool contributor Steve Heller owns shares of eBay and Google. The Motley Fool owns shares of Amazon.com, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Adobe Systems, Amazon.com, eBay, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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