Zarządzanie Kulturą, tom 6 (2013), nr 4 / Culture Management, vol. 6 (2013), no. 4
Sławomir Skwark (Opole University) ROI IS WORTH TRASH, I.E. THE VALUE OF ADVERTISING IN SOCIAL MEDIA The article was written for the 60th anniversary of Radio Opole.
Key words: ROI, ad, social media, advertising campaign, Facebook, Internet, CPM, CPC, CTR, CPV. Abstract: Worldwide Social Network Users Report: 2013 Forecast and Comparative Estimates reports that by the end of 2013, every fourth person in the world will be an active user of social networks. Forecasts also suggest their continued dynamic development. Social media create new possibilities for advertisers due to the specific forms of advertising and access to a broad range of various target groups. The author debates whether in the case of advertising campaigns and activities in social media the use of the popular ROI indicator is justified and discusses differences between the traditional and social media, drawing attention to the specificity of communicating and advertising in the latter. The author also states that it is difficult to reduce all the effects of being active in social media to traditional numerical values and advertising effectiveness indicators used in web portals.
It might seem that today when the budgets of even the largest corporations are planned to the last penny, return on investment (ROI) must be one of the most important markers of advertising campaigns. It should therefore follow those advertising channels whose effectiveness in reaching target groups is hard to measure ought to be marginalised. In fact exactly the opposite is true. Where does the boom for spending large budgets on social media come from? Global brands, political parties, politicians, smaller firms and classic media, i.e. television, radio and the press spend more and more money on their presence, promotion and advertising in social media. Why is that? Traditional vs. social media Social media differ from traditional media at their very foundation. The basic condition and sense of their existence is in the upward creation of information by users who, in case of the classic media, are only recipients of information having no direct involvement with it at all. Publication of information is, in a strict sense, a beginning of the media process, which ends only when users are no longer interested with the issue under discussion, meaning that an initial news item can be modified ad nauseam.1 What’s also important is that contrary to the classic media, in social media content is distributed through interactions among users. The more intense the interaction, the higher distribution of information and, what follows, of advertising. One of the main differences is that a professional journalist, a person directly involved in the subject matter or an observer can be involved in the process of the creation of information. Each one of them can measurably influence the direction in which information develops. Talking of the “magical” ROI. as well as the measurable and calculable advantages that campaigns in social media bring to advertisers, it is worth noting that the presence of mainstream 1
D. Kaznowski, Networked Digital Age, Definicja social media [Social Media http://networkeddigital.com/2010/ 04/17/definicja-social-media (accessed on: 04.02.2013).
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media in social media is usually spurred by wrong reasons. They set up official profiles of their brands. In their advertising materials they emphasize their presence in social media to reach more fans, and then redirect them to their web sites and increase the number of their own visitors. Simply speaking, the media use social media as yet another tool for content distribution, generating better statistics for visits to their own services and not as a forum of discussion or building relations with readers, viewers or audiences.2 Social networking bubble as an ideal advertising platform In spite of the fact that social media radically differ from the mainstream media, it is worth looking at the budgets they hold or are linked with. An essential example here is Facebook, which is, of course, an unquestionable leader of social media as far as its size, reach and the growth dynamics are concerned. By the end of 2012 Facebook exceeded 1 billion of active users a month3, including 10.2 million of users in Poland.4 Facebook revenues published for the last quarter of 2012 were USD 1.59bn, which is an increase of approximately 40% in relation to 2011.5 84% of all revenues of this platform come directly from advertising published in the service.6 In order to sketch the background of this potential “social media bubble” we would have to go back to 18 May 2012 when Facebook debuted on the stock market. This is an important date because the value of the service was then quoted at USD 104bn.7 None of the American firms was valued as high at the time of its debut before. What’s more, none of the companies strictly connected with the Internet cost as much at the start; Mark Zuckerberg’s social media platform was certainly leading the way.8 Interestingly, on the second day of Facebook’s presence at the stock exchange, the value of its shares dropped by 11%, which meant that the value of the whole enterprise dropped by almost USD 10bn in a day.9 Additionally, it was proven that during Facebook’s stock exchange debut, the NASDAQ computer system got overloaded and misrepresented information relating to the purchases and sales of the company’s shares or failed to transmit them altogether. This system failure interfered with information on who owned the shares. It is in fact very possible that the stock exchange will be fined USD 10m, and it will have to pay USD 62m in damages to investors for inadequate protection of liquidity and transparency of financial transactions during
2
M. Skoler, Nieman Reports, Why the News Media Bacem Irrelevant - And How Social Media Can Help, http://jclass.umd.edu/classes/jour698m/skoler_files/ContentServer.pdf (accessed on: 04.02.2013). 3 J. Kiss, The Guardian, Facebook hits 1 billion users a month, http://www.guardian.co.uk/ technology/2012 /oct/04/facebook-hits-billion-users-a-month (accessed on: 04.02.2013). 4 Social Bakers, Poland Facebook Statistics, http://www.socialbakers.com/facebook-statistics/poland (accessed on: 04.02.2013). 5 M. Gorman, Engadget, Facebook finishes 2012 on a high note: Q4 revenue $1.585 billion, $64 million in net income, http://www.engadget.com/2013/01/30/facebook-2012-q4-earnings (accessed on: 15.08.2013). 6 Facebook Reports Fourth Quarter and Full Year 2012 Results, http://investor.fb.com/ releasedetail.cfm?ReleaseID=736911 (accessed on: 04.02.2013). 7 R. Farzad, Bloomberg Businessweek. Markets&Finance, Facebook: The Stock That Keeps on Dropping, http://www.businessweek.com/articles/2012-08-02/facebook-the-stock-that-keeps-on-dropping (accessed on: 15.08.2013). 8 T. Grynkiewicz, Wyborcza.biz, Facebook na giełdzie. Debiut, jakiego Internet nie widział [Facebook at the Stock Exchange. The Unheard of Internet Debut], http://wyborcza.biz/biznes/ 1,101558,11752978,Facebook_na_gieldzie__Debiut__jakiego _internet_nie.html (accessed on: 04.02.2013). 9 A. Thomson, B. Womack, Bloomberg Businessweek. Markets&Finance, Facebook Tumbles Below IPO Price on Second Day of Trading, http://www.bloomberg.com/news/2012-05-21/facebook-shares-drop-below-ipo-pricein-german-trading.html (accessed on: 05.02.2013).
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the Facebook debut10. Also, interestingly, the largest investment banks in the world, such as Morgan Stanley and Goldman Sachs, which provide consulting to strategic, global investments, advised some selected investors that Facebook was not going to perform financially as well as anticipated as it was overvalued.11 This is of course illegal and suggests an artificial pumping up of the service value. In spite of so many controversies relating to Facebook which can be, without a doubt, considered a representative example of social medium, advertising expenditure and activity in the platform are continually growing.12 Does it mean that social media are an ideal advertising tool? Can the presence of classic media in social media be justified economically? How can you explain the fact of such huge popularity (also among advertisers) of the medium whose main value is the domain and the system of content exchange whereas, significantly, the platform does not generate any original content at all? Specific character of social media advertising Until quite recently Internet sites and portals provided basic advertising space in the Internet, both for advertisers (because of their reach and coverage) and publishers (because of the ease of creation). A lot of them complement or copy traditional media (press services, radio, and television). Some of the paper titles have been fully transferred to the Internet as this was their only chance of surviving on the market. A good example here is Newsweek whose last printed issue was published on 31 December 2012.13 However, a new player –social media - has recently joined the queue for their piece of advertising cake. A position of a given medium in the Internet is established on the basis of the study of a number of visits to the service, and an average time spent there, as well as the number of page views and bounce rates, which says unequivocally that user traffic is natural or artificially generated e.g. by organic positioning in search engines. This research is a counterpart of telemetry for television and circulation, sales and returns in the printed press. One of the determinants of the market power, advertising potential and rank of a website in Poland is Megapanel. This is a test to verify and confirm the viewing of websites in Poland, carried out every month by Gemius SA on behalf of PBI.14 Internet services settle accounts with advertisers based on three main models of performance related costs. The first is the CPM, or cost per mile,15 which means the cost per thousand page views of a single selected ad. The advertiser pays for each display of advertising, which does not need to be associated with the activity (for example, clicking on it) of the user who saw it. The second model is CPC or cost per click, which stands for payment for each click on the ad. This model has a direct relationship to the CTR, or clickthrough rate, indicating the percentage of clicks in relation to the appearance of the ad. The higher the CTR, the better performance of the ad, 10
D. ElBoghdady, The Washington Post, Nasdaq is fined $10 million for Facebook IPO failures, http://articles.washingtonpost.com/2013-05-29/business/39596522_1_nasdaq-omx-group-robert-greifeldfacebook-s (accessed on: 15.08.2013). 11 J. Eaglesham, J. Strasburg, Nasdaq Faces Facebook Fine, http://online.wsj.com/article/ SB10001424127887324761004578286200951471148.html (accessed on: 05.02.2013). 12 A. Nowak, Brief, Mniejsze wydatki na reklamę w 2013 [Lower advertising expenditure in 2013], http://www.brief.pl/artykul,504,mniejsze_ wydatki_na_reklame_w_2013.html (accessed on: 15.08.2013). 13 Newsweek magazine ends print edition to go online-only, http://www.bbc.co.uk/news/business-19989346 (accessed on: 05.02.2013). 14 For more: Metodologia badania Megapanel PBI/Gemius [The methodology of the Megapanel PBI/Gemius study], http://www.panel.pbi.org.pl/ metodologia.php (accessed on 15.08.2013). 15 W. W. Moe, Targeting Display Advertising, [in:] Advanced Database Marketing: Innovative Methodologies and Applications for Managing Customer Relationships, ed. K. Coussement, K. W. De Bock, S. A. Neslin, Gower Publishing, London 2013, p. 211.
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and so it is usually more expensive. The third major model of financial settlement with advertisers on websites is CPV, or cost per view16 indicating payment for every time an advert is broadcast e.g. before video material placed on a website. CPV billing can be compared to the valuation of a single issue of an advertising spot in the selected band on TV. Every internet service that counts on the market is part of the Megapanel research, which also includes studies related various target groups. Advertisers can have access to all current statistics of the service, from the number of visits to the average time spent on the page. Advertising expenditure is usually aimed at raising brand awareness and increasing sales. The calculation of profitability of sales campaigns is quite simple. Websites selected for advertising are those which attract the attention and loyalty of the target group, which is the same as the target group that a given brand needs to address. Next, there are the creative part and the budget. In the simplest terms, if sales profit after an advertising campaign is considerably higher than total campaign budget, the campaign is considered profitable. How can you then value advertising in social media? How can you check the effectiveness of these types of channels? Is it possible at all? Based on the example of Facebook, it is easy to follow the indicators which can be used in advertising. First, for any promotion in social media to make sense, you have to be present in them, so you need to prepare a profile, its overall look and, preferably, communication and promotions strategy, which is the way you want the brand that you are presenting in the social media to be perceived. So this is the preparation of the basis for further advertising activities. However, once the official account, content, strategy and dedicated applications are ready, and the money has been spent, the promotional effect is often miserable. It is only after the activities, which have to be calculated into the initial costs that the promotion and advertising of your presence in the social media can begin. Furthermore, and advertiser often spends a lot of money for his potential clients to find out that the brand is present among them and has something interesting to say. This is not a classic image campaign. The created image is commented on, analysed and criticised all the time, every moment. The visibility of such stream is immediate and it has immediate consequences through e.g. virus effect related with negatively valued activity of the brand. So in such cases the live promotion and advertising is both an advantage and disadvantage, only it is hard to know how to value them and if there is any recipe for success at all. For example, in 2012, General Motors gave up advertising in Facebook, thinking it ineffective. What’s important their annual budget for advertising in the service was USD 40m, with USD 10m to be spent on advertising boxes alone.17 Sound investment into social media promotion is definitely much more than a website advertising campaign. Activities on social networking platforms produce an opportunity to generate intangible added value, which is difficult to classify by classically conceived ROI. What’s important, conducting advertising and communication in social networking platforms requires far more commitment to the continuous monitoring of changes taking place in the relationship with potential clients. Social networking is guided by its own rules, and the dynamics of its changes is currently so unpredictable that no budget is able to provide guaranteed promotional success.
16
For more: More Display Ad Market Data; Cost Per View Pricing For Video; One Billion Ad Tags, http://www.adexchanger.com/ad-exchange-news/wednesday-03022011 (accessed on: 15.08.2013). 17 J. Muller, Forbes, GM Says Facebook Ads Don't Work, Pulls $10 Million Account, http://www.forbes.com /sites/joannmuller/2012/05/15/gm-says-facebook-ads-dont-work-pulls-10-million-account (accessed on: 05.02.2013).
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The value of advertising in social media A problem with establishing real value of advertising in social media lies in the erroneous attempt to interpret it entirely in terms of figures. In practice, advertisers receive reports on a number of new fans, clicks in targeted adverts, number of comments, visits and shares of a given post or information or a number of people who use dedicated applications in the official profile etc. Yet how can you translate the quality of fans into mathematical formula? Barrack Obama, thought to be the leader among the politicians present in social media, attracted almost 19 million users who in 2012 followed his official account in Twitter. After analyses, it has been proven that 70% of them are false or inactive profiles. According to the information quoted by the mashable.com service, such artificial users cost USD 0.01 per item.18 The low price is often taken advantage of by people responsible for official profiles of companies, brands or politicians to produce the illusion of popularity. However, the core question still remains how to value and evaluate the quality of response time of fans to specific information or an advertising message? How to assess the real value of commentaries? After all, these are real opinions, questions, digressions which are hard to interpret in the zero-one system, similarly to the buzz or whispering about the brand. Algorithms used to calculate statistical data are still imperfect, so it is not only the effectiveness but evaluation of activity, which is difficult and, objectively, no one is able to guarantee that the invested budget will not produce exactly the opposite effect because of e.g. misguided communication strategy or change in the trends of networking community or a fast-spreading Internet meme. Social networking services have, without a doubt, a huge advantage over traditional forms of advertising in the classic media, because of the opportunity they offer for reaching very narrow target groups and changing the advertising content at any point. The dynamic development of social media increasingly allows for adjusting advertising content to its addressees. For example mechanisms of behavioural advertising are used, which generate an opportunity to select people that comply with the requirements of your target group and who therefore should get dedicated advertising, with surgical precision, owing to the variety of collected user information such as age, religion, marital status, interests, average day schedule, favourite brands, location etc.19 So the classic ROI has no chance of being used in case of social media. One should also remember that social media comprise a specific group of communicating vessels, influenced by an enormous number of factors from the classic word of mouth, all the way to the news published in the mainstream media. Therefore, it is not enough to have an idea, budget and implementation strategy to enjoy advertising success in social media. In spite of continually improved methods of measuring advertising effects there is still no one unequivocal measure of profitability for the activities carried out in this way. The idea of social media is based on amorphous and rather flimsy structure, in which two-way communication happens all the time, so it seems impossible to work out such an indicator as yet. In the simplest possible terms, one handshake of a politician translates into one more voter. One click on the banner means one, additional, potentially unique Internet user. What about the fans who are already involved? What is the cost of reaching and keeping them? How much time do you have to spend doing this? Can these questions be answered by using algorithms?
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Mashable, Obama has Millions of Fake Twitter Followers, http://mashable.com/2012/08/24/obama-has-13million-fake-twitter-followers-report/ (accessed on: 06.02.2013). 19
J. Bonder-Le Berre, N. Marczuk, Czy wiedzÄ… o nas tyle, ile sami im dajemy? [Do They Know About Us What We Let Them Know?] [in:] Raport Internet Standard [Internet Standard Report], Social Media 2012, Warsaw 2012, p. 8.
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Literature: Bonder-Le Berre J., Marczuk N., Czy wiedzą o nas tyle, ile sami im dajemy?, [w:] Raport Internet Standard. Social Media 2012, Warszawa 2012. Eaglesham J., Strasburg J., Nasdaq Faces Facebook Fine, http://online.wsj.com/article/SB10001424127887324761004578286200951471148.html (dostęp: 05.02.2013). ElBoghdady D., The Washington Post, Nasdaq is fined $10 million for Facebook IPO failures, http://articles.washingtonpost.com/2013-05-29/business/39596522_1_nasdaq-omx-group-robertgreifeld-facebook-s (dostęp: 15.08.2013). Facebook Reports Fourth Quarter and Full Year 2012 Results, http://investor.fb.com/releasedetail.cfm?ReleaseID=736911 (dostęp: 04.02.2013). Farzad R., Bloomberg Businessweek. Markets & Finance, Facebook: The Stock That Keeps on Dropping, http://www.businessweek.com/articles/2012-08-02/facebook-the-stock-that-keeps-ondropping (dostęp: 15.08.2013). Gorman M., Engadget, Facebook finishes 2012 on a high note: Q4 revenue $1.585 billion, $64 million in net income, http://www.engadget.com /2013/01/30/facebook-2012-q4-earnings (dostęp: 15.08.2013). Grynkiewicz T., Gazeta Wyborcza, Facebook na giełdzie. Debiut, jakiego Internet nie widział, http://wyborcza.biz/biznes/1,101558,11752978, Facebook_na_gieldzie__Debiut__jakiego_internet_nie.html (dostęp: 04.02.2013). Kaznowski D., Networked Digital Age, Definicja social media, http://networkeddigital.com/2010/04/17/definicja-social-media (dostęp: 04.02.2013). Kiss J., The Guardian, Facebook hits 1 bilion users a month, http://www.guardian.co .uk/technology/2012/oct/04/facebook-hits-billion-users-a-month (dostęp: 04.02.2013). Mashable, Obama has Millions of Fake Twitter Followers, http://mashable. com/2012/08/24/obamahas-13-million-fake-twitter-followers-report (dostęp: 06.02.2013). Metodologia badania Megapanel PBI/Gemius, http://www.panel.pbi.org.pl/ metodologia.php (dostęp: 15.08.2013). Moe W. W., Targeting Display Advertising, [w:] Advanced Database Marketing: Innovative Methodologies and Applications for Managing Customer Relationships, red. K. Coussement, K. W. De Bock, S. A. Neslin, Gower Publishing, London 2013, s. 209-228. More Display Ad Market Data; Cost Per View Pricing For Video; One Billion Ad Tags, http://www.adexchanger.com/ad-exchange-news/wednesday-03022011 (dostęp: 15.08.2013). Muller J., Forbes, GM Says Facebook Ads Don't Work, Pulls $10 Million Account, http://www.forbes.com/sites/joannmuller/2012/05/15/gm-says-faceb ook-ads-dont-work-pulls-10million-account (dostęp: 05.02.2013). Newsweek magazine ends print edition to go online-only, http://www.bbc.co.uk/news/business19989346 (dostęp: 05.02.2013). Nowak A., Brief, Mniejsze wydatki na reklamę w 2013, http://www.brief.pl/ artykul,504,mniejsze_wydatki_na_reklame_w_2013.html (dostęp: 15.08.2013). Ostaszewski, J. Finanse, Warszawa 2010. Skoler M., Nieman Reports, Why the News Media Bacem Irrelevant - And How Social Media Can Help, http://jclass.umd.edu/classes/jour698m/skoler_files/ ContentServer (dostęp: 04.02.2013). Social Bakers, Poland Facebook Statistics, http://www.socialbakers.com/ facebook-statistics/poland (dostęp: 04.02.2013).
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Thomson A., Womack B., Bloomberg Businessweek. Markets & Finance, Facebook Tumbles Below IPO Price on Second Day of Trading, http://www.bloomberg.com/news/2012-05-21/facebook-sharesdrop-below-ipo-price-in-german-trading.html (dostęp: 05.02.2013). Sławomir Skwark – politolog, badacz mediów, PR manager, doktorant w Instytucie Politologii Uniwersytetu Opolskiego. Laureat stypendium im. Piotra Mroczyka za badania nad politycznością mediów oraz dwukrotny stypendysta im. Karola Cebuli. W swej pracy naukowej analizuje wykorzystanie mechanizmów Web 2.0 w komunikowaniu politycznym. Jego zainteresowania obejmują również Public Relations a w szczególności ePR, marketing polityczny oraz social media.
ROI do lamusa, czyli wartość reklamy w mediach społecznościowych Słowa klucze: ROI, reklama, media społecznościowe, kampania reklamowa, Facebook, Internet, CPM, CPC, CTR, CPV. Streszczenie: Raport Worldwide Social Network Users: 2013 Forecast and Comparative Estimates informuje, że do końca 2013 roku co czwarta osoba na świecie będzie czynnie korzystać z serwisów społecznościowych. Prognozy sugerują również ich dalszy dynamiczny rozwój. Media społecznościowe dają reklamodawcom nowe możliwości dzięki specyficznym formom reklamy oraz szerokiemu dotarciu do różnorodnych grup docelowych. Autor zastanawia się czy w przypadku kampanii reklamowych i działań w mediach społecznościowych uzasadnionym jest korzystanie z popularnego wskaźnika - ROI, czyli stopy zwrotu z inwestycji. Autor wskazuje różnice między mediami klasycznymi a społecznościowymi. Zwraca również uwagę na specyfikę komunikacji i reklamy w media społecznoścowych. Uznaje także, że trudnym jest sprowadzanie wszelkich efektów działań w serwisach społęcznościowych do klasycznych wartości liczbowych oraz wskaźników reklamowych wykorzystywanych w portalach internetowych.
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