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Facebook Advertising "Free Ride" Over? | Cote Media

That”s more or less the highly misleading headline from today”s @WSJ.

Dare we say it, but the Journal is just slightly behind the curve here as almost everything in their article has been well-known in the SMM community for over a year. Obviously sponsored stories and ads are part of a well-rounded, effective Facebook marketing campaign, so where”s the news?

Effective social media marketing has never been “free.” Rule #1 of social media marketing for business is that you can not run your business and an effective SMM campaign at the same time. Once business owners understand that the question then is simply one of determining the most cost-effective method of implementing their campaign. (Outsourcing is really the only way to go, but we”ll leave that for another day.)

The trick here, of course, is figuring out how best to have your free content on Facebook mimic the paid advertisements and reach a similar number of consumers.

That”s what we do for our clients every day.

We”d tell you how we do it, but then we”d have to kill you. And nobody wants that.

Here”s the article:

By GEOFFREY A. FOWLER And SHAYNDI RAICE

For advertisers on Facebook Inc., the free ride may be coming to an end.

When the social network filed for its initial public offering on Wednesday, the spotlight shifted from the site”s exponential user growth to a metric that may have more bearing on its market value: ad sales.

For years, many advertisers simply set up shop for free on Facebook, displaying their brands to users who “liked” them. But to see how Facebook now hopes to turn many of those advertisers into paying customers, look at how it convinced Omaha, Neb.-based retailer Gordmans Inc. to stop relying on free Facebook marketing and to start spending on a new kind of Facebook ad called “Sponsored Stories.”

Facebook”s explosive growth attracted Gordmans to set up a free page on the site as a virtual hangout to have conversations with customers. “The cost was the time it took to build the content and post it,” said Veronica Stecker, Gordmans” media manager. The retailer didn”t pay a dime to Facebook.

But last year, as Facebook added more components to its site, and users shared exponentially more content with friends, Gordmans” free messages started getting drowned out, said Ms. Stecker. “There is simply more competition,” she said. These days, she rarely even finds unpaid Gordmans posts in her own personal News Feed, the home page that displays status updates from users” friends, she said.

Gordmans isn”t alone. According to a new study by Portland, Ore., marketing firm BlitzLocal LLC, between June 1 and Dec. 31 of last year, unpaid displays of marketing posts to users, which the industry calls “organic,” decreased 33% among its more than 300 clients. “Content that used to live for a day may now live minutes in a user”s News Feed,” said Dennis Yu, chief executive of BlitzLocal, which analyzed some 5.7 million posts.

Amid this shift, Facebook last year unveiled a new ad format, dubbed Sponsored Stories, which requires marketers to pay for exposure for their posts—including some they might once have gotten for free.

“Over the past couple of years, Facebook has started to make it more challenging to appear in the News Feed,” said eMarketer Inc. analyst Debra Williamson. “If Facebook wants to derive more revenue from big brand advertisers, they want to be in that News Feed where everybody”s eyeballs are.”

Getting advertisers to pay is a critical challenge for Facebook as it becomes an online media company. In its IPO documents, Facebook reported $3.71 billion in revenues in 2011, mostly from advertising. Ms. Williamson says that is nearly $500 million less than she expected.

Facebook declined to comment.

Ms. Stecker from Gordmans, who had already begun buying traditional Facebook display ads to attract more “likes” to her page, decided to give Sponsored Stories a try last spring.

Here”s how it worked: Once a user “likes” Gordmans, the retailer can pay to have posts rebroadcast to the user, and his or her friends. It recently sponsored a story that asked fans to “show your local Gordmans the love,” by casino online participating in a vote for their favorite store.

This type of ad is unique to Facebook, because it essentially creates a word-of-mouth campaign en masse. Facebook executives argue that a recommendation from a friend is more trusted and worthwhile than generic ads on TV.

Still, Facebook lists as a risk factor in its regulatory filing that ad products like Sponsored Stories are “experimental and unproven.”

“Facebook is placing a major bet on Sponsored Stories,” said Jed Williams, an analyst with BIA/Kelsey. “The News Feed has been the long unchartered territory where [Facebook CEO] Mark Zuckerberg would not take [marketers]. That is not by accident. That is a more powerful unit than slapping banner display ads.”

So far, Sponsored Stories have worked for Ms. Stecker, generating click rates of up to four times those of traditional Facebook ads. The “show your love” sponsored story, which ended on Thursday, was seen by 118,000 Facebook users. The reach of a unpaid story is usually 16,000 to 20,000, Ms. Stecker said.

“It was a smart business move on Facebook”s part to charge for premium placement,” said Ms. Stecker. “Advertisers will spend money on advertising, it is our job; the question always is—is the juice worth the squeeze?”

Whether, and why, free exposure on Facebook is drying up is a debate among some social media marketers. The News Feed displays relevant information to users based on an algorithm called “EdgeRank,” whose formula is closely guarded by Facebook, but incorporates factors like how much users interact with a given post.

Some who have noted the shift said they haven”t detected that Facebook is intentionally ratcheting back free exposure to raise more revenue through sponsored stories. “There is just more “stuff” and Facebook has to apply a higher-power filter,” said BlitzLocal”s Mr. Yu.

Regardless, many ad agencies said it is becoming increasingly important for marketers to invest money in Facebook ads if they want to get the most use out of it.

At Gordman”s over the last year, Ms. Stecker”s Facebook ad budget has grown by about 15%, and now a third of it goes to Sponsored Stories, up from zero a year ago. She declined to reveal dollar figures.

Facebook ad prices, and particularly Sponsored Stories, are generally lower than other sites, she said. But they”re also on the rise: In its regulatory filing, Facebook said the average price per ad grew 18% in 2011 compared to a year earlier.

“For us, Sponsored Stories are the most feasible form of advertising on Facebook,” Ms. Stecker said. “At least for the next year, we don”t plan to go anywhere else with that budget.”

Still, she”s not yet convinced it is going to play a big role. “We still don”t have a huge correlation between Facebook fans and return on investment in an actual sales in store. Until that metric becomes a lot more solid, I don”t think our company or other brands are going to be full-fledged into Facebook advertising.”

—Suzanne Vranica contributed to this article.