Is Facebook Advertising Getting Too Expensive For Startups?
Sofanatics, the Finnish social sports media startup, has decided to quit advertising on Facebook for the time being, citing increased costs and lower conversion rates as the main factors behind the rather radical decision. The company says that despite optimizing and targeting their ads on Facebook, customer acquisition costs have almost doubled due to higher click prices and declining conversion rates.
The cost-per-click of Facebook advertising has reportedly increased steadily throughout the year and it could rise by an estimated total of 80 % in 2011. For Sofanatics, the price of Facebook advertising has risen 50% during this year. The company has also noted a decline in conversion rates, but is Facebook to blame? According to Toni Laturi, CEO of Sofanatics, after pulling the plug on Facebook advertising, the number of visitors to the Sofanatics site dropped slightly, but the average time spent on site almost doubled from 13 minutes to 25 minutes.
Creative Director Sami Kuusela admits that the company has mainly concentrated on growing its user base, but is now shifting its focus on quality, not quantity. According to Kuusela, the money spent previously on Facebook advertising will now be directed at improving the customer experience and growth will hopefully come organically through the existing fanbase and not through "purchased" Facebook visitors.
In another post he outlines the implications of this decision for the community and goes on to apologize for the the inactive users in the community that have signed up through their advertising. Talk about honesty towards your users.
Will more startups follow suit and pull out of Facebook advertising altogether? What methods are you using?
Thanks for the honest views!
I think there has been quite a bit of hype lately about Facebook and quite a few advertisers may find that the return on investment isn't as great as could be expected, especially with super-inflated click prices.
Look at the bright side: if Facebook isn't your thing there are quite a lot of other online marketing channels better suited for direct response and lower cost per conversions.
Definitely it has become too expensive for startups, at least for typically financed Finnish startups.
The other problem is expectation management around Facebook ads.
"if you build it they will come" doesn't work on Facebook ads either. It's not a silver bullet nor a magic wand for exposure.
If you don't manage it and use it with traditional wisdom of marketing then you are going to pour money into a black hole.
I also feel that the Joe Public has lost any respect for Facebook ads and tend to utterly ignore them and assume that by clicking upon one they will be lead to some kind of lie or worse still some kind of scam.
But with advertising clients playing in there with very deep pockets, it is inevitable that startups are bid out of the space. I don't think there is any surprise there given the model used.
I think comparison to traditional advertising channels like radio and TV could apply here. It is really a rare case when a startup advertises on the local radio or could you imagine a startup ad on CNN? That is because market price of advertising is suitable for companies with big revenue. Like beer-producers, car manufacturers etc.
Today about 46% of Internet users visit Facebook so we can consider FB as a really big TV channel. Therefore it was only a short window in time after FB reached masses and before the big advertisers started to use it heavily. This time-window is now closing.