Facebook’s Problem with Big Advertisers

Though Facebook has won the battle for being the largest social networking site, they’re still battling for revenue made from advertising like many social networking sites (remember the talk of YouTube when it was acquired by Google?). Users will likely have noticed more ads running on the sites of any Facebook page they land on, including ads integrated within Facebook apps such as Farmville. Though the inventory of ads have increased, the pricing model for Facebook has left them in the dark.

So what’s the problem? Big advertisers like Ford and Pepsi are buying the same ad spaces as small and local businesses, which are those small ads you see on the side of a page on Facebook. These ads provide relatively low costs and great performance- especially with Likes, which is what many brands are hoping to gain from Facebook advertising. Since Facebook hasn’t released any big impact advertising with a higher price tag, big advertisers have been content with the current ad solutions available to them. The result is that Facebook only accounts for 6.4% of total online ad spending in 2012.

Think of the huge reach advertisers have on Facebook- almost everyone has a profile. When you think about the fact that brands can spend millions on just a single homepage takeover of a site like CNN or integrating content into Style.com, it’s easy to see why this a problem.

As Facebook looks into the options it has to help boost revenues, I can only hope that it doesn’t lead to a bigger increase in advertising on Facebook. I’ll admit, in the early days of Facebook advertising, I used to click on a lot of ads because they seemed more organic and relevant to me. Now, however, my pages are flooded with ads- many from businesses who obviously have no clue what they’re doing. I’ve seen multiple ads in Spanish (you can target Hispanics on Facebook), ads for bars in New Orleans (no, I’m not going to fly out to your bar for your specials this weekend), and those annoying ads by colleges that aren’t colleges but hope to be.

The moral of the story: be especially sensitive with your audience on Facebook as they look for new ways of earning money. And the moral for Facebook: keep your more organic-feeling ads and make sure small businesses and entrepreneurs will be able to afford your ads after any ad offering changes.

-Bryan Nagy