Why Facebook Marketing?
There are many ways you can market. Email, Snail Mail, Events, PR, Billboards, Subway Ads, Social Media Marketing, Print Ads, Google Ads, Content, Tradeshows, Telemarketing, Brand Ambassadors. With so many options, why would ANYONE invest so much time and money into FB Marketing, which is seemingly just a tiny sliver of social media marketing?
I started out my journey thinking of marketing as essentially nothing more than making pretty pictures with text and hoping people click on it. But 3 days in I discovered just how wrong I was.
It ultimately boils down to targeting and engaging your audience and building an ongoing relationship with them. You essentially get to know your customers so intimately, that you can automate the “sales rep” experience tracking them from prospect to lead to conversion to ongoing relationship.
Targeting
Facebook knows everything about you -- your age, gender, location. But targeting demographics isn’t new. What most people don’t realize is just how deep the data FB can extrapolate on your is -- your interests, friends, family, life events, job title, political views. There are companies that combine sales data from different stores you visit, extrapolating your buying habits, income, home value. Facebook knows that you have a dog, a stay at home wife, and 3 kids, who are just starting school. Facebook knows that your kids are big fans of Fidget Spinners and have birthdays coming up in 5 days. Facebook knows you live right around the corner from a store that sells fidget spinners. Facebook knows if you’re traveling and looking for a hotel. Facebook knows that you just broke up with your girlfriend and are back on the dating scene. This list doesn’t begin to scratch the surface of what is possible.
What puts Facebook in such a unique position to get this information is that just about everyone (~1 billion people) have a Facebook account, with the average person using it almost an hour a day! All that time they are feeding Facebook tagged and structured information about themselves and their friends. But it doesn’t stop there. Facebook tracking (Pixels) are on a large amount of websites outside of Facebook, meaning you’re being tracked as you browse the web (similar to Google). And on top of that there are a few 3rd party companies (Acxiom, Datalogix, Equifax, and Epsilon) that buy data about your store purchases through shopper loyalty programs.
But it doesn’t stop there! You can target specific people, “custom audiences”, if you know their emails, FB IDs (ex: they like your page), or phone numbers. So if you have a customer list, email list, you can target those people directly.
Facebook also has a great algorithm for “lookalike audiences” that takes a sample set of people (ex: current customers) and finds people with similar demographics, interests, behaviors etc.
I’ll go in much deeper about what’s possible targeting wise. But needless to say, Facebook is in a very unique position.
The Sales Rep Experience - Automated
Traditional online marketers view their ads as one-offs. I showed my online ad to 1000 eye balls. 10 of those eye balls bought a product. If 1% of the eye balls converted, success! Otherwise, that ad was a fail. They don’t treat the customer as a human being, who builds trust with your brand over time. One ad isn’t going to make them buy something (usually). It takes time. And once they’re a customer, you want to keep them engaged, tell them about your new offerings.
Wouldn’t it be great if you have an army of sales reps that got to know every single one of your potential customers, getting to know them inside out, keeping a constant conversation with them. This is the basis for many industries, such as most B2B sales (ex: enterprise software). But it’s not really cost effective in most consumer based product industries. If coca cola assigned a sales rep to have weekly conversations with each one of their customers, they would go bankrupt in...a week.
Facebook essentially allows you to automate the sales rep experience! With the Facebook Pixel, you track individual customer actions (from page like to website visit to lead to purchase) and get to know their habits. Then you can target them with different creatives depending on where they are in their journey of getting to know your brand. It would be ridiculous for a sales rep to give the same pitch to a cold call as they do to a customer that’s been with them for 5 years. Why should it be different with online marketing? And with targeting you can give that “personalized” touch. A sales rep would act different with a millennial programmer than a 65 year old CEO. A sales rep would know the intimate details of a person’s life. Like how many kids they have, do they have a dog. Did they just start a new job. Facebook already knows this. And more.
It’s foolish to treat Facebook Ads as an isolated environment. Facebook Ads do not stop when you leave Facebook.com. Facebook knows who “you” are whether you’re on your desktop or your mobile, on Instagram, on Facebook and can reach you with ads. But as I described in the Targeting section, Facebook can track and “listen” to you in a far vaster ecosystem.
If you really use Facebook Ads to its full potential you will keep a constant conversation going with each one of your customers, leads, and prospects.You will gather more and more of your own info about them, as you get to know them.
A True-Value Ad Bidding System - That’s Good For the Consumer and Advertiser
Facebook says that it’s bidding system is good for the consumer and the advertiser. It also says it doesn’t optimize for Facebook’s profit, but for the user’s experience. When I first read this the first thought that entered my mind was “Yeah fucking right, Zuckerberg, you money grubbing asshole. I’ve seen Silicon Valley and know you won’t stop at anything to deepen your fatcat pockets.” Why would Facebook, a publically traded company, that has a duty to its shareholders to maximize profit...make less money?
Then...I looked into it, and holy crap, they weren’t kidding. There are 2 parts to it….First an auction system that gives incentive for bidders to bid their true valuations of an audience. Second, a very heavy weight towards relevance of an ad (i.e. you pay less if a user is more likely to engage with your ad).
VCG Auction System
First, let’s consider a typical bidding system, like eBay. There are 100 people interested in buying a MacBook Pro. You place a bid for $1,500. A few minutes later you get a message “you’re outbid”. $1,510. So you raise your bid. And you’re outbid again. And again. A minute before the end of the auction you are madly refreshing the page, entering bids $0.01 more, only to be outbid the last millisecond by a bot.
Imagine that was your job as a marketer. You would spend more time trying to outsmart bidders than actually making good creatives and finding the right audiences. The VCG system makes it so that you have to do as little thinking as possible. Just say what an action is worth to you, and let the system take care of the rest.
Facebook’s auction system is based on the Vickrey-Clarke-Groves auction. The idea was creating an auction system that maximizes “social good”. This isn’t new...It was proposed in 1961, but never quite caught on until FB implemented it. To be honest, just like with bitcoin, the full math behind it goes way over my head. But I’ve had very trusted Math Ph.D. friends swear it works. Luckily, you don’t need to be a Math Ph.D to understand its effects.
Unlike most auctions (ex: eBay), the user doesn’t see other’s people’s bids, and they can’t bid more than once. This system is very hard to game. You might think there would be people who would try to estimate what the next best bid will be, and beat it by $0.01, eBay style. But, believe it or not the best strategy is to bid the maximum you’re willing to pay for that audience action. For example, if you will receive $10 revenue from a conversion on selling your chew toy, bid $10 on a conversion outcome.
You don’t pay what you bid. You pay less. In fact it’s much closer to the 2nd highest bidder. So if you bid $10 for an outcome, and your competitor bid $3, you might end up paying $5. So you don’t have to worry about setting your bid too high. Or too low. Just set it exactly at what you’re willing to pay.
It takes into account multiple advertisers bidding for multiple sets of eyeballs at every particular moment. At every given moment there is a new set of people on FB and Instagram, and a different set of advertisers who care about different sets of targeting options (ex: the same user who is a pet owner may be worth $10 to me because I sell pet food, while he may be practically worthless to a phone company). What makes things complicated is that there are millions of users available at the same time, each with different combinations of profiles, that may be more or less appealing to each bidder. Some bidders may have larger budgets to buy more eyeballs at the time. Others may only want a few. There are also so many possible actions you are bidding for from the same eyeball. An impression (CPM), a link click (CPC), a page like, a conversion, a post comment. VCG takes ALL of that into account.
So basically with VCG, everyone’s happy...Except the seller. VCG optimizes for the 2nd best combination of bids (essentially, the outcome if you, the winner, weren’t at the auction). You end up paying more than the 2nd highest bidder (who doesn’t care at this point, because he wouldn’t pay that high), but less than your actual bid (which you’re very happy with, because you got a great deal). This of course means the seller (Facebook!) doesn’t get the maximum possible it could get. Why would Facebook do this? Did their executives get way too high when California legalized marijuana one day? I promise...bear with me, it’ll all make sense.
Weighting Towards Relevance
The second part of the bidding system is weighting for relevance. That is, the more likely someone is to engage with your ad, the less you’ll end up paying. That means there’s extra incentive for advertisers to make higher quality ads for their users and target only to people who are likely to buy.
Weighting Towards Conversions
FB looks at likeliness that your ad will be clicked/converted.
Why??
You’re probably dying to know why Facebook would do this. Why would they knowingly make less money?
Because their central vision and main goal is simple -- make advertisements RELEVANT!
So...why does FB care SO much about the relevance of their ads? Because selling items and selling eyeballs is inherently VERY different. A seller wants to get rid of their item. A user doesn’t necessarily want to be looking at ads. If they keep seeing irrelevant ads, they will ignore them. That’s the problem with advertising these days. Advertising is everywhere, and it’s rarely relevant. We are desensitized. Advertising is viewed as annoying. Facebook wants people to view its ads. Conditioning its users to engage and interact with advertisers over a lifetime is FAR more profitable than making a few extra bucks now. Users will be happy because they actually receive ads for products they want. They feel educated instead of sold to. Marketers are happy because they see the best possible returns for their spend. Facebook is happy because it will make them a lot of money in the long run.
Facebook vs Google Auctions
Google Ads use the GSP system as its base (generalized second-price auction). While it is somewhat similar to VCG’s mechanism (the price paid by the top bidder is closer to the 2nd highest bid), there are some key differences. Facebook optimizes for the highest eCPM/eCPA potential. That is, it favors bidders that will have the most return from the ads (the highest click through rates for example).
Reach
As I said before, just about everyone’s on FB, and they’re using it for near an hour a day. That’s a lot of eyeball time.
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