Facebook’s IPO was a pretty major flop and Zynga’s user base is declining because people are losing interest in playing games on the social network. To make matters worse, companies are starting to learn that they can make a major impact using free Facebook services instead of spending money on targeted ads. For example, luxury watch vendor website Melrose.com president Krishan Agarwal told a room full of Internet retailers last week that Facebook helped his company generate about 25% more sales in two years while spending less than $1,500 in Facebook ads. Everything else they did on Facebook was free.
Facebook is trying new advertising ideas to alleviate concerns from businesses by integrating ads into the News Feed” and better customer behavior tracking.
Analysts are suggesting that over the long run, Facebook should start charging for services that are currently free.
Not all retailers believe that Facebook ads are a waste of time and money. RCC Western Stores e-commerce head Katie Ennis said that she analyzed the ROI of Facebook ads with the head of finance at the company. “The conversions were just not there. People would click on the ads sometimes but would not buy,” she said. “So we completely stopped doing Facebook ads earlier this year.” After one month the company noticed a decline in sales so they resumed Facebook ads and sales had recovered.
“So Facebook ads are having an effect, but we’re not sure how and we can’t measure it,” added Ennis.
Facebook encourages marketers to use free tools in order to get customers engaged with their brands and then pay for ads like sponsored stories. One of the newest ad formats is Promoted Posts, which allows companies to post updates for fans on their Facebook Pages. The messages would only reach some followers and companies can now pay to get posts into News Feeds.
Facebook spokeswoman Elisabeth Diana said that advertisers who use only free marketing tools on Facebook “are leaving a huge opportunity on the table to reach more customers.”