How Effective are the Ads on Social Networks?

In many ways, social network advertising is the equivalent of a white Gap t-shirt. Just about everyone you know has purchased one at some point, but for all its practicality it's about as far from glamorous as you can get. Buy a text-based Facebook ad with a tiny little image, and you're buying a Gap tee. It's no evening gown, but it works.

In the online world, one might compare Facebook ads to paid search placements. There's something utilitarian about them. They're affordable, easy to create and manage, and offer the precision targeting advertisers seek — and the results you'll get are similar to what a paid search campaign can produce. If paid search is the workhorse of online media placements, then Facebook ads are its colt.

But there is also another problem, a bigger problem which is broader than just Facebook. The question is how effective the ads be on social networks? On the surface, it's a no-brainer: every site that has traffic makes money on ads, right? But there's more to the story than just the surface.

The most effective ad play online is, of course, Google. Its big because its model is pay-per-click (CPC). That is, advertisers only pay if users actually click through to the site. Of all Google's offerings the most successful one is Google AdWords, in which contextually relevant ads are displayed on top of search results. It is so successful because a search represents intent, so users are more likely to click on ads that advertise things they are clearly actively looking for.

Right now, people are using social networks to socialize and browse, they are not actively searching for products and deals and likely, CPC would not be effective. It is still too early to tell. 

As it stands, the jury is still out on whether social networks can get big via highly targeted advertising. Early trials have shown that CPC is not a likely route and CPM plays are just not as interesting. Yet, Facebook is certainly very aggressively pushing for monetization, likely in preparation for a future IPO. Will they be able to turn it all around and re-invent contextual advertising? The company is full of brilliant people so it's certainly possible, but so far it does not look impressive.

What do you think about advertising opportunities on social networks? What kind of plays do you see possible and what do you think about current Facebook ads?