Facebook: See? We told you social advertising works

If there’s one question on which much of Facebook’s $60-billion market valuation hangs, it is whether the kind of “social advertising” the giant network offers to brands actually works or not — in other words, whether having fans and social discussion around a product translates into actual measurable sales. Facebook has now released some actual data from comScore that it says proves the value of building up a fan base on its platform, since doing so appears to increase the likelihood that a user will buy something later. But will the research convince advertisers to devote more time and money to Facebook’s social campaigns? And if so, how much of that will benefit Facebook directly?

The comScore study, which is called “The Power of Like 2: How Social Marketing Works,” (PDF download available here) is the second in a series the web-analytics firm has done with Facebook. The first report came out last July, and argued that brands using the social network need to do more than simply build up a large fan base — they need to use a combination of paid and “earned” media (that is, content that is shared voluntarily by users) to promote whatever marketing message they are focusing on. The latest report is an extension of that case, with some statistical database on what Starbucks and Target have seen from their Facebook campaigns.

Fans of a brand buy more, and so do their friends

According to comScore, Starbucks saw a “statistically significant” improvement in purchasing behavior in its stores in the weeks following exposure to promotional content on Facebook. Perhaps most important of all, the analytics firm said this behavior was seen not just among those who were already fans of the brand on the social network, but also among friends of those fans — evidence of what comScore called a “latent branding impact.” The same kind of impact was seen in a study of buying behavior at Target stores, comScore said.

In a nutshell, the report says that by the fourth week following the exposure of fans and friends of fans to certain advertising content — whether in a “sponsored story” or some other social ad format — the test group’s purchasing rate of 2.12 percent was a little over half a percentage point higher than the control groups’ rate. According to comScore, that means the social advertising on Facebook drove an increase in actual sales of almost 40 percent.

As Peter Kafka of All Things Digital notes, the comScore research is a bit of a double-edged sword for Facebook, since it shows that “earned media” — that is, the kind of social sharing that in many cases brands don’t even have to pay for — can generate a substantial bump in sales all by itself, without the need for traditional display ads. Theoretically, that’s the kind of ammunition brands like General Motors could use to justify dropping their ad spending on Facebook and relying on social sharing of their marketing content instead.

Facebook display ads work too, says comScore

One of the comScore study’s conclusions seems to be aimed directly at this idea — and also at critics who question whether Facebook’s paid ads are effective when the click-through rates on them are so low (even lower than the rates on generic web advertising). The report notes that an analysis of the data showed “statistically significant” increases in both online and in-store purchasing for a major retailer after exposure to display ads, despite the lack of clicks, and that this “highlights the importance of using view-through display ad effectiveness in a medium where click-through rates are known to be lower than average.”

Facebook’s Brad Smallwood, head of measurement and insight for the social network, was more blunt in a comment to the Wall Street Journal about the results of the comScore research, saying it proved that “It’s a myth that Facebook advertising doesn’t work.” The Journal also noted that the quiet period following its initial stock offering has ended, so Facebook is now able to respond to some of the criticisms that arose during the IPO roadshow, and the comScore study is clearly part of that effort.

One thing the study also reinforces is just how much advertisers are betting on Facebook: according to comScore’s analysis, more than 15 percent of all U.S. online display ads were “socially enabled,” meaning they contained a message asking viewers to “like” or follow the brand or the campaign on Facebook. That’s almost double the number of ads that contained those kinds of messages in November of last year, the report said. That kind of bet is what drove Salesforce to spend close to a billion dollars to buy Buddy Media, which specializes in managing Facebook pages and social campaigns.