Facebook seeks new business model with content providers

April 20, 2015 08:43
Brad Smallwood, global head of Marketing Science at Facebook, says the number of clicks on an ad is not the sole gauge of its effectiveness. Photo: EJ Insight

Facebook is seeking a new business model with content providers that will encourage them to put their videos and news articles directly on the world’s largest social media network, rather than on their own websites, a senior executive said.

“When people see something that they are interested in, they click on it with their mobile devices. As it takes a really long time to load it, they get frustrated and disappear,” Brad Smallwood, global head of Marketing Science at Facebook, told EJ Insight in an interview last week.

“It’s also a difficult situation for these content providers as they are trying to work with different device suppliers but they just don’t have the technology to do that,” Smallwood said. “What Facebook is trying to do is to make that user experience better so that it will be faster for the users.”

The Menlo Park, California-based company is holding talks with some media companies, including The New York Times, BuzzFeed and National Geographic, about hosting their content on Facebook, instead of the firms posting it on their own websites and feeding a link to their Facebook pages, The New York Times reported on March 23, citing sources familiar with the situation. In return, content providers can share advertising revenue from their content uploaded on Facebook.

It will start testing a new content presentation format over the next few months, the report said. However, some publishers are worried that they will not only lose traffic to their websites by following the new plan, which is championed by Chris Cox, Facebook’s vice president for product matters, but also risk losing valuable consumer data.

Smallwood confirmed that Facebook is seeking to have a new business model with the content providers but stressed discussions are still at a very early stage.

Meanwhile, the company also wants to change the digital advertising industry standards so that marketers will not only rely on the number of clicks and transactions to place their online ads, but consider different kinds of measurements, said Smallwood, who is an expert of online marketing effectiveness.

Over the past five to 10 years, the number of clicks seems to have become the only way for marketers to value their digital advertising campaign but the reality is that “it’s just not how marketing works”, he said.

Nowadays, “about 20 percent of users have created 80 percent of the clicks. Those who click often are marginally more likely to transact online but it does not mean that value is not getting created by those who don’t click very much,” he said.

“The problem is getting a lot worse right now as people are clicking and transacting less on mobile devices… They might see an ad on mobile but they like to transact on desktop or offline,” he said, adding that such transactions can’t be attributed to the impressions of a mobile ad under current digital marketing definitions.

Some people may purchase products by clicking an ad on Facebook but they are actually influenced by TV ads, he said. To check the effectiveness of their Facebook ads, marketers can set up two audience groups, which include one who saw their ads and another who didn’t, and check whether their consumption behaviors are different.

Digital advertisers should also consider using the measurements that have been applied in the TV industry for decades to value their online campaigns. These measurements include reach, resonance and reaction, he said.

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Chief reporter at EJ Insight