If Facebook advertising were a drug, the FDA would never approve it.

By Leslie C. Norins, MD, PhD | May 18, 2017

If “Facebook advertising” were a pharmaceutical, its $27 billion annual sales would dwarf those of every other available drug. But it could not be sold in the U.S. until Facebook (FB) provided the FDA with rigorous proof of efficacy, i.e. does the “drug” accomplish what it purports to do?

This analysis reveals that although FB is a vast and popular social networking system, there is surprisingly little convincing proof that FB ads deliver to advertisers the financial rewards that the company and its believers promote.

Therefore, FB’s application to sell its ad offerings would be denied by the FDA for “insufficient evidence of efficacy.”  FB advertising revenue, the major income source for the company, would dry up.  FB’s share price would plummet. With little income, the company could collapse.

Effective advertising must produce sales increase

There is no doubt in C suites that the most important mission of advertising is to boost sales.  (Some lower-level executives have been brainwashed into accepting trendy secondary purposes, such as “brand building”, “engagement,” and “promoting community”, but these labels can also be euphemisms for ads that fail at selling.)

So, acting as our own FDA, we searched for rigorous proof that “FB advertising” does provide provable revenue and profit to those who purchase it.

Facebook’s own website searched first

The most impressive marshaling of facts, case histories, and persuasive arguments for the purchase of FB advertising would be expected to be found on FB’s own website, i.e. “Put your best foot forward” and “Toot your own horn.”

So, I started my research at Facebook.com/business.  Then clicked onward to “Inspiration”, to “Success Stories”, next to “Find Stories”, and then “By Goal.”

Here I was offered five choices.  I picked for exploration the two which would bring an advertiser revenue and profit most quickly: “Drive Online Sales” and “Increase In-store Sales.” (The other three were: Generate Leads, Raise Brand Awareness, and Promote Your App).

What was inside “Drive Online Sales”?

There were 168 entries, arranged on each of seven pages as three per row, eight rows per page.

Scanning all, my immediate impression was that—and I apologize to their proprietors –at least three-fourths were firms I never heard of.  Maybe they are small, new, or have limited geographic activity.  But hardly a convincing ensemble to vouch for FB’s general success at driving ad sales in the billions of dollars.

Results presented for The New York Times

But wait.  Here was a familiar name. One of the 168 was The New York Times.  Here’s is FB’s presentation of those results:

“By targeting based on readers’ level of engagement and interests, The New York Times significantly decreased its cost per subscription, while also increasing its volume of conversions.

“During June 2015, it achieved:
*25% reduction in cost per subscription
*2.3X increase in volume of subscription conversions
*45% increase in Facebook ad investment”

Here we encounter the problem that is endemic in most of the case histories supplied by FB: lack of critical information needed for accurate evaluation of claims.  Thus, these “achievements” are difficult to interpret.

Let’s scrutinize this one as an example.  Was a statistically significant number of subscriptions received above some baseline to calculate the 25%.?  Does the 2.3 X increase in “conversions” mean free subscriptions were converted to paid? Or that visitors to the Times website were later turned into subscribers? And how was either “achievement” traced solely to the FB ads? Were any other subscription solicitations running concurrently elsewhere?

The final line could mean online users “investing” more hours with the FB ads, or that FB sold 45% more ads to the Times.  Neither seems an “achievement” of the Times ads themselves.

Also, June 2015 was only one month, and it was 22 months prior to our visit to the FB website.  If the purchase of FB advertising brought the Times impressive rewards, why is there no mention that the campaign was greatly expanded, and run continuously until now?

How about “Increase In-store Sales”?

82 entries.  Ditto to “Drive Online Sales.”  Riddled with weakness and incomplete information.  Don’t bother.

Other deficiencies throughout the above two

There was frequent mention of “Return [add the applicable digit ] times Spend”, but no indication of magnitude; $100 or $1 million?  Several “ROI” numbers asserted would be world records, leading sophisticated readers to question the ingredients of their calculation, or at least how widely they could be applicable.

The quotations included from most vendors or their agencies were very general, harmless and vague.  They could mean anything from “OK” to “We’ll keep FB in mind.”  Not one like: “We’re doubling (or quadrupling) our spending for FB ads in light of these results.”  Or, “Careful appraisal showed our profitable results were attributable solely to the FB ads and to no other factors.”

Another pathway to Examine: “Boost Sales”

There remained another pathway to look for proof of increased sales and profit.  Back to Facebook.com/business. Then click on “Marketing on Facebook.”  Next to “Marketing Goals..”  Select “Boost Sales”, as the choice most pertinent to fastest revenue and profit. (Five other choices were: Build Presence, Create Awareness, Drive Discovery, Generate Leads, and Earn Loyalty).

Then, four branchings under Boost Sales are: Website Conversions, App Engagement, Offer Claims, and Promote Your Catalogue. Each of these displays a main example, at the bottom of which one can click further, to visualize three more FB- selected “related success stories.”

(We were getting a bit suspicious that this elaborate branching chain of choices might be formulated to tire most inquirers, to the point they conclude “Wow this is such a massive presentation, there must be a lot of ‘proof’ in here—somewhere.” And give up.  But we pressed on.)

“Website Conversions” to boost sales

Company featured as prime proof:  MM LaFleur.  This entry flunks as evidence of “Boost Sales”, because there is no information about sales or profit.  Instead, we learn only that there was a “5X increase in the number of completed Bento Box surveys” (Bento Boxes are the firm’s monthly shipments of women’s clothing), and an “81% increase in new customer acquisition.”  The FB editor added this: “By testing different calls to action, the company discovered that ‘Learn More’ drove more people to the brand’s website than ‘Book now’.” That provides no evidence that sales were boosted.

“Related Success Stories” offered beneath the above

  1. Felix Gray. This specialty eyewear firm proudly reports that FB ads helped it “grow its staff from 2 to 6”, so it was obviously a small company.  Inferentially its FB budget was also small.  Thus, how meaningful and transferable to larger companies are results of “6X return of ad spend on a gross revenue basis?”  And, how was it determined that the gross revenue came from the FB ads?
  2. Artifact Uprising. A custom photobook and gift company.  The cited campaign covered November-December 2015, only two months.  A reported result was “20% lift in new website visitors.”  Financially-related items were: “Increased sales by 20%” and “4.7X return on spend.”  There is no report of a repeat or expansion of the campaign.Here is the determinative quotation from the company: “Facebook and Instagram have both been key components in our overall company growth.  The communities have provided us with a vehicle to easily communicate our brand position and product offering through organic reach and sharing. The ad products helped us amplify this approach to a broader audience.” Those words will certainly offend nobody, but how relevant and convincing are they as proof of FB boosting sales by website conversions?
  3. ShopRite Supermarkets. It’s puzzling how this company was placed here, because their goal stated is “Raise brand awareness”, not web conversion to boost sales.  The text says “491,380 people reached”, but it is not clear if that is provable, or a theoretical number from an algorithm. And “0.06 cost per video view” is given, but there is no mention of how that affected sales. And what was the campaign duration, and was it repeated or expanded?

 “App Engagement” to boost sales.  This is the second category of the company’s examples of FB ads boosting sales.

Seller featured:  Zynga, the online game merchant. The goal was “Engaging lapsed players.” The offer was a 10% off discount for one day only. “A global campaign in 13 languages.”

FB’s writer declared the campaign “was highly successful.”  1.2 million unique users were reached an average of 1.2 times [each].  Results? “There were “2,285 mobile apps re-installed on new devices at $3.90 eCPI.”

According to social media commentator Tony Hymes, the “eCPI (effective cost per install) includes not only the actual cost per install, but also includes customers attracted by viral word-of-mouth that costs nothing.

Thus, by my reasoning, any raw “cost per install” will become apparently cheaper the greater the amount of “word-of-mouth” sales applied against it.   But there is no surefire way to pinpoint word-of-mouth sales attributable to any online ad.  Hence, any FB ad’s successful financial result that includes a word-of-mouth increment should be viewed as uncertain.

Zynga is of special interest because of its long-time close relationship as an FB source of revenue.  For example, in FB’s IPO offering statement in 2012, it was revealed that “Zynga accounted for 12% of FB revenue in 2011.”  These monies came from two sources: payment processing fees for virtual goods (i.e. online games) and direct advertising purchased.   Thus, there is a kind of commercial interdependence here, and any testimonial by one of these parties about the other must be evaluated with caution.

Also, online games are a small subset of total merchandising, and the participants are drawn from online enthusiasts.  Thus, it is questionable how generally applicable any online game example is for other categories of goods or services.

At the bottom of this presentation, one is invited to click on an additional three Zynga “success stories”, possibly for ads achieving sales boost through app engagement.  For the reasons just stated, these were not explored.

“Offer claims” to boost sales

This third category is of special importance.  It’s really FB’s chance to present unequivocal proof their ads “work.”  For example, merchants can directly trace the response to their FB ads by counting an offer’s in-ad discount codes entered in their online checkout page or verbalized for in-store purchases.

Interestingly, no national or regional advertiser is presented.  The spotlighted advertiser is a local one, LUX, an upscale tanning salon in Dallas.  This campaign ran for the last part of 2014 (Hello, we are now in 2017) and featured an offer of unlimited tanning sessions for $118.  Results were said to be 6X return on spend.  And FB ads produced 27% of total sales.

Once again, crucial details to enable interpretation are lacking from the text. However, adjacent to the words is a screenshot of the FB ad.   Though the image is small, its words are discernible.

Of particular interest is the note that “127 people claimed it” before it expired.

If we multiply the 127 claimants by the offer’s price of $118, we obtain $14,986 as the revenue putatively gained from this ad.

And, since that revenue is said to be 6X the ad spend, if we divide that sum by 6, we obtain $2,497 as the probable ad spend.  Small potatoes.  Pocket change.

Maybe some of our assumptions or inferences about the LUX story are erroneous, but that would largely be attributable to the paucity of data and explanations presented.

The glaring deficiency in FB proofs is well shown right here.  With FB given the chance to select and present direct and unassailable evidence of ads working, from $27 billion in ads worldwide, we expected a leviathan (or a pod of them) and are given one baby minnow.

Subsidiary “Related Success Stories” listed below “Offer Claims.”

There are three merchant stories presented.   Not one has anything proving “Offer Claim.”  The Peach Truck, a touring truck to sell peaches in a several-state area plus online offerings of the fruit, describes no offer.  Neither does Neon Retro Arcade, a local mom and pop store in which to play video games and pinball machines.  It states color images and maps were used to attract players.  And Hillberg & Berk, a jewelry retailer, presents no offer claim, but instead describes use of “Canvas” display ads.

“Promote Your Catalogue” to boost sales

This is the fourth and final category FB presents as evidence its ads “boost sales.”

The spotlighted merchant is ASOS, a “mobile-first online retailer.”  The text describes “cross-platform dynamic ads” to drive online sales.  However, there is no mention how any online sales were established as being due to FB.

Subsidiary “Related Success Stories” listed below “Promote Your Catalogue”

Three case histories are presented.  Gigantii, a Finnish electronic retailer, reports “dynamic product ads” were used.  “Desktop purchases driven by mobile impressions were particularly h3.”  The ads “automatically promote the most relevant product.” No mention of proven results.

Home 24, a European seller of furniture and home accessories, was cited as using “automatic bidding retargeting” and “dynamic image editing.”  No catalogue mentioned, or results proven.

Finally, Trendday.dk, a Danish fashion retailer, was said to employ dynamic ads to “encourage website visitors to buy.”  They also purchased “custom audiences” to re-engage website visitors, and “lookalike audiences” to solicit buyers.   Proof that anything “worked” was missing.

In all three of the above, there is little proof of success in “promoting your catalogue.”

Recent report: business results present in Success Stories

A recently released report by Nate Elliot, an independent consultant, states that in his sample consisting of 50 FB-published case studies “Nearly 90% …highlight business outcomes.”   (His cases were selected from the same universes we tapped above.)

Main drawback:  all these case studies were compiled and written by FB’s own copywriters, on the FB Business website.  How unbiased could these be?  Backup data are not included, plus we have no idea how many “non-success” stories the writers had to overlook to find these supposedly favorable ones.

Elliot also considers the slippery and non-financial term “awareness” as a qualifying “business result” in these reports.

He also spotlights the Orlando Magic (basketball team) case as exemplary of “return on ad spend.”  Inspecting this “success story” on FB reveals a claimed “72X return on ad spend” for a one-month campaign, December 2015.   Wow!  This probably sets a galactic record in advertising.  Please reveal the details for everybody’s use, so we can all get 72X return on our ads.

Our findings so far

Very disappointing.  Lack of ironclad proof for any ad claim about effectiveness.  Examples offered are not current for 2017, and are often wrongly categorized, or small or atypical merchants.   Almost anecdotal.

We must seek elsewhere for more convincing proof FB ads are worthwhile. Therefore, we turn to Google.

Google searches seeking “proof” of FB ad efficacy

FB went public in May 2012.  If the billions of dollars spent each year to purchase FB advertising resulted in commensurate sales and profit for products and services advertised, there would certainly be by now—five years after the IPO– many advertiser “success stories” printed in business and trade publications, plus confirmatory scholarly reports in academic journals.

FB itself would probably have commissioned universities and think tanks to seek out, analyze, and write up some independent ones.  (Wouldn’t you authorize such to help assure the continued success and growth of your $27 billion product?)

How to search for such accounts?  A rapid, wide, and deep screening can be accomplished using searches on Google.

But when a topic is not precise, to cover most of its aspects one must enter multiple search terms into Google. I composed ten most likely to embrace the FB ad financial success information I wanted.  While this list may not be perfectly encompassing, it is certainly broad enough to unearth any substantial evidence proving the efficacy of FB advertising.

These ten search terms are presented in Table 1, arranged in descending order by number of results its Google report stated had been obtained.  There were approximately 426 million results in all.

Table 1.   Ten Google Search Queries on Facebook (FB) Ads Effectiveness

Search Term Results (Millions)
Why does FB advertising work? 108
Proof that FB advertising works 93
FB ads versus Google search ads 61
Do FB ads pay? 60
FB ads versus print ads 36
FB ads success stories 23
FB ads profit results 23
Do FB ads increase sales? 16
FB ads ROI case study? 3.2
Case histories FB advertising success 2.8
Total 426

Thus, plenty of information deemed relevant by Google’s secret search algorithm is available to anyone interested.  But how impartial, detailed, and convincing are the reports unearthed?

Obviously, inspecting 426 million citations is impossible. Therefore, I looked to the oft-heard dictum “If you’re not on the first Google page, you don’t exist.”   But “first page” seemed too strict, so I examined the initial three pages of results for each search term.

There being about ten listings per page, I thus explored 30 informational results per search term, or 300 items in all.

My thesis was that if clear and convincing evidence exists that FB ads more than pay for themselves, it would frequently be found among these 300 highest-priority results.

Results

Reviewing the 300 results, mostly all being articles, I found none reported a convincing example showing that a FB ad campaign directly brought in sales or profit.

Instead, the articles could be classified into two categories:

    1. Recipes for creating FB ads that “worked.”These instructions for success are mostly vague generalities and admonitions (quoting here):  test multiple designs, be consistent, be credible, include a call to action, eliminate fear of buying, choose powerful images, place ad on news feed, choose FB prospects like present customers, describe the persona of likely buyers, place ad on right hand side, ensure web page linked is congruent with ad, be both rational and emotional, and test crazy ideas.
    1. Advice on measurements to indicate FB ads were “working.”These should comprise various amounts of the following metrics: click-through, view-through, multi-touch attribution, engagement, tracking videos viewed, close targeting and mass reach.Increase in revenue or profit directly creditable to the FB ad was not mentioned by anyone as a necessary or desirable metric in any article.

Interestingly, none of the 300 articles was written by a merchant or other end-seller of goods or services delighted with the financial return which resulted from their FB ads.

Instead, the sources for business reporters, or the actual authors in many cases, were social media consultants and ad agencies that would profit from attracting new clients whom they could help with FB advertising.  A number of the articles offered free tip sheets or reports which promised keys to FB ad success (linked of course, to hints that one should engage that writer.)

[Brief detour.  For completeness, we must also recognize a nefarious possibility.  FB and Google are in many ways competitors for advertisers’ dollars.  Therefore, might it have occurred to somebody deep within the Googleplex to tweak its search algorithm to downgrade, or even hide, the best proofs that the rival FB ads “work”?  I doubt it, because other information troves searched also failed to reveal the sought-after evidence.]

Those ten Google searches were supplemented by searches for similar terms indicating financial efficacy, querying the HighBeam online research site for articles in newspapers, trade magazines, and journals, search of the websites of marketing and advertising trade publications, and Harvard Business Review, Wall Street Journal, and New York Times.  Not one item was found wherein an advertiser reported significant revenue or profit directly gained through FB advertising.

Discussion

In examining any product that is believed to have a benefit worth $27 billion, or more, annually to buyers, due diligence and other evaluations must go well beyond “wisdom of the crowd.”  FB advertising is such an offering.

When a blockbuster drug from abroad is evaluated by the FDA for approval to be sold in the U.S., the agency cannot consider how popular the chemical is with patients in other countries, its sales in those locales, or the financial heft of its manufacturer.  Or its allies or enthusiasts.

The principal focus is on “efficacy.”  Does the drug actually do what the manufacturer claims it does?  Is the buyer better off for having used it? Evidence is required.

The FDA recognizes that certain categories of assessors may have open or subtle biases in favor of the applicant.  These especially comprise people with a financial interest in the approval and wider sales of the candidate compound.

These include: the creators of the compound, its manufacturer, the professionals employed by it, its legal and financial advisers, investors and shareholders, and those who can gain revenue through advocating and counseling on use of the product, such as advertising agencies and freelance consultants.

Thus, the above groups or persons are considered to have a conflict of interest, and their evaluations and praise for a product are discounted accordingly.  Instead, emphasis is on evaluations from independent experts and groups.

Starting out, we supposed that FB advertising, the principal source of FB revenue, has by now (five years post-IPO) assembled and presented detailed and unquestionable proof of its power to produce sales and profit for each segment of the entire breadth of advertisers it courts.

But no.  Our research has not turned up any clear and convincing evidence–from parties without financial interest in the verdict–that FB advertising brings sales and profits to most FB kinds of advertisers.

Ad metrics beefed up 4 ½ years after FB’s IPO

The second half of 2016 saw a blizzard of FB actions to bolster the credibility and usefulness of it ad measurements.  These included creation of a Measurement Council, and a blog now called Measurement FYI (originally launched as Metrics FYI).

It also added DoubleVerify to its third-party verification program, bringing the number of its “independent partners” (an oxymoron?) for measurements to 24.

Why massive failures of inquiry?

Here’s what’s shocking.  Most all FB revenue and profit have always come from advertising. Yet even now, five years post-IPO, there still remain fundamental unanswered questions about the proper measurements necessary to reveal how effective FB ads are. Or, as we ask, where is independent proof that most FB ads are working at all for most buyers of them?

Why have there so far been such weak requirements for ad payoff evidence by the VCs, the IPO underwriters, the current crop of FB stock analysts?  And by the digital ad agencies and social media consultants?

And why so few demands by the executives of the companies actually paying for the ads?

Do more than a few FB ads pay off?

Let’s be clear.  We are not asserting that FB ads never directly produce financial reward for a few merchants. But our research found no rigorous proof this outcome is widespread.  So, to put it more crassly:  most who pay for FB advertising are wasting their money.

Some Wall Street wags will say, “But FB ads do produce huge revenue and profit—for Facebook!”  (An updated version of “But where are the customers’ yachts?”)

I give little weight to marketers, agencies or consultants who excuse weak results for digital ads by claiming it is sufficient for such to merely “build the brand” or “increase awareness.”  Unless the supply of such ad funds is infinite, a company or product line can be bankrupted by such nebulous tactics while still awaiting sales and profits.

And cynically, any expenditure, and any lousy result, can be sheltered under these umbrellas.  After all, who can deny some increment of brand building or awareness is accreting somehow, somewhere after any ad expenditure?

So where are ironclad data that FB ads pay off financially for the great majority of FB advisers?

Facebook’s split personality:  conduit and merchant

Insofar as content is concerned, FB asserts it is merely a passive conduit, albeit a vast one, for member postings and collected news. It disclaims most responsibility for what these items contain.

(But recent criticism of postings of hate speech and crimes have led FB to increase its review of submissions.  But the “only a pipeline” defense has enabled FB to largely weather content storms—so far.)

However, FB is also a merchant.  The only significant product it sells is advertising.  And revenue from these sales is $27 billion.  Thus, it is the largest ad medium in history.  One could logically expect such a behemoth to have voluntarily, and gladly, put forward every conceivable statistic and fact to justify the financial confidence of advertisers.

Here FB has been walking a tightrope.  They want to give the impression the ad opportunities they sell will bring riches to the advertiser.  Yet they try to avoid revealing any specific statistics or facts which would reveal, or even hint, that an ad will not bring revenue or profit to most of the hopeful advertisers.

FB’s masterful judo

To this medical publisher and scientist, the most astounding maneuver FB has been able to pull off is its “Judo Reversal.”  Through their adroit publicity, and courtship of a supplicant media and consultants, they have tossed on its head advertisers’ traditional requirement for a new medium:  “Prove our ads in your new medium are likely to bring us revenue and profit.”

The FB stance, echoed by their acolytes, is “Prove it’s FB’s fault, and not your ad’s,  if our marvelous new medium, with millions of members, doesn’t result in your ad bringing revenue and profits.”

How informed are buyers of FB ads?

Only now, five years post-IPO, are those who buy this “drug” (the advertisers) finally beginning to demand more transparency, better measurements, and even proof that FB ads are worthwhile.

It is only recently, for example, that FB has said it will allow the Media Rating Council, a prestigious independent body, to conduct some sort of examination.  Mind you, not necessarily one of their full-blown audits. Nor is FB promising to join the Council, embrace its requirements, and seek certification.

FB also states it now has 24 “independent partners” for measurements.  But can a “partner” be truly independent?  Could such a cozy label exist anywhere else in the financial firmament without raising questions about possible conflicts of interest? For example, would the SEC accept that S&P and Moody’s are Exxon’s “independent partners” for measuring the creditworthiness of the corporation’s bonds?

Probably FB intends “partner” to convey knowledge that is intimate but limited, as in “We cuddle together naked, but we never have sex.” The Oxford dictionary definition of “partner” provides little comfort about independence: “A person who takes part in an undertaking with another or others, especially in a business or firm with shared risks and profits.”

Perhaps advertisers have been too accepting of “partnerships” between FB and the measurers of its ads. How critical can either be of the other?

FB secrecy makes ad evaluations difficult

Use of the word “secret” in medicine and business should always trigger the amber caution light for evaluators.

The FDA would not approve a drug for sale, no matter how appealing its purported results, if the manufacturer refused to disclose the ingredients, the methods used to authenticate favorable outcomes, and statistically valid data.

In recent years, the Theranos debacle shows what can happen when VCs and a board of directors apparently rely too much on “secret” lab processes which they themselves did not know or understand.

Not all “secrets” turn out badly, of course.   The Coca Cola secret formula is over 100 years old, and Kentucky Fried Chicken flavors its birds with its secret blend of 11 herbs and spices. The creation of the iPhone was kept a secret until sale time, and its inner programming codes are still not revealed.  But buyers of these products are largely protected by their ability to adequately assess performance for themselves.

The behind-the-scenes workings of FB’s distribution are kept secret.  For instance, no outsider knows how its newsfeed algorithm operates, although that stream plays host to many ads. Tech writers theorize it weighs from 44 significant factors to as many as 100,000 contributing factors.  So FB advertisers are basically at the mercy of the company for advantageous placement of their messages.

Conventional ad placements, audiences easy to authenticate

Advertisers have become comfortable with numbers and verifications used for years in older media formats.  These are not perfect in all cases, but their limitations and pitfalls are well known.

Newspaper and magazines: Receive tear sheets of your ad in print.  Buy the actual issue on the street.  Consult the audited circulation figures from Alliance for Audited Media (better known by its previous name, Audit Bureau of Circulations), or BPA Worldwide.

Direct mail: Verify a random sample of the rented mail list.  Inspect the invoice from the mail house.  Examine the Post Office receipt for the bulk mail dispatched. Seed the mailing list with decoy names to confirm delivery.

Billboards. Choose from government or third party traffic counts.  Drive around towns to view the actual ads posted.

TV and Radio.  Audiences long compared by agreed third-party benchmarks. Station logs. Direct responses to phone numbers in ad.

Difficult to prove FB ads published as purchased

Let’s say your company sells shoes that appeal to California females who are 30-39 years of age.  You’ve sold 100,000 pairs so far.  Enticingly, population data indicate there are 2.4 million such individuals in the state.  So you pay to expose your new ad on FB to 500,000 of these folks within the next week.

But nothing discernible happens to sales.  So you gripe to your ad agency.  They complain to FB, who informs them the problem must be the ad was not appealing enough.

But you persist, and ask for proof the ad actually was distributed as purchased, and that it reached the intended women.  Startled look from your agency rep.  “Well of course it was sent out.  Here’s the confirmation from FB.”

“I see that confirmation, but how do we know a clerk didn’t tap the wrong key, and send out only 5,000, or that a bug in the FB code didn’t route the batch to Colorado males instead of California women?”  Silence.

Trust, but verify: Impossible thus far

Up to now, five years post-IPO, it is almost impossible for most advertisers or their agencies to verify independently that the FB ads they pay for actually went to the desired people.  Or even that they went out at all.

Whatever sampling of ad recipients does occur is limited.  This shortfall is especially crucial for the so-called “lookalike” audiences that, in theory, sound so appealing to a merchant.  FB says to send them your list of customers who bought from you, and they will—with their secret algorithm and vast membership—construct a “lookalike” list of prospects who share the same traits.  The inference is that these new targets will go out and buy the product when the ad is presented to them.

[Let’s overlook the omission of the one customer characteristic FB cannot code for: eagerness/necessity for buying a discretionary purchase like shoes, right now.  Attention, Google]

But how can FB prove beyond a reasonable doubt that a correct “lookalike” audience was even constructed, let alone sent the correct ad?

Did lack of money prevent establishing unimpeachable verifications?

Americans love and respect entrepreneurship.  And many young Internet companies have to bootstrap it, and early on can’t afford elaborate authentications of their Web offerings.  So OK, cut them some slack “for the greater good”, and belief in miracles, etc.

But FB is, and has been, rich beyond miracles.  For the most recent four years combined, 2013-2016, official figures show total revenue at $65.8 billion, and net income at $18.3 billion.  Virtually all this income arises from advertising, which the advertisers place because they have been led to believe something happens that produces revenue and profits.

Spending five percent of sales for R&D would not be considered excessive for a leading tech company. Translated to FB, this would mean that 2013-2016 the company could have made available $3.3 billion to establish beyond doubt the believability of the distribution and impact of its earning arm—advertising. This would be the largest sum ever made available to fund independent research on the efficacy of one medium for advertising.

Because the company’s growth, and even survival, depends on advertising inflows, bolstering the assurances that ads are delivered in the first place, and that they produce impressive, indisputable results for ad buyers, would seem an obvious high priority. There was clearly no shortage of money to carry out and implement every conceivable relevant investigation by independent business firms and academicians to compile such statistics, and to calculate resultant odds for success in every category of merchandise and every type of ad.

So, why aren’t such data available by now to potential advertisers and their agencies?  Does this possibly reflect a studied avoidance of the truth?

Possible fate of Facebook advertising without more proof it works.

Darker possibility: Facebook knows about the flaws in its advertising premise

Suppose, just suppose, FB executives and their backers, who have so much wealth tied up in FB stock, have become aware that the gargantuan FB membership numbers are simply not delivering to advertisers the provable results that will ensure FB’s robust revenue and profit will continue. In fact, these might turn downward—or, Heaven forbid, collapse (as would FB’s stock price).

What would you do if you were aboard the Titanic and became aware it had sprung a leak?  Switch to a new ship.  Use the cash and stock values from FB’s growth phase momentum to buy some other companies which might keep the enterprise going, before the pioneer vessel fills and sinks.

Isn’t it interesting that FB quickly, almost precipitously, bought Oculus for a huge price, on the hunch FB’s founder had that virtual reality would be the next “big thing.”  But unfortunately, that expedition hasn’t yet gained public buy-in. Maybe it will, maybe not.

Meanwhile, FB has already announced its next “big thing”: artificial intelligence.  Exactly how they hope to cash in on this is not yet clear.

But these initiatives, and the various kerfuffles about alleged political slants in newsfeeds and trendings, hate speech, crime postings, fake news, etc. serve to keep attention well-distracted from any inquiries into possible existential weaknesses in the main source of FB revenue—advertising.

Meanwhile, do not expect those who support their families by selling invisible clothes to the emperor to reveal those garments contain little or no fabric▪︎


Addendum

Evaluating Facebook’s disclosures about its ad effectiveness

Selected quotes from Federal Trade Commission’s “Advertising and Marketing on the Internet: Rules of the Road”

Testimonials and endorsements must reflect the typical experience of consumers, unless the ad clearly and conspicuously states otherwise.  A statement that not all consumers will get the same results is not enough to qualify a claim.

Third parties—such as advertising agencies and website designers…also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.

Advertising agencies or website designers are responsible for reviewing the information used to substantiate ad claims.  They may not simply rely on an advertiser’s assurance that the claims are substantiated.

Disclaimers and disclosures must be clear and conspicuous.

A disclaimer or disclosure alone usually is not enough to remedy a false or deceptive claim.

An ad is deceptive if it contains a statement — or omits information — that is likely to mislead consumers acting reasonably under the circumstances and is “material” or important to a consumer’s decision to buy or use the product.

Before disseminating an ad, advertisers must have appropriate support for all express and implied objective claims that the ad conveys to reasonable consumers.

Federal Trade Commission: Associate Director for Advertising Practices

“…Bottom line, The FTC’s endorsement guides apply to all advertising (so long as we have jurisdiction over the product or service), including advertising to small businesses.”

Mary Engle
Associate Director for Advertising Practices

Note to Leslie Norins, May 3, 2017


FDA requirements for demonstrating “Effectiveness” of Drugs

[The 1962 amendments to the Federal Food, Drug, and Cosmetic Act require] …    manufacturers of drug products to establish a drug’s effectiveness by ‘substantial evidence’.  Substantial evidence was defined in section 505(d) of the Act as ‘evidence consisting of adequate and well-controlled investigations…by experts qualified by scientific training and experience to evaluate the effectiveness of the drug…[so that such experts could] conclude fairly and responsibly…that the drug will have the effect it purports to have or is represented to have…in the labeling thereof.

FDA publication


Why was this research conducted?

I undertook this investigation for four reasons: I had spent a few hundred dollars testing FB ads, which seemed to produce no results; I was a successful medical publisher (40 years) who often analyzed results; I had originally trained as a medical research physician with a Nobel Laureate, so I knew something about separating facts from assertions; and I’m obsessively curious.

 

About Leslie C. Norins, MD, PhD

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  • Well done! Now time for the delayed due diligence the stock pushers should have done.

  • Attn Jim Cramer: If the missing proof doesn’t exist in somebody’s files, FB price could sink faster than the subprimes did!

  • Sounds a little like the California gold rush. Only a few of the thousands of miners found gold; the guys who sold shovels made the money. The merchants are the miners; Facebook is selling the shovels.

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