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On Wednesday I moderated a panel at ad:space (an ad:tech satellite conference centered on performance advertising) focused on how performance advertisers can be successful in social networks. The discussion from panelists Ro Choy (Chief Revenue Officer at Rock You, a Lightspeed portfolio company), Seth Goldstein (CEO of Social Media) and Tim Kendall (Director of Monetization at Facebook) was very enlightening.

Comscore recently noted that performance advertising adopts online media faster than brand advertising because it is easier to measure results over short time periods. The knock on social media ad inventory has been that CTRs are low. This is less relevant for performance advertisers who only pay on the click or the action anyway. We heard about some terrific success stories for performance advertisers in social media on the panel who are seeing ROI on their ad spend comparable to Google.

The panelists called out two particular examples of advertisers seeing real scale results. Seth highlighted mobile services as a category that has seen terrific success in customer acquisition in social networks (if you’ve seen the “crush” or “IQ test” ads on Facebook or Myspace you’ll know what he is referring to) and is generating hundred of millions in incremental revenue from this channel. Ro mentioned that Rockyou generated 1.5m new users for an online game advertiser in just one month. Although not represented on the panel, MySpace is selling hundred of millions of dollars worth of performance advertising per year. These are impressive numbers.

The panelists highlighted one key difference between social media performance advertising and Google AdSense style performance advertising. AdSense uses contextual targeting to improve performance. Social media uses demographic, behavioral and social targeting to improve performance.

In the open web much demographic targeting is inferred from behavior. For example a user who visits ESPN.com, Nascar.com and NFL.com might be inferred to be male. This is often, but not always, correct. Social networks take a different approach. On their profile pages, users declare many key aspects of their demographics, including age, gender and location, the three key elements for targeting. Targeting based on these self declared demographic elements can be very effective for performance advertisers within social media. Ro related the example of Rachel’s yoghurt, an advertiser that targeted coupons to women living within 5 miles of Whole Foods in 10 cities through Rock You. The campaign delivered 0.20% CTRs to the Rachel’s Yoghurt site, with a 35% coupon download rate. These are impressive numbers, and led the advertiser to renew the campaign for an additional 12 weeks. Doing such a high level of targeting can result in relatively small numbers of impressions, but this is one area in which social media excels. Because of the high reach and high number of pageviews, social media sites can still deliver sizable campaigns to even highly targeted campaigns.

Behavioral targeting also benefits from the scale of social networks as even tightly targeted campaigns can still deliver meaningful reach. Retargeting works well, as it does for the open web, but once again this can be combined with declared interests on user profile pages. Tim described a very detailed campaign that a politician, Patrick Mara, ran on Facebook to defeat a 16-year incumbent in a DC city council primary last year. Mara was in favor of allowing gay marriage, so he pushed information about his stance out to DC Facebook users who’d listed their sexual orientation as gay. If Facebookers had kids, he targeted them with ads about the school system, and if they were Republicans, he hit them with information about taxes, school vouchers and similar conservative favorites. Very clever! And apparently quite cheap for the results — Patrick found Facebook advertising to be a great way to recruit volunteers. Future local campaigns, take notice.

Social targeting is one area that is unique to social networks. Integrating knowledge of social ties into the creative of the ad can really lift response rates. Seth described one campaign that Social Media ran for Live Nation, the concert promoter. Seth himself saw an ad with the name and picture of a friend of his saying “Dan is going to see Cold Play at Shoreline this summer. Do you want to go with him?”. This is a great example of an ad that takes advantage of knowledge of behavior (Dan is going to see Coldplay), location (the concert is near where Seth is) and friendship ties (Dan is a friend of Seths) to build a very compelling piece of creative.

The theme of customizing ad creative for social media came up repeatedly during the panel. While good results could come from running standard web creative and using the targeting that social media provides, the best results came from building campaigns that appeal to behaviors that are native to social networks. Often this had to do with identifying friends (names and pictures) in the creative, as well as integrating a compelling social call to action. Ro described a campaign that Rockyou ran for Pentel Pens that asked users to enter “their smoothest (pickup) line” into a sweepstake. The rich media with video campaign led to real engagement with a 22.5% engagement rate (2x av performance for the category), a 0.6% CTR and 60% of users watching at least half of the video. The campaign drive over a million entries into the contest and worked well to drive high engagement with an “unsexy” CPG brand because it was well crafted for a social environment.

It is clear that social networks provide a real opportunity for performance advertisers. Smart targeting allows the first level of performance lift, and custom campaigns and creative that are “native” to social media can deliver even further lift. I think we’ll see much more adoption of this channel by performance advertisers over the coming months

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