Study Reveals Facebook Marketplace Ads Really Do Work

When General Motors pulled its advertising from Facebook, many took it as an indication that the social network's ad products didn't work. But in reality, the pullout tells a different story, says a new report by eMarketer.

The report, "Facebook Advertising: Why the Marketplace Ad Platform Deserves a Second Look," analyzes more than a dozen third-party research studies and interviews with industry executives that demonstrate consensus on a number of issues, including the effectiveness of Facebook's ad products.

According to the report, doubts persist over the effectiveness of Facebook's Premium ad products. However, Facebook's self-serve advertising platform, Marketplace, is gaining new prominence as a result. In May 2012, Facebook announced that it would start allowing advertisers to place Premium ads in users' news feeds by tapping the technology that supports Marketplace. The change is expected to inspire marketers with bigger budgets to begin using the automated system. This month, Facebook said it would launch Facebook Exchange, a real-time bidding platform for Marketplace inventory.

"The importance of Marketplace is often underestimated," said eMarketer principal analyst Debra Aho Williamson. "Because the clickthrough rates on these ads are minuscule and because their limited creative palette will never win them awards, Marketplace ads get little respect."

In eMarketer's recent conversations with digital agency executives and marketers and analysis of available survey data, there was a common theme: The first part of 2012 got off to a slow start when it came to planning Facebook ad spending-particularly as a result of questions about Premium ads.

For example, at one digital agency, client spending on Facebook was flat year over year. A number of this agency's clients had made annual deals with Facebook for 2011, but most decided not to make a similar upfront commitment for 2012. Instead, they planned to buy throughout the year.

Capstone Investments, an investment bank, said in an April 2012 research report on Facebook that "in many cases large CPG advertisers are seeing comparable ROI on self-serve ads [to those] they were achieving on premium ads and are allocating spend that otherwise would go to premium ads to self-serve ads."

While that doesn't bode well for Premium, it has meant that some marketers have returned to Marketplace advertising with increased fervor.

Historically, eMarketer has estimated that Marketplace accounts for 60% of Facebook's total ad revenue. That translates to $1.89 billion in 2011 ad revenue from Marketplace ads and $1.26 billion from Premium formats.

"The reality is that when Marketplace targeting and bidding are done correctly, advertisers can be highly successful," Williamson added. "Several ad-technology startups use tools provided by Facebook to maximize the effectiveness of these ads; other digital marketing firms have taken notice and they too are entering the market."

In addition to evaluating the reasons behind Facebook's first quarter revenue decline, the full report outlines several keys to success for marketers using Facebook ads:

. Let the technology do the heavy lifting
. Test, learn and change
. Place high value on speed
. Combine Premium and Marketplace ads for the biggest impact
. Use the data gained from a campaign to improve the next one
. Use targeting technology to gain the right fans
. Look beyond clickthrough rate

It also identifies three things Facebook needs to do in order to grow:

. Break down more walls between the two sides of its ad business
. Prove that adding social features to ads works
. Deliver a consistent message to advertisers

eMarketer collected and reviewed a variety of research studies, reports and other data about Facebook's advertising business for this report, eventually selecting several vetted sources including 22squared, Adaptly, Adobe, AdParlor, Advertiser Perceptions, BLiNQ Media, Buddy Media, Capstone Investments, Efficient Frontier, Facebook, GfK Roper, iMedia Connection, ITG Investment Research, Jackson Hewitt, Marin Software, PulsePoint, Social Fresh, TBG Digital, Wildfire Interactive, and Ybrant Digital.