Facebook has posted an interesting talk by its ad executive, Brad Smallwood, reporting on research they have conducted into the effectiveness of advertising.

The first part of the video is most relevant and it lasts about 10 minutes. The summary of the findings is as follows:

  • Impressions create value. 99 percent of sales generated from online branding ad campaigns were from people that saw, but did not interact with, ads— proof that it is the delivery of the marketing message to the right consumer, not the click, that creates real value for brand advertisers.
  • Reach drives revenue for online brand marketers. This is a concept very familiar to TV marketers, who often start with a reach objective—but until now hadn’t been proven for online. When applied to digital brand campaigns, the study demonstrated that campaigns that maximized reach had on average a 70 percent higher return-on-investment.
  • Finding the right message frequency is key. The study revealed that for online brand campaigns, if you reallocated high frequency impressions to people seeing too few impressions, you would see a 40 percent increase in ROI with the same budget. What this means is that for every online campaign there is a “sweetspot” of effective frequency that maximizes return on investment, and that the DataLogix tool can help marketers empirically isolate that sweetspot for each brand and campaign.

This confirms the assumptions Susan Athey, Emilio Calvano and I made in our analysis of the impact of the Internet on the news media. Importantly, for that reason, it also explains why advertising revenue on the Internet has been so low for display advertising whereas it is high for keyword search advertising. Put simply, if reach is important, then it is harder to track reach when consumers take what used to be their 30 minutes newspaper reading time and allocate it in 20 distinct chunks on different news media sites. Advertisers do not know where to find consumers. As I outline in my book, Information Wants to be Shared (available today, DRM free from HBR Press), that gives sites like Facebook an advantage because their reach is so high. It would be great to see more of the underlying analysis though.

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