Archive for May, 2012

Which One Creates More Sales, Facebook or Your Cell Phone?

Thursday, May 31st, 2012

In the May, 2011 article titled “Is that an Internet Myth or Internet Magic” I gave my opinions on various forms of Internet advertising and whether or not they worked for car dealerships. One of the items was Facebook and my opinion really has not changed on that subject. Facebook is Social Media, not effective Internet advertising.

We have all heard by now that Facebook went public with their Initial Public Offering in May 2012. The IPO was bungled from the start and has already resulted in several investigations now going on through Congress and the Federal Communications Commission. First, the number of stocks to be sold kept climbing leading up to the IPO. Then, the price per share became over inflated before it was put on the market. And finally, the handling of the IPO was bungled by investors and banks alike. Since then, the stock has been in a free fall down more than 37% from its high of 45 dollars a share on its opening day.

Some thought that the more than 900,000,000 users of Facebook would want to get in on the ground floor and thereby drive this stock up, but for the most part, no one was buying into this hype. Anyone who paid attention to the product would have never been stuck with this stock. To find out why this IPO has not been the overwhelming success it was once thought to be all you have to do is analyze the service they offer.

Facebook is a great way to get in touch and stay connected with friends and family. Put another way, Facebook is just another form of communication. 48% of the almost one billion users are between the ages of 18 and 34. It has seen tremendous growth in even older age brackets. More than half of all users log into the site every day. When you are online you can find old friends, new friends and family members. When you find someone you can connect to them and stay in touch with them with little or no effort. If you post something on your Facebook page your connections can see your posts, comment on them and share them with other friends. It is the new generation’s version of the old party phone lines.

With so many people using Facebook so often, it stands to reason it would make for an excellent advertising option, right? Well, no. First, you have to look at the move GM made just days before the IPO. GM pulled the plug on a $10 million dollar a year Facebook advertising campaign. Why? Because they did not see a significant return on investment. ROI is the Holy Grail to any form of advertising. If you spend more than you take in, it is not worth it, plain and simple. Second, if you advertise you want people to see it. Ask any avid Facebook user if they see or pay attention to the ads and they will tell you “No”. Anyone can put small ads on the site that get displayed to users as they connect and communicate with friends and family but people ignore those ads. Users log on not to shop or buy things, but to communicate with others. They talk about their day, share their recipes, gossip about other friends and family. They do not compare prices, shop for goods and services or ask what others are buying.

This site is a tool for communication. It is not an advertising media. TV is a little different because it is an entertainment outlet. Today, though, network channels continue to lose market share because of all the advertising. Paid channels like HBO generate their revenue via subscriptions and thereby remove all advertising. Internet TV is something you will hear more about in the near future that will once again change the TV business model and take away even more viewers from the traditional networks. Still, if the show is entertaining enough, people will sit through the ads. That does not mean they see the ads or pay attention to them.

An analyst recently said the real stockprice for Facebook should be about $7! That is almost 85% off of the initial stock price. It is more likely the price is somewhat higher than that but for Facebook to turn the ship they have to do something they have never done before, focus on making money.

There are three ways they could generate new revenue. First would be sell more ads, but unless they make them impossible to miss, they will never offer the ROI needed to sustain that business model. If they make the ads so obtrusive to users, they will drive away users to other Social Media sites. MySpace may not be dead, yet. A second way to generate cash would be to charge users a subscription fee. But, because it has been free for so many years it is not likely they will be able to convince the masses to start paying for something they have been getting for free and can get for free from other sources. The third way to generate revenue would be to sell advertisers the information about their users. When you sign up for a Facebook page you go through a survey that details your likes, dislikes, educational and employment background, etc. There have been a host of privacy issues related to Facebook users and if they were to start openly selling this information, again, they would drive away users.

Does all this mean you should close your dealership’s Facebook page? If you do, you should also consider throwing away your cell phone. Both are communication tools, nothing more and nothing less. It is hard to get along with out your cell phone but you have never sold a car because you carry an Iphone or have a Blackberry tethered to your hip. I have seen some large BHPH dealers maximize their Facebook page by getting all their clients to friend them. When a car buyer friends your Facebook page you get access to their friends and family. Instead of advertising, though, this becomes a valuable skip tracing tool.

When it comes to spending advertising dollars, stick to what you know will work and do not buy into the hype. You would not use a screw driver to change the oil in a car. Using Facebook to sell cars is just as foolish.