Advertisers love Facebook. In fact, they pour money into it. The company's financial results say it all: Facebook raked in over $13 billion from ads just in the last quarter.
A new lawsuit is now asking a basic question: Are those ads working? The lawsuit, filed by InvestorVillage.com, claims that Facebook misleads advertisers about how effective it is.
"Facebook's advertising pitch is that you can put into the program exactly your target audience," says Seth Lesser, a lawyer who representing InvestorVillage in the case. "Facebook says, we can get you those such people at 89 percent accuracy."
InvestorVillage, a site that offers online discussion forums on investing, recently spent around $1,600 on two Facebook ad campaigns. The ads were targeted at people with an interest in the stock market, incomes of at least $250,000 and a college education.
The ads got a lot of likes, but the company says when it looked closer, at least 40 percent of those likes were from users outside the target audience.
Facebook sells itself as a platform that can help advertisers reach a target audience. Advertisers can cater their message based on where people live, how much money they earn, and their education levels. This has made Facebook extremely palatable to advertisers, who represent Facebook's main source of revenue. It has also gotten Facebook into hot water with users over privacy concerns.
Within the advertising industry, the debate about whether advertising works on Facebook is not new. A survey last year showed over 60 percent of small business owners felt advertising on Facebook was ineffective. The lawsuit takes it a step further, saying Facebook is misleading advertisers.
In a statement to NPR, Facebook responded: "There's no merit to these claims. Transparency is at the heart of our relationships with advertisers." The company points to its advertising terms, which state that Facebook "cannot guarantee in every instance that your ad will reach its intended target or achieve the outcome you select."
The advertising industry has been obsessed with reaching its target audience for decades. That preoccupation was one of the main themes in the 1960s-based TV show Mad Men, in which ad exec Don Draper racks his brains about how to sell products.
Draper's ad campaigns were fantastic, but he couldn't quite be sure if they'd always reach the right audience. It was hard to say with exact precision how many people will see a billboard, or read a magazine ad.
And then, Facebook happened. Suddenly you had one platform, with over two billion people offering information about things they love or hate, where they've been and where they'd like to go. It would be Draper's wildest dream come true. But it turns out that even with all this information, his job might not have been that much easier.
The data is so deep and vast, that it "is immeasurable now," says Saleem Alhabash, an associate professor at Michigan State University's department of advertising. He says having so much information can actually make targeting the right audience difficult.
Some advertisers will in fact tell you that not much has changed since the days of Don Draper.
"Facebook isn't the magic potion ... [to] reach everybody and everyone starts buying your products," says Marcus Collins, an executive at Doner, an advertising agency. "We put an undue pressure on these technology platforms that we don't put on traditional media. And it's not fair."
Collins says Facebook is just a platform that draws millions of advertisers. It's a powerful one. But it's not infallible, as InvestorVillage discovered.
No matter how much technology and data we have, Collins says convincing people to buy is always going to be more than just a numbers game.
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Facebook gets most of its revenue from advertising - more than $13 billion between April and June of this year. It sells itself as a simple and effective way to reach a target audience. That targeting has gotten Facebook into hot water with users over privacy concerns. And for businesses, the larger looming question is, is it worth it? NPR's Jasmine Garsd reports.
JASMINE GARSD, BYLINE: Some version of this might have happened to you. You hit like on a healthy eating Facebook page, and soon enough you start getting advertisements for fitness groups and weight loss products which you're not interested in. A new class-action lawsuit claims that Facebook isn't delivering on its advertising promises. Here's Seth Lesser, the lawyer who is suing Facebook.
SETH LESSER: Facebook's advertising pitch is that you can put into the program exactly your target audience.
GARSD: Where people live, how much money they earn. Do they have a college education?
LESSER: And Facebook says, we can get you those such people at 89 percent accuracy.
GARSD: Facebook says it can't guarantee every ad will be this effective. Lesser says it's misleading. His client is investorvillage.com, a site that offers online discussion forums on investing. It recently spent around $1,600 on two Facebook ad campaigns. They were targeted at people with an income of at least $250,000 and a college education, people who would be interested in the stock market. Their ads got a lot of likes, but...
LESSER: These people were not those it had asked to be targeted.
GARSD: Investor Village says at least 40 percent of them were from outside the target audience, people who just hit like on anything. The advertising industry has obsessed over reaching its target audience for decades. In the 1960s-based show "Mad Men," ad exec Don Draper racks his brains about how to sell cereal.
(SOUNDBITE OF TV SHOW, "MAD MEN")
JON HAMM: (As Don Draper) Kids see the giant bowl of cereal, and they smile because, you know, they'd eat a box of it if they could. And moms see it, and they get this twinge of how little their kid still is even though they have to deal with life. Get those two together in a market, and I think we're going to sell some cereal.
GARSD: OK, but he couldn't be sure how many people would see a billboard or read a magazine ad. And then Facebook happened, over 2 billion people offering information about what they love and what they hate, where they've been and where they'd like to go. It's Don Draper's wildest dream come true. But it turns out that even with all this information, Don Draper's job is not that much easier.
SALEEM ALHABASH: So there's a depth of data that is immeasurable now that is not matched with the types of insights that we know about consumers to make advertising more effective.
GARSD: Saleem Alhabash is an associate professor at Michigan State University's department of advertising. He says advertisers today have so much detailed information. It can actually make targeting the right audience difficult. Marcus Collins is an executive at Doner, an advertising agency.
MARCUS COLLINS: We put an undue pressure on these technology platforms that we don't put on traditional media. And it's not fair.
GARSD: He says Facebook is just a tool. Millions of advertisers are drawn to it. But sometimes, like in the case of Investor Village, it may not work.
COLLINS: Facebook isn't the magic potion to make presto change-o (ph), you reach everybody, and everyone will start buying your products.
GARSD: No matter how much data we have, Collins says convincing people to buy what you're selling is always going to be more than just a numbers game. Jasmine Garsd, NPR News, New York. Transcript provided by NPR, Copyright NPR.