Tonight, I was getting caught up on my podcasts… I just listened to the NPR Planet Money episode from a couple weeks ago, about Facebook’s IPO.

The episode cast doubt on Facebook’s lofty $100 billion pre-IPO valuation (I share the skepticism).

That inflated valuation was based on 2 assumptions, among others:

Assumption #1: To have lived up to the pre-IPO $100 billion valuation, Facebook would have to sell  10% of the world’s ENTIRE advertising inventory (10% of all ads – across the internet, TV, radio, etc). Yeah, a bit aggressive in the forecasting there.

Assumption #2: In order to serve that many ads, the ads actually have to work (e.g. generate return on investment for the advertisers). Or else, why would companies keep buying Facebook ads?

Well, later in the episode, the Planet Money team reported on a real-time Facebook advertising test for a New Orleans pizza company. So the listeners get an inside view into what it’s like to buy Facebook ads.

The Case Study

The New Orleans pizza company brought in a social media advertising consultant to advise them on how to advertise to get new customers.  And the consultant came up with some pretty clever targeting ideas. It’s New York-style pizza, so they targeted people located in New Orleans who liked other New York-related things, like NYC sports teams, etc.

Pretty creative idea, I have to admit. But unfortunately, the ad campaign was a bust. At first, nobody was clicking on the ads. And then they re-tooled the campaign and started getting clicks. But all they got was 200 new fans on Facebook.

No customers.

How did they know that? The owner of the pizza joint was smart. He asked everybody who came in to buy pizza where they found them.

And nobody said Facebook.

In a way, I consider that to be good news — because at least he knew that the campaign didn’t work. Tracking results is a BIG first step that most business owners don’t take.

Here at Main Street ROI, we teach that there are 3 pillars to profitable online marketing: Traffic, Conversion and Tracking. Without any of those 3, you’re toast.

Anyways, I thought the story was very informative to this point… until reporter Steve Henn made this comment:

And here’s the problem with advertising in general… it’s really hard to know whether it makes a difference — ever. And that’s true whether you’re running an ad during the SuperBowl or running a social media campaign on Facebook…

OK, I have two BIG problems with that comment…

1) First of all, it’s contradictory!

That statement contradicts the facts in the story. The owner of the pizza place was 100% confident that the Facebook didn’t drive enough business to pay for the ads.  The goal was to get new customers, and the campaign failed to achieve that goal. Pretty cut-and-dry.

2) It’s dangerous

Too many small businesses believe that it’s nearly impossible to track the results of advertising, and this story will perpetuate that assumption.

Advertising isn’t a black box.

The fact is that today, with internet technology, it’s EASIER THAN EVER to track ad spend to sales.

But you don’t even need fancy technology to track the results of advertising. The pizza guy tracked the old fashioned way, and that worked just fine.

What do you think?

1. Do you agree that the Facebook valuation is too high, or do you really think they’re worth that much? (Update: the current market cap is down to around $60 billion as of this writing…)

2. Have you found Facebook ads to be effective in generating paying customers for your business?

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