How social ads are winning over advertisers and consumers

Over the last two years we have seen a steady shift from Google Search to Social Search as consumers, faced with an overwhelming amount of choices and information, are turning to their peers within social networks for trusted recommendations as to what to buy. Now it seems advertisers are recognizing this trends and following suit.

Over the past 12 months, the proportion of Facebook ad budgets allocated to “social ads” has increased fourfold, from 5% in March 2011, to 23% in March 2012, according to a report from Marin Software. What’s more social ads are expected to account for 50% of Facebook ad budgets, on average, by the end of 2012, the study reports.

This implies a rising recognition by advertisers of the growing influence of peers in decision making over generic Search or traditional display ad units, since social ads (such as Facebook Sponsored Stories) have word of mouth advertising built into. This trend is reinforced by data outlined in detail in the new book Grouped, by Paul Adams, the Global Brand Experience Manager for Facebook, in which he outlines the rising importance of peers in decision making as a response to the marketing noise.

Unlike Marketplace Ads (which operate similarly to traditional display ad units using targeting), Facebook’s new social ads like Sponsored Stories have word-of-mouth recommendations built into them bringing a social context to traditional ads.

Image: Marin Software

It’s no surprise, then, that the report finds that on the advertiser’s side, the cost-per-click (CPC) rates of social ads are rising (over the previous 12 months, the CPC of social ads increased 86%, whereas CPC for Marketplace ads fell 15% over the same period). While on the consumer side, engagement with social ads is up: Click-through rates (CTR) rose 78% over the previous 12 months.

It was an issue of much debate as to whether advertisers and consumers would embrace Sponsored ads putting their confidence in a social context for advertising, but as Matt Lawson, VP at Marin Software, states:

“Based on our data, the answer to both of these questions is an emphatic ‘Yes.’ In the last year advertisers have directed more budgets to social ads and Facebook users have responded by clicking more often. This trend is not only positive for Facebook from a revenue standpoint, but also provides important validation of the opportunity advertisers have to drive revenues from word of mouth marketing efforts.”

So while some commentators bemoan the appearance of Facebook social ads, such BTIG analyst, Rich Greenfield, who describes them as “unexciting,” what they fail to realize is that they are not being designed around what the advertisers want but rather what Facebook users want. It’s this non-traditional focus that will in part help Facebook avoid the pitfalls of traditional display advertising that could rapidly drive users away in droves. That said, there is little doubt that Facebook had much to prove on the mobile front and their question remains whether their growing success with desktop social ads can translate to mobile success as well.

Do you think Facebook’s social ads are “unexciting”? Would you rather see them function more like traditional display advertising?