In my experience the problem with the facebook advertising platform is that it doesn’t effectively allow for different types of advertisers to compete on an even playing field.

You could make the argument that since they allow for all different types of interest/demographic bidding, that there are many micro playing fields for different types of advertisers to compete on, but this analysis fails to capture the one most important vector that drives internet advertising, which is intent.

The beauty of Google’s adwords platform is that for any given keyword, a one-man custom boot making shop in Texas can profitably compete against internet retail giants such as Amazon because for certain keywords the intent of the searcher is more aligned with their product offering than Amazon’s.

In a generalized second-price auction such as Adwords, since advertisers are attempting to maximize their ROI on a per-keyword basis, they are not perversely incented to maximize their CTR at the expense of receiving lower CPC’s and an increase in less qualified traffic.

On the other hand, on the facebook advertising platform, different types of advertisers who will have wildly different costs for customer acquisition are competing for impressions and clicks head-to-head. This in turn causes two kinds of major distortions in the marketplace:

1) Advertisers with the highest customer acquisition value will eventually rise to the top, crowding out the smaller guys. e.g: you will see more ads for attorneys and real estate agents then you will for restaurants and dry cleaners.

2) Ad Copy / Images will trend towards becoming more and more attention grabbing in a never-ending arms race towards a higher CTR = lower CPC.

In the long run, neither of these two attributes is conducive to a robust and sustainable advertising platform for facebook.

My answer on Quora to: Is advertising via Facebook as effective as Google Ads? http://qr.ae/4GYA

“The conversion rate is similar to paid search,” he says of Criteo’s retargeted display ads. Retargeted ads are typically clicked on four times more than a traditional run-of-site banner ad, he estimates.

This is all well and good, but when I going to be able to re-target the visitors to my competition?

e.g If I am Target.com, I can re-target visitors across the web who have visited BestBuy.com and offer them a competing offer on a product they have viewed at BestBuy.com or a coupon for $$ off their order.

Best Buy will not be pleased that the data they are sharing to power their own re-targeting campaign is being used against them, but the end user benefits with a better price, and net sales are increased as a result, creating a win for both the merchant (who makes the sale, the user and the advertising network).

Start your mining with a nifty tip via Eric Ries.

Take out an Ad on Facebook/Adwords using the name of the market leader “This Company” and measure the clickthrough rate on the ad.

Ad Copy: “This Company” Sucks

After further experimentation with the platform, I can state confidently that while there are some interesting opportunities for locally oriented products and service owner’s to take advantage of the city-level targeting, there are some fundamental flaws with the way that the Facebook ad auction functions.

The problem lies in the way that the auction for ad impressions/clicks functions. While Advertiser’s bid on a particular keyword in search advertising platforms such as Google’s Adsense, on Facebook, Advertisers bid on a certain demographic segment.

The beauty of Google’s auction is that it creates market clearing bid prices for each and every keyword, pitting advertisers in similar business’s (with similar margins) against one another. On the other side of the coin Facebook’s platform is subject to large distortions in impression/intent fit. This occurs because there is a large discrepancy in the ROI (EPC) that any two advertisers receive from any ONE user demographic segment. Because they are bidding on the same segment, naturally the advertiser with the highest EPC will be able to outbid every other advertiser for that segment for EVERY impression. This eliminates the possibility advertisers with low margin’s to make up on volume (a large percentage of internet advertisers).

Facebook seems to have at least acknowledged this flaw. They try and maximize their own eCPM by lowering/raising bid requirements for each ad dependent on it’s CTR. While this surely optimizes their own revenues, it does nothing to improve the ROI of the advertiser.

Facebook Ad Data:

I was clicking through ads as i’ll often do when i’m bored and feel like costing spammers money when I stumbled across this out of control Flog advertising a get rich quick with twitter scheme.

The irony is that if you look at the “comments” at the bottom of the page, all of which are blatantly fake endorsements, there is a message saying “Comments Closed Due To Spam (back soon)”

Well done floggers…please die and go to hell now.

There are certain limitations. For example, you can’t target users by current job title, only by ‘interests’ and current company or college major. Also, the value (intention) behind these clicks is suspect since people are not in a ‘buying’ frame of mind when creeping on their friends photos. Of course, it’s hard to test the conversion rates on fictional products (i usually link the ad to an existing page on some other site), but you can get some good data click-through rate data on facebook (my ads are hovering between .01 and .1 percent). This is pretty low, even by facebook standards and the average cpm’s for my ads worked out to around $0.15. Despite these shortcomings, the interface is solid and I have nothing buy good things to say about the platform so far as it can provide excellent demand modelling for a nascent or non-existent product or service.