Facebook’s Sponsored Stories: An Assessment

Since Facebook’s Sponsored Stories ad units target users based on connections, they make the most sense for advertisers with a substantial number of page fans. The added benefit of Sponsored Stories is the additional exposure that brands can generate from customer interactions, likes or comments about a brand or products. So more interactions, likes or comments equate to more Sponsored Stories that can be shared with a greater number of connections. In other words, scalable endorsements can be leveraged.

This has tremendous potential. As studies have proven with consumer reviews in the past, customers place great value in the opinions of their peers, and these new Facebook ad units enable advertisers to connect with users by leveraging endorsements from those users’ own friends and family. Already, the inclusion of friend endorsements (social context) within ads has proven very effective for campaigns on Facebook. Facebook and Nielsen released a study last year indicating that endorsements from friends within ad units leads to 1.6 times higher likelihood of ad recall, two times increase in brand awareness and an increase in the likelihood of conversion.

That brings up the Beacon issue. Although personalizing ads may sound ideal, there are some drawbacks to this type of ad unit. Look what happened when Facebook rolled out Beacon in 2009. Facebook — and users — seems to have learned from this. Sponsored Stories didn’t cause a furor at all.

But there are other drawbacks. Advertisers have little to no control over the ad content. Instead, Facebook users control the ad content — and Facebook controls the traffic. All ad traffic is directed back to the advertiser’s Facebook fan page, and the advertiser does not have the option of directing this traffic to its native site. So a brand is paying Facebook to get people to use more Facebook. Costs could represent another objection since pricing seems to be higher for the niche targeting of these ads than some other Facebook advertising options.

Either way, advertisers that focus on results will understand that relinquishing control and increasing pay-per-click spend are small prices to pay when the results more than pay for their investment. In fact, advertisers must relinquish control in order to encourage participation and take advantage of some of the most effective advertising opportunities available today. This is true in many marketing arenas today, not just Facebook personalized ads, and the benefits tend to greatly outweigh the drawbacks.

As advertisers continue to look for ways to drive positive word of mouth for their brands or products, they can turn to Facebook to take advantage of the opportunities presented by these ad units. Only by testing Sponsored Stories and other personalized endorsement ads can brands begin to determine the true value of these additional friend recommendations and the brand exposure to their own campaigns.