• by David Berkowitz , May 29, 2012

As Facebook's stock limps along, a popular refrain says that social advertising doesn’t work. Ross Douthat, in a recent New York Times opinion, goes as far as to say that Facebook’s IPO is a sign of how the Internet “created a cultural revolution more than an economic one.” If Facebook is the biggest proponent of socially targeted ads and it can’t convince investors that it will grow rapidly, that must be a scathing indictment of its whole model, right?

Saying social advertising doesn't work because of Facebook's troubles is like saying democracy doesn't work because India – the world's largest democracy – struggles with epidemics of corruption, frustrating red tape, and issues serving hundreds of millions of its poorer citizens. Americans, divided as we may be, will generally laud the merits of democracy and claim it’s the best possible political system. Similarly, most New Yorkers will say the democratic system is functioning far better under Governor Cuomo than it did under the prior two short-lived administrations, but that means we wanted to change leadership rather than switch to fascism. 

Facebook may be the most scalable model of social advertising, but it's one example. Often, it listens to feedback from marketers and agencies. Most of the time, it does what it wants and requires advertisers to accept it or go elsewhere. It is one publisher, and not the embodiment of all things social.

Sometimes, Facebook is truly innovative. It treats ads like content and content like potential ads. It seems to have borrowed this ethos from Google, which aims to organize all the world's information and considers ads just a piece of the whole.

Other times, Facebook operates against advertisers' best interests. For instance, Facebook routinely runs seven ads on a page, including its homepage, which should be far more valuable and exclusive. By focusing on driving up impression totals, Facebook hurts the ad experience. While Google has similar clutter with search advertising, its performance-based model reaches consumers who qualify themselves and actively seek advertisers. Facebook can't afford the same degree of clutter, especially when that alienates brand marketers.

Now that Facebook has to serve marketers in order to boost its stock price, it's quite possible that it will make social advertising more successful. This could be the kick in the pants it needs. Yet it's also possible that Facebook won't figure it out to the extent that it must to please shareholders and advertisers. And it's possible that Facebook will figure out a great social ad model online but won't be as successful with mobile, where its usage is shifting. That still doesn't meant social advertising is a failure.

Twitter seems to have figured out models that work well for its service, though it will have to be more aggressive to drive up revenues. There are new models arising everywhere, including those from Buzzfeed, Klout, Say Media, SocialTwist, SocialVibe, StumbleUpon, and Tumblr. Any of them can be used to prove or disprove the merits of social advertising, depending on the example and the pundit’s point of view.

There are some things we collectively know. We know that people trust their friends for recommendations, and ads can amplify those recommendations. We know that ads perform better when shared or endorsed by a trusted contact, even though there are various factors that impact how much better such ads perform. And we know that as long as consumers spend more time with social media, marketers will seek scalable ways to reach such audiences.

If you ask advertisers what they want, many will tell you they want television spots running on Facebook's homepage. Purists may cringe, but most people will be able to rattle off 20 TV spots they've seen before recalling a single Facebook ad. Purists may also note that MySpace ran homepage takeover ads that advertisers loved, until most of the site’s audience departed. Yet ads can't be blamed for the demise of MySpace any more than ads can be blamed for "Pan Am" getting canceled.

Social advertising –  namely, ads that incorporate some kind of sharing functionality or are targeted based on an individual’s network of connections – is no more than five years old in any practical sense. There is a lot all of us have to learn. Given that Facebook is a public company now, it will have to learn faster than just about anyone else to justify its valuation. If it doesn’t succeed in that regard, there are plenty of others eager to figure it out and make their case to advertisers.