#WednesdayOneThing is a weekly opportunity for Clearbanc employees to share their knowledge of exciting trends in the retail and e-commerce space. Tune in to Facebook every Wednesday at 8:45AM EST to watch LIVE.
Facebook just settled a lawsuit to pay out advertisers for falsifying video data to the tune of $40 million. It all started around 2015 when video was really becoming a bigger part of Facebook’s strategy. This is important to note because Facebook generates about 89% of its revenue from advertising. That amounted to 60 billion dollars in revenue from advertising this year alone.
A lot of this revenue comes from ad spend by e-commerce brands. Facebook is very popular among digital advertisers because it’s the cheapest way to get the most amount of eyeballs in a given amount of time.
Or so we thought.
What you see isn’t always what you get (WYSIAAWYG)
Turns out, Facebook actually falsified some of the data for their video service. According to Facebook, miscalculating watch time was an “innocent mistake”. But it was a mistake with potentially long-lasting effects on companies relying on that data to determine the allocation of ad spend, especially when you’re an e-commerce company with limited capital. So as some brands poured dollars into video because the “numbers” showed they performed better, it turns out that may have been a misguided decision.
I talk to a lot of Clearbanc founders about Facebook. After all, it’s one of the most popular social media platforms to advertise on. The platform offers valuable data including stats about your return on ad spend (ROAS).
This lawsuit certainly raises an eyebrow or two and forces everyone to look at the data more critically. If it turns out that other metrics like ROAS reports aren’t as advertised, you can imagine how detrimental that could be to your ad strategy.
What’s really interesting (but not altogether surprising) is that Facebook alleges the extent to which their data was incorrect was not important for setting ad prices. They said they might have made some miscalculations but overall, it’s not those miscalculations are not big of a deal because they don’t set prices based on the watch time of ads.
Despite all that, they’re paying out 40 million dollars to advertisers to settle the matter. But, as I mentioned, their annual revenue is 60 billion so essentially they paid about 0.5% percent of their annual revenue to make up for this mistake. This news marks a pretty big shift in the way people view advertising and content.
The rippling effects of Facebook’s “whoopsie”
That being said, you can’t rewind the clock and some damage can’t be undone. One of College Humor’s former staff writers, TV personality and star of “Adam Ruins Everything”, Adam Conover, said they doubled down completely on Facebook video because that’s where the engagement was happening. They went as far as to stop posting natively on their site and move the entire strategy over to Facebook video since that’s where the eyeballs were.
Knowing this, 40 million dollars seems like a drop in the bucket compared to the fact that they sparked the shift of an entire industry to be more video focused, which we’re still seeing a ripple effect of today.
It’s time for e-commerce to explore underpriced media outlets
In a previous #WednesdayOnething, Robby spoke about TikTok being a really exciting up-and-coming platform. E-commerce entrepreneurs should take stock of TikTok, and other video platforms and take more control of their own media strategy. You should never rely on only one established channel anyway. It’s too risky to put all your eggs in one basket as the sole source of eyeballs.
I’m not saying Facebook isn’t still a great place to invest ad dollars. It is… but not all of them. Now is a prime time for e-commerce companies to consider branching out to other platforms like TikTok or Snapchat and experiment with underpriced media outlets.