How Effective Is Facebook Advertising?

Jaap Arriens

Online advertising is famously measurable: run an ad and count the clicks. What could be easier?

But wait. What if most of those clicks are from people who would have clicked anyway, even without an ad? This is called the “selection effect,” and obviously your ad campaign is just wasted money if the selection effect is large. Jesse Frederik and Maurits Martijn take a look at this over at the Dutch website The Correspondent:

A large retailer launched a Facebook campaign. Initially it was assumed that the retailer’s ad would only have to be shown 1,490 times before one person actually bought something.

But the experiment revealed that many of those people would have shopped there anyway; only one in 14,300 found the webshop because of the ad. In other words, the selection effects were almost 10 times stronger than the advertising effect alone!

And this was no exception. Selection effects substantially outweighed advertising effects in most of these Facebook experiments. At its strongest, the selection bias was even 50 (!) times more influential. In seven of the 15 Facebook experiments, advertising effects without selection effects were so small as to be statistically indistinguishable from zero.

To some extent this is just the age-old advertising dilemma: it’s really hard to measure how effective any particular ad is. Ironically, though, the very thing that supposedly makes online advertising so good—targeting—also allows us to measure whether it works. You can target different ads at different groups, or even halt advertising entirely, and just look at the results. And it turns out that the results are often pretty weak.

Why should you care about this? If Toyota and Walmart want to waste their money on Google and Facebook ads, that’s fine. Maybe their shareholders should gripe about it, but that’s all.

Here’s why:

Advertising rationally, the way it’s described in economic textbooks, is unattainable. Then how do advertisers know what they ought to pay for ads? “Yeah, basically they don’t know,” Lewis said in one of those throw-away clauses that kept running through my head for days after.

Keep that in mind the next time you read one of those calamity stories about Google, Facebook or Cambridge Analytica. If people were easier to manipulate with images and videos they don’t really want to see, economists would have a much easier task. Realistically, advertising does something, but only a small something — and at any rate it does far less than most advertisers believe.

“What frustrates me is there’s a bit of magical thinking here,” Johnson says. “As if Cambridge Analytica has hacked our brains so that we’re going to be like lemmings and jump off cliffs. As if we are powerless.”

This is why I’m nowhere near as upset about Facebook as a lot of progressives. Facebook has plenty of issues with privacy and hate speech, and those need to be cleaned up. But the notion that political advertising on Facebook represents a massive new threat to democracy is overwrought. Most of it is targeted at people who are true believers already (the selection effect) and the rest probably has only a modest impact. The effect might be larger than zero, but it’s almost certainly fairly small—certainly smaller than the effect of Fox News or Rush Limbaugh or conventional TV ads.

In other words: to a large extent, the disinformation folks are wasting their money. I’m OK with that.

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THE BIG QUESTION...

as we head into 2020 is whether politics and media will be a billionaires’ game, or a playing field where the rest of us have a shot.

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