Is The ROI of Social Media Worth The Trouble?

social mediaWith the social media outlets taking over smartphones, businesses are starting to wonder if it is time to start targeting mobile users yet. As with any other investment, focusing on new frontier like mobile is a risky proposition. As we learned from the Facebook latest quarterly financials, social advertising has yet to pay off for the bankers, and has the “talking heads” wondering if the ROI from social media is even worth the trouble at all.

The biggest concerns to date have to do with the value of advertising in a space like mobile social media. The return on investment of pay-per-click (PPC) and other paid advertising methods online have proven to be much lower than the ROI on search engine optimization (SEO), and for good reason. With SEO, the people are looking for the advertisers. With paid advertising, the advertiser is positioning themselves in front of the consumer while they are busy doing something else.

The ROI on Paid Traffic vs. Organic Traffic

How different is the return on paid advertising from the return on SEO strategies that work? This is hard to accurately determine. This is because the mindset for each is so different. The content, products, landing pages, and sales pages have to be customized to accommodate these differences.

Conversions from paid advertising typically range from .o5 to 1%, on average, while conversions from SEO can range anywhere from 2 to 10%. What does this tell us? First, organic traffic converts much better than paid traffic. It also tells us that both can be profitable. Beyond that, there are too many factors to take into account to make apple to apple comparisons.

People Still Buy Stuff At the Computer

What else do we know? People don’t use their mobile devices (yet) much when they are ready to buy. They use their mobile devices to connect with other people on social media, and to read their email. When they want to buy something online, they still use Google on their laptop or on their computer.

This trend is changing however, and mobile internet usage was up over 400% in 2015 from the previous year. Will this trend continue? If I had to bet – I would put all my money on it. Advertisers have all of their top scientists on it in the lab right now – diligently working on how to get us to buy things on our mobile phones. With hundreds of millions being spent on this – it is just a matter of time before people are buying everything from hot tubs to motor boats – right on their smartphone.

Smartphones are Worse Than “Banner Blindness” – For Advertisers

Social networks are ideal for mobile devices, and account for more than 80% of all online traffic on smartphones. Just think about the challenges that advertisers have before them. You have to think that it is downright frustrating to know that people have this wonderful media tool with them at all times, but really don’t want to be bothered by advertisers while they are using it.

How many people would want to hear some advertisement while they were talking on the phone? I know I wouldn’t. In fact, I go out of my way to avoid advertisements (which isn’t difficult) while I am using my smartphone. Why? Because it is private. I want to do what I want to do and get back to whatever I was doing in the real world (say that 3 times fast). When I am on a computer, I don’t even see the ads on all sides of the page. Besides, most of the apps I use don’t have ads. Then there is the whole space issue. It’s hard to advertise when there isn’t much space.

This is what they call “banner blindness”, and is where people go out of their way (mostly subconsciously) to avoid clicking on paid advertisements. Google knows banner blindness well, and at times, appears to be purposely making the search results bad (like after the Penguin algorithm update).

Google’s Solution For Banner Blindness

What effect would providing poor search results have, and how would this benefit Google? You see, Google earns money from its advertising revenues. In fact, more than 80% of their revenues are from paid advertisers that spend in excess of $10 million – per month.

If people don’t click on the paid advertisers’ banners, links, and other ads – these advertisers won’t continue to buy advertising space from Google. However, if the search results were really bad, people would instinctively start clicking on the advertisements, knowing that will not find what they are looking for in the organic search results.

And guess what? That is exactly what is happening. And Google could not be happier, since their most recent quarterly financial results were higher than ever. Advertising revenues for the quarter were up nearly $2 Billion over the same quarter in 2015.

But are they really that happy right now?

Well, not exactly. If you haven’t heard, Google is involved in a federal investigation, which most likely won’t amount to much. They will just pay the FTC and Justice Department “taxes” (fines – remember Microsoft?) and be back to business as usual. Hopefully, the search results will start to reward the websites with engaging, unique content – but I won’t be holding my breath.

Can Advertising Work on Mobile?

I have no doubt that advertisers will figure out how to get a positive ROI on social media in the near future. If there are groups of people somewhere, big business will surely find a way to sell them something. You can see hints of it whenever you are on Facebook or Google+. They will surely figure out a way to get into the apps, one way or another. I figure that the next big thing for the advertisers will be to completely change the user experience on mobile devices – perhaps by making it more interactive.

People Are Starting To Buy Things On Tablets

And let’s not forget – mobile means a lot more today than just smartphones. You have got all those iPads, Kindles, Nooks, and Android tablets that are flooding the marketplace right now. People will most likely start adapting their buying habits – in fact, they already are. As advertisers create more apps that allow people to buy things with the click of a button, or by talking into their tablet – instead of having to type on their screen – the ROI of social media will skyrocket.

Just look at how Amazon is selling on tablets, and you will get the picture. It is just a matter of time.

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