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No, Facebook Fans Aren't Worth $136 Each to Advertisers -- Not Even Close

The value of a Facebook "fan" to advertisers is about $136.38. Or it's $3.60. Or it's $71.84. Or as much as $316.78. Or maybe it's $0.

That's the confusing takeaway from two interesting studies about how to value Facebook users who "friend" their favorite brands on the social networking site. The confusion is in part the result of mistaken assumptions about how to calculate the "value" of a Facebook brand fan. The true value of a fan may be close to zero, once you understand where in the buying process becoming a fan actually occurs.

The first study, by Syncapse, asked Facebook fans how much they spent on brands they were fans of in a year and compared that spending to non-fans. Fans spend $71.84 more than non-fans per year on their favorite brands, and the average annualized value of an individual fan is $136.38, the company calculated.

A second study, by Vitrue, looked at the value of fans as if they were a media buy that cost $5 per thousand ("CPM" in ad-lingo). To reach 1 million fans with two status updates or messages a day for a year on Facebook would cost $3.60 per fan. Here's their calculation:

1M impressions x 2 posts x 30 days = 60M impressions 60M impressions / 1000 x $5 CPM = $300,000 $300,000 x 12 months = $3.6M $3.6M / 1M fans = $3.60
The Syncapse study is more detailed and gives a breakdown of the differences in extra spending by fans of various brands, including McDonald's (MCD), Coca-Cola (KO), Blackberry (RIM) and Nokia (NOK).

But both studies have obvious flaws: Consumers don't become fans of brands and then, having been persuaded by the charm of the advertiser's Facebook page, go out and start buying more burgers or soda. They become fans after they've already developed their brand loyalty. Becoming a fan is more like saying "thank you" for the transaction than like announcing a new purchase intent.

As for the media cost, setting up a Facebook page and attracting fans should be almost cost-free, if you're doing it right. And even if your messages to fans did count as media "impressions," think about your own experience with this: Before writing this article I had to look up on my own Facebook page which commercial brands I'd become a fan of. I couldn't remember a single one. Even the ones of my current and former employers! Friending people has become such an automatic non-conscious ritual that its value may be close to zero.

Lastly, let's just get back to basics: Facebook has an estimated annual revenue of $1.2 billion and 400 million users. The average value of each user is therefore just $3 a year. So far, WPP (WPPGY) CEO Martin Sorrell has been right on the money -- except as PR tools, Facebook et al. haven't been terrifically useful for many advertisers:

-- it's not a medium that really lends itself to commercial exploitation. And when you look at the times that people have tried to commercially exploit it, it's not always failed but often failed.
... It may be intrinsically due to their personal nature; they are not media that lend themselves easily to what we're talking about.
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