Forrester Research’s Nate Elliott makes that explosive charge in a new report and open letter to Facebook CEO Mark Zuckerberg that has rattled the company and many of its investors ahead of its Q3 earnings report tomorrow. Shares are down about 4% over the last two days after Elliott said that “while lots of marketers spend lots of money on Facebook today, relatively few find success.” The problem: The social media giant “has quietly become almost entirely reliant upon Web 1.0-style display ads and simplistic targeting.” He reached his conclusion after looking at the opinions of 395 interactive marketers and eBusiness pros who Forrester surveyed in August. “Facebook creates less business value than any other digital marketing opportunity” including word-of-mouth marketing, branded blogs, online display ads, LinkedIn, YouTube, Google+, and Twitter, Elliott says. The company “teases marketers with the promise that it will better connect them to their customers.” But Facebook only shows a company’s ads to 16% of the people who click the “like” button on the brand’s Facebook page. What’s more, fewer than 15% of ads on Facebook are targeted to relevant audiences. Elliott urged Facebook to stop “littering the right side of its pages with dating site or malpractice lawyer ads” and let users choose favorite brands. Facebook “should be more concerned about death by a thousand cuts,” he says. “Smart brands will realize, campaign by campaign, that there are better ways to spend their money.”
But Facebook returned fire, charging that Elliott’s conclusions “are at times illogical and at others irresponsible.” Ads on its platform work, it says. “That’s why we have more than a million active advertisers including all of the Ad Age 100. And countless studies have demonstrated the significant return on investment marketers see from Facebook.” It also pointed to a quarterly report yesterday from Spruce Media — one of Facebook’s 14 Preferred Marketing Developers. It noted, among other things, that click through rates had increased an average of 22% in Q3 vs Q2 in three out of four ad placements.