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Can consumer brands survive boycotting Facebook?

Bigger brands can afford to take their ad budgets elsewhere – less so with direct-to-consumer brands.

Facebook logo and thumbs down images
Shutterstock
  • Over 500 companies, well-known consumer brands among them, have announced that they will not advertise on Facebook-owned media properties until the company curbs hate speech on its platform.
  • Facebook is likely to sustain minimal damages at the hands of the #StopHateForProfit movement, because the lion's share of potential participants depend on the platform for business, and it isn't mutual.
  • Even if all 100 of Facebook's top ad buyers were to suddenly freeze their campaigns and participate in the boycott, that would still only represent 6% of the platform's income.

Amidst a global pandemic, a global civil rights movement has emerged on the heels of American protests against police violence.

Americans are increasingly fed up with the country's deep cultural divisions, especially given how easily they can be exploited by nefarious players on social media. With brands so eager to broadcast their "virtue signals," aligning themselves (however emptily) with the cause of the day, the time has come for #StopHateForProfit, an initiative that encourages businesses to pull their advertising dollars from Facebook and other platforms that don't do enough to prevent hate speech.

Civil rights groups including the Anti-Defamation League, the NAACP, and Color of Change launched the campaign in June, urging brands to boycott Facebook advertising until the social media giant makes some serious policy changes. As of mid-July, the exodus of major advertisers from Facebook continues to grow, as the company weathers criticism over its advertising measurement practices and handling of racist and violent rhetoric on the platform.

Designed as a platform for user-generated content, Facebook and other social media channels assume only so much responsibility for managing what is posted and viewed by other users. When it comes to advertising, however, they have a financial interest in ensuring the "brand safety" of the context in which ads appear.

Facebook's danger as a tool for propaganda was called out during the 2016 elections, as millions of campaign dollars were dedicated to fundraising for the Trump campaign on social media. Accusations of manipulation abounded, with Cambridge Analytica, Trump personally, his campaign team, and other allies leveraging social media towards victory.

The recent outrage against fake news and hate groups running roughshod on Facebook isn't new, but this boycott is calling attention to Facebook's failure in implementing any real, effective changes to managing harmful content. The ADL, for example, points out numerous examples of hateful ads and conspiracy theories appearing on Facebook despite the company's purported efforts to clean up shop.

Who has joined? (And who hasn't?)

Over 500 companies, including LEGO, Adidas, Unilever, Dunkin, Walgreens, Patagonia, and Target have announced that they will not work with Facebook until the company takes action to address misinformation and hate speech on its platform. While this might sound impressive on the surface, a CNN analysis of Facebook's top advertisers found that the overwhelming majority of Facebook's 100 biggest ad spenders have yet to join the movement. Of the top 25 ad spenders, accounting for almost 3 percent of Facebook's revenue in 2019, only three have joined the boycott. These are Microsoft, Starbucks, and pharma giant Pfizer.

Of course, despite all the negative press and relatively high volume of companies joining the boycott, Facebook's ad revenues are still a juggernaut. Looking at data from the past few years, and projecting where things are headed, as a recent direct-to-consumer e-commerce report from Common Thread Collective points out, demand for paid media on the platform is unlikely to wane any time soon.

Social media advertising infographic

Common Thread Collective

And this is where things start to get tricky. According to CNN's analysis, it's smaller media buyers that make up the vast majority of Facebook's ad revenues in terms of dollars. Even if all 100 top spending brands on the list were to suddenly freeze their campaigns and participate in the boycott, that would still only effectively remove 6 percent of the ad platform's income.

What's more, because the ad platform works primarily on a pay-per-click model, which serves up promoted posts from the highest bidder, there's every reason to believe that the long tail of smaller ad buyers would provide enough demand to make up for this 6 percent loss. There's no indication that Facebook would run out of demand or slots to fill with monetized posts.

So if Mark Zuckerberg and company doesn't stand to lose much from the boycott, who does?

The socially dependent long tail

Sure, larger consumer brands are attracted to Facebook's audience targeting capabilities, massive reach, and measurable results. But for household names, running campaigns on Facebook is only one cog in a much larger machine.

Consider Levi Strauss, a classic consumer brand, as an example. They're participants in the #StopHateForProfit boycott, but this company advertises with any number of media types, including banner ads on content websites, TV spots, and posters in subway cars. What's more, their ad campaigns are generally more about branding than direct sales.

Levi's manages sales channels for both wholesale and retail e-commerce and distributes goods via scores of retail partners, and they have some 15,000 franchised Levi's stores. When a brand like this stops advertising on Facebook, their brand awareness and sales are unlikely to take a significant hit, largely due to the diversity of their promotional and sales channel mix.

Levi Strauss annual advertising and promotion expenses 2015-2019

Statista

But for smaller companies whose entire livelihood depends on building a loyal audience and driving direct sales through Facebook and Instagram ads, the prospect of joining the boycott raises a dilemma.

Direct-to-consumer (DTC) brands promote and sell their products directly to new customers, cutting out intermediate channels like marketplaces, middlemen, brick-and-mortar stores, and third-party retailers. Without retailers acting as middlemen, DTC brands are dependent on eye-catching branding and targeted advertising via social media platforms.

With DTC, the focus is on building brand affinity by appealing to consumers' emotions and values, so championing social justice can bolster sales. But at the same time, generating inbound traffic from social media channels is a major source of sales.

So while many consumers do prioritize a brand's ethical culture when making purchasing decisions, this may not be enough for DTC.

For a lot of DTC brands, Facebook is their entire sales funnel. These are the companies that are most likely to feel the most acute pain by withdrawing from Facebook ads. And these also happen to be among the companies most likely to have sustained lagging sales as a result of COVID-19 era economics.

How big a deal is DTC?

Overall, online sales continue to grow, with nearly 14 percent of U.S. total retail sales estimated to come from e-commerce channels by 2021.

While DTC brands occupy only 2.6 percent of the U.S. e-commerce market, this year will likely see a 24 percent increase, making these brands a force to be reckoned with.

US D2C e-commerce sales chart

eMarketer

In the aforementioned report, Common Thread's Aaron Orendorff calls DTC "an approach to marketing and retention steeped in the value and feel of one-to-one relationships but no longer governed by manufacturing and distribution ownership." Indeed, focusing on relationships with consumers, without middlemen, is an effective marketing tool that resonates with many young consumers.

The value of DTC marketing is characterized by significant gains in traffic and lower costs of acquisition, as Brian Garofalow, VP of Marketing and Ecommerce at Igloo, explains.

"In the last year, we were able to simultaneously increase traffic by 2.4x while lowering acquisition cost by over 20%," he told Common Thread. "The net result is operating a profitable business unit, having a closer relationship to consumers, understanding what triggers purchase behavior from which cohorts, and ...gaining insights that are incredibly valuable for new product development and leading indicators to wholesale customer sell-through."

According to analysts, as more VCs and institutions have begun to comprehend the value of the DTC model, more of these companies are landing venture funding and acquisitions from traditional companies. However, this growth is being compromised by the pandemic, which makes VC funding harder to come by. It therefore also decreases the likelihood that any pure DTC brand will boycott Facebook.

Facebook’s response

It may seem like Facebook is too big of a force to be hurt by this situation. An estimated 51 percent of U.S. adults are using social media at higher rates during the pandemic, generating massive growth for Facebook, which also owns WhatsApp and Instagram.

Facebook collected more than $17 billion in advertising revenue in the first quarter of 2020. Losing big brand ad spending is painful, but because the bulk of the company's ad revenues come from DTC brands and other smaller companies that rely heavily on the platform to drive direct e-commerce sales, it's unlikely that Zuckerberg will feel the need to make any meaningful changes.

Facebook said in a statement that they are taking steps to "keep hate off of our platform" and added, "We know we will be judged by our actions not by our words and are grateful to these groups and many others for their continued engagement."

Facebook is also rolling out modifications to curb the spread of misinformation and hate speech, but the groups spearheading the boycott movement don't think that this is enough.

"This isn't over. We will continue to expand the boycott until Facebook takes our demands seriously," Jessica J. González, the co-CEO of Free Press said in a statement. "We won't be distracted by Facebook's spin today or any day. Mark, Sheryl and their colleagues have much work to do to make Facebook a better place for everyone, and they need to get it done now."

The problem, however, is arguably far harder to address than many of those protesting Facebook would acknowledge. The idea of user-generated content as a model for mass media was all well and good two decades ago, when it was fresh, but once it's been weaponized by foreign instigators, Boogaloo groups and neo-Nazis, you can't really put the cat back into the bag.

Facebook "Content Actioned" chart

Facebook

From January to April 2020, Facebook blocked 9.6 million pieces of content, around 4 million more than the final quarter of 2019. The company is also initiating mechanisms to address hate speech, including flagging harmful content, ensuring accuracy of political content, and including politicians in community standards.

But as González says, these measures likely won't make too much of a dent.

Because its algorithms work by giving exposure to content that commands the most attention, Facebook is fundamentally a perfect platform for disinformation and hate, making any type of reformation almost impossible. It's just the nature of the user-generated content beast.

Closing remarks

Ultimately, Facebook knows that consumer brands need it more than it needs them. While the mounting pressure is forcing Facebook to expand its brand safety ad policies and take proactive steps to limit the spread of hate and harmful content, at the end of the day, the giant and its shareholders won't likely suffer a major blow to revenue. Managing and mitigating the Wild West of social media remains a dubious mission at best.

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