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After a lot of anticipation, Facebook goes public this week. And its future depends largely on one question: Do Facebook ads work? Potential investors are betting that Facebook will become an advertising behemoth. But surprisingly there's very little public research to back them up. What's out there is mostly anecdotal. For instance, General Motors yesterday pulled its ads from Facebook, saying they didn't generate more sales.
So NPR's Steve Henn and Zoe Chace from Planet Money Team decided they would run their own little test.
STEVE HENN, BYLINE: First we need our Guinea pig - a business in need of Facebook advertising.
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ZOE CHACE, BYLINE: I found it at Jazz Fest. Michael Friedman and Greg Augarten sell New York-style pizza at a takeout window that could only be found in New Orleans, between the streets of Piety and Desire.
MICHAEL FRIEDMAN: Can you make good New York pizza outside of New York? And the dough is like the most important thing.
CHACE: It's called Pizza Delicious. Two nights a week, if you're in the know, you call them up and order a pie. Business has been good, but they're about to buy their own place. So for the first time they're thinking about paid advertising.
FRIEDMAN: And I also wonder if people will think that(ph) advertising would be lame. I don't know. People think we're like really cool because we're like a pop-up restaurant. But so much of what we've done is just out of necessity.
CHACE: For the new spot - the restaurant - they're going to need a solid stream of customers. They'd been thinking about advertising on Facebook but didn't know how.
HENN: So we hooked them up with a social media ad guru in California.
CHACE: I got the pizza guys into a studio in New Orleans.
HENN: I got Rob Leathern, CEO of Optimal, into a studio in San Francisco.
CHACE: And San Francisco, Rob, can you hear everybody too?
ROB LEATHERN: Yup, I can hear everyone real well.
FRIEDMAN: What's up, Rob?
LEATHERN: What's up?
CHACE: While these guys wanted to sell more pizza, we had an ulterior motive.
HENN: We wanted to get inside an ad campaign on Facebook and see if it really worked. Would buying an ad on Facebook actually help sell more pizzas?
CHACE: First they had to build an ad.
HENN: Facebook's story is if your friends like something, you're more likely to try it. So the guys decided to target the friends of people who liked Pizza Delicious.
LEATHERN: Seventy-four percent of people in New Orleans are already friends with someone who's a fan of your page.
CHACE: 224,000 people.
HENN: Facebook can slice up potential customers in New Orleans a thousand different ways.
CHACE: They were looking for people jonesing for real New York pizza.
LEATHERN: Type in, like, the New York Knicks or something. So you could have, like, the New York Jets, Carmelo Anthony, the Giants...
CHACE: Making the New York connection cut the reach of the ad down to 15,000. And how could this not work?
HENN: We had nailed the demographic. They were golden.
CHACE: But 12 hours later, we started getting these calls from Michael.
HENN: On his cell phone. They were kind of sad.
FRIEDMAN: Yeah, yeah - it was like all zeros across the board.
HENN: Facebook doesn't make money till people click on the ad. If no one clicks, they turn the ad off.
CHACE: They'd struck out. They just had 48 hours to make this work.
HENN: So they changed the target. They dropped the Knicks fans.
LEATHERN: If we just put in pizza or New Orleans...
HENN: And then, Zoe, you had this stroke of genius.
You could add, like, these other things that came up, like Italian and mozzarella and gnocchi and espresso.
LEATHERN: Yeah, and people who like ice cream generally like pizza. That helps out. We're up to like 30,000.
HENN: The ads went viral, as they say, twice the usual number of click-throughs. The ad showed up more than 700,000 times. Basically everyone in New Orleans on Facebook saw it - twice - and Pizza Delicious got close to 20 times the number of Facebook fans they usually get in two days.
LEATHERN: Is that feeling of exhilaration worth $240? I don't know. But hopefully it adds some more business.
HENN: The pizza guys paid close to a dollar for each new fan. And while those fans checked out their page on Facebook and clicked like, this was no guarantee they were going to show up and actually buy some pizza.
CHACE: Cut to last Thursday night - 48 hours after the ads started running, more than 200 new fans later. Here's Greg.
GREG AUGARTEN: After a long night of asking every single customer where they found out about Pizza Delicious, none of them said that they found out about us through the Facebook ad - zero people.
HENN: But while Greg took the garbage out, he checked his phone. And there was a message.
AUGARTEN: Just found out about you guys via a sponsored Facebook ad, if you can believe it. Super-excited about your new place. Happy to toss in a few bones over the top.
CHACE: And this guy kicked in $10 to support the new restaurant.
AUGARTEN: Yeah, and that was cool. I thought that was really cool of him. And we got some return on our ad that we could actually see.
CHACE: Right, let's be clear, you made $10 off a $240 investment.
AUGARTEN: We did.
HENN: Maybe someday these guys' new fans will show up and buy some pizza. But social advertising is so new, nobody knows for sure. It's still unproven, untested, largely unstudied.
CHACE: There's just not a huge body of research out there about the conversion from Facebook fans to buyers. Some companies like Ben and Jerry's say they've gotten a big return.
HENN: But it's anecdotal.
CHACE: Advertisers on Facebook are betting they can make it work, that the customers will come.
HENN: And that's what Facebook's investors are betting on too. I'm Steve Henn in Silicon Valley.
CHACE: Zoe Chace, NPR News, New York.
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