The study of the effectiveness of social network advertising will require several methods for testing the effectiveness that this new non-traditional way of advertising offer.
In order to understand the nature of this research, social networks and viral advertising as well as other concepts will have to be studied to deeply to understand how these work and be capable of drawing conclusions on the effectiveness of social network advertising.
Due to the inmense world that the term "social network" comprises, the study will be focused on social networking websites, narrowing into a Facebook as a model. With the aim of giving validity to the research, a number of case studies of different firms using social networks as media for advertising will be analysed to compare bad and good aspects and finally draw a conclusion.
Social trends are also needed to be considered since they explain how many people do transit in social networks, if the number of visitors are decreasing or increasing, age groups that visit these websites and other detrimental trends such as interpersonal relationships within users of a same social network.
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After analysing and studying the results obtained from this research, it could be concluded that social networks is a choice of media for advertising which is highly effective at reaching the target audience and in the spreading of the viral message, which will be explained later. Moreover, social network advertising has proved that it is a type of media that can be used by big and small firms as advertising budgets are low and flexible, and this, is a very important advantage -among others- that this non-traditional type of advertsing has over the different media of traditional advertising.
Table of contents
GENERAL CHARACTERISTICS OF SOCIAL NETWORKS 5
What are "Social Networks"? 5 5
How do social networks work? 5 5
What are pages and groups in social networks? 7
What are custom applications? 7
GENERAL CHARATERISITICS OF ADVERTISING 7
What is "Advertising"? 7 6 What is viral advertising or viral marketing? 6 How are internet advertisments charged? 8
What is "Viral Advertising" or "Viral Marketing"? 8
How are internet advertisments charged? 8
Cost per mille (CPM) 8
Pay per click (PPC) 9
Cost per install or cost per lead (CPL) 9 8
ADVERTISMENTS ON SOCIAL NETWORKS 9
What is "Social Network Advertising"? 9
How does social network advertising work? 9
RESEARCH PROBLEMS AND HYPOTHESIS 11
Social Trends 12
The nature of social networks 13
Social network advertising forms and cost analysis 15
CASE STUDIES ON FIRMS USING SOCIAL NETWORKS 16
Case Study #1: FedEx 16
Case Study #2: Products for future brides 17
The topic chosen for this research is "the effectiveness of social network advertising". This topic has been chosen due to the fact that social networking websites have been experiencing a fast increase in popularity during the last few years and today are regarded as a powerful tool for advertisers.
Since 2007, the social network advertising industry has boomed: the number of advertisments tripled and the most famous and prestigious firms started to advertise through this non-traditional type of media. Why is this so? These firms discovered a new way of advertising which was cheap and could reach a huge number of people all around the globe.
In the broad concept of social network advertising, the focus was set upon the way in which social networking websites and advertising combine; and the way in which big firms and small firms may take advantage of this particular type of advertising as well as the reasons why to choose this type of media and not other. Due to the fact that the number and types of social networking websites are infinite, this report will focus mostly on the most popular and average site, Facebook.
In researching this topics there will be a deep analysis of how social networks and "viral advertising" work in order to explain the concept of social network advertising.
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Since the success of advertisments greatly depend on reaching the market being aimed for, several methods will be applied and developed to evidence the efficiency of social network advertising in reaching different market segments with the final purpose of stating a final conclusion regarding the to the question: Is social network advertising an efficient tool to advertise?
An approach to the general characteristics of social networks
What are social networks?
Social networks are online communities for internet users made of individuals from any part of the world which join for different purposes. There are many examples of reasons why people join social networks, among the most common we can find: for keeping in touch with colleagues and friends, for stablishing business relations, for meeting new people, for common interests or beliefs, for sharing media, etc.
The number of social networking sites is vast and the number of visits and popularity of each site depends from country to country. However, among the most popular social networking sites of the world we can find Facebook, Fotolog, MySpace, Hi5, Blogger. Among the fastest growing sites in popularity around the world we can distinguish: LinkedIn, Twitter, Facebook.
How do social networks work?
In order to display a social networking site, each individual needs an internet connection, a computer and minimum software requirements. When it comes to join a social network, people will have to register their personal data (not always mandatory) such as age, nationality, region, religion, marital status, interests, etc. This data entered by the user, will be part of the user's profile. Each user can edit his profile whenever he wants and share or post through his profile photos, videos, notes, groups, pages, applications, etc.
Profiles are very important in social networks due to the fact that they build up an identity for each user, which enable all users to browse for people by: their names, interests, political views, sex, marital status, high school, college, employer, workplace, smoker/non-smoker, sexual orientation, among many other. Once the user finds any contact of its interest, he can add this people to his network. Profiles make possible communication and connection whithin the different users possible.
Connections and communication takes place whenever one user shares information with other users. For instance, connection takes place when one contact sends a message to another contact, when a contact views photographs, videos, groups, pages of other contacts, when contacts join to a same group or suscribe to the same page, or even when they play together or install the same application. The most effective way of communicating users is through a news feed, by which the social networking site posts the recent activity of each user whithin the site. There are many means by which contacts connect with each other, and build up a social network. The following diagram explain connections in social networks:
What are pages and groups in social networks?
These play a very important role in social networks. As stated above, users can communicate and connect by joining a particular group or suscribing to a page.
Groups are places where users join to discuss about certain topics of their interest, for instance, political issues, sports, music, tv shows, etc. They can also post photos, videos, links and invite their other friends to join the group. Groups are very important since they provide users a place to express their ideas or feelings regarding a certain topic and the opportunity to stablish a communication with people with same or different ideas.
Pages are similar to groups in terms of connecting people with same interests, but the difference relies in that in pages, users suscribe to receive updates about a musician, politician, tv show, or product. Pages group people with same likes and enable them to stablish connections between them. In fact, some social networking sites such as facebook, call the act of suscribing to a page as "becoming a fan".
What are custom applications?
These are similar to groups and pages but different in the sense that exist many different types of applications with different purposes. For example, some are games, others consist on quizzes, movie reviews, etc. These applications are developed by developers who buy the license to have these space online, and with this space they can include any advertisment they want. The most important advantage of custom applications is that these can send updates to the news feed of every user who installed the application.
An approach to the general characteristics of advertising
What is advertising?
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There are different types of advertising: informative and persuasive advertising. Informative advertising is informing potential buyers about a product, whereas persuasive advertising attempts to make consumers feel more emotionally positive about a product's image to encourage them to buy it. 
What is viral advertising or viral marketing?
These terms make reference to the technique of advertising or marketing which makes use of social networks in order to achieve the business' marketing goal. The term viral refers to the fact that members of a social network carry a "virus", which is the viral message, and pass it along to the other members of the social network.
The "virus" spreads itself through the social network by word of mouth or by the internet generating awareness on a particular product or service on every member of the network.
Viral marketing has to be succesfully targeted to a specific group of individuals which operate in the same social network, in order for the viral message to be passed along effectively.
The process of choosing the viral message to spread has to be very effective, since the type of message depends on the target audience, and the overall success of viral marketing depends on the spread of the viral message. The viral message has to prompt members of social networks to talk among them and forward the message to other members. Thus, the message has to be appealing to every person involved in that social network, or otherwise, the spread of the viral message would die and the message will not be delivered to the whole target audience.
Furthermore, viral marketing or advertising is considered a very cheap strategy and very strong and effective way to raise awareness in consumers of a certain product or brand. As the message is delivered from one person to another in the same social network, consumers trust more in people they know and that are on their social network than in business' traditional advertisments which are considered in most of the cases misleading.
How are internet advertisements charged?
The two most common methods used when charging internet advertisments are: "cost per mille" and "pay per cick".
Cost per mille (CPM)
Its name translates to cost per thousand. This means that the CPM is a value that is charged for every thousand times the advertisment is displayed. The main disadvantage of CPM is that in some ocasions, advertisers pay for the display of advertisments that are not even looked by consumers. This pricing method can also be applied in other media such as TV, radio, magazines, etc.
Pay per click (PPC)
Pay per click is very simple, the website charges advertisers for every time the ad is clicked, and as a result, linked to another site where further information is displayed. The main drawback of PPC is that advertiser may end paying for users that click in their advertisments but never sign up on their business' website. This charging methods is can only be applied to websites (of any type). Among the most common types of websites that charge through the "pay per click" method we can find search engines and social networking sites.
Cost per install or Cost per lead (CPL)
This pricing model is used by social networkin websites to price advertisers when any user install or suscribe to their applications. The main advantage of CPL is that advertisers do not pay for wasted displays of their ads nor for useless clicks.
Analysis of the implementation of advertisments on social networks
The implementation of advertisments on social networks result on the term "social network advertising".
What is social network advertising?
Social network advertising is a type of online advertising which takes place in social networking sites. The great advantage of this form of advertising is that advertisers are able to use the demographic and personal data of each user to target their advertisments in an effective way, making sure the advertisment will reach the market they are aiming to.
How does social network advertising work?
The main way by in which social network advertising work is through viral advertising. Viral advertising is able to take place due to the fact that in social networks people are linked together. Thus, people get to connect and share information with each other. When it comes to advertising, social nerwork advertising uses demographic and profile data from every user to allow businesses to aim their advertisments right to the market segment they are aiming for. Moreover, this form of advertising takes advantage of how people's behaviour or attitude may be influenced by people from the same social network.
Research Problem and Hypothesis
After studying in deep the functioning of both determinant factors of social network advertising, social networks and viral advertising, the question that arises is if social networks are an effective media for advertising.
Moreover, another question that would requiere further analysis would be if social network advertising, a non-traditional way of advertising, is more effective than traditional ways of advertising that employ media such as TV, radio, newspapers, etc. This question would demand a study of the different types of media used in traditional advertisments with their benefits and drawbacks. Even though this research will focus on social networks as media for advertising and not on traditional advertising and its media, these will be compared in some cases to explain why social network advertising might be more appropiate in different cases.
The hypothesis that this research aims to test is the following: If effective advertisments are those that reach the target audience, then social network advertising is an effective way of advertising for any type of business.
In order to solve the research problem and the questions that this topic brings, various sources have been contacted and studied.
Social trends, case studies, costs of advertisments and the impact of advertisments on consumers will be discussed in careful detail.
The following points provide reasons why social networks advertising is effective and why social networks are the media to be used instead of other traditional media. What is more, case studies will prove social network advertising to be a highly profitable investment which is very effective in raising awareness of a particular firm or product.
Social trends are very important to consider when deciding which type of media to use for advertising. For instance, if the market aimed is teenagers, and the media to be used is magazines, the advertiser has to study which are the most read magazines by teenagers.
When social networking websites were first introduced, these were only used by teenagers and young adults due to the fact that most adults did not understand how to use them. Due to this flaw, social networking websites started changing to new interfaces and layouts to make them more easy to use and so more people could take profit of them.
The following set of polls  has been published on August 9th of 2009, and compares the amount of internet users that visit social networking sites in 2009 with the number of visistors in 2008. The poll has been answered by 1500 U.S. internet users.
Furthermore, frequency which with users visit the sites is very important. By the result of the third question of this set of polls, we can deduce that there is a high frequency of visitors: 31% (2-6 times per day and more than 7 times per day) and lower frequency levels which are very significant as well such as once per day and 2-6 times per week. The transit of visitors is very important since users are the ones who feed the social network by communicating and sharing with others. If there were no high levels of frequency, social networks would happen to be boring and not successfull for advertising. Values are shown on the following poll  :
On the first few years after the launching of these websites, before 2007, no one would advertise in this media aiming to people older than 35 years old. However, social trends have changed, and today in 2009, the amount of people from any agegroup that use social networks is increasing day by day. Specific values are illustrated below  :
The results of these polls clearly show that investing in social network advertising might be very profitable since many people, from any group age are signing up and almost any age group can be aimed to via social network advertising.
The nature of social networks
Which are the advantages that the nature of social networks sum to the effectiveness of social network advertising? There are many advantages, and these are closely related to the concept of viral advertising which can be developed to full extent in social networking websites.
To start with, social networks provide the advantage that the viral message is forwarded from a user to his friends or users of his same network. This is very important since this turns to be more effective than other methods in which a business or someone you do not know forwards the advertisment. This aspect of spreading the viral message in through s "circle of trust" it gives the advertisment a social feel and a more comfortable atmosphere for users to get in touch with an advertisment.
There are mainly three recognizable forms in which social network advertising work. Each of these three are closely connected to the nature of social networks and the atmosphere whithin the users that is created.
The three ways which were mentioned above are:
The first way is strongly connected with the concept of viral advertising which was previously explained. News feeds are a clear example of a medium by which the viral message spreads through the different people in a social network. The news feeds' base are the actions that members inside a social network do. These actions are published by social networking site and shared with the rest of the social community. It is very important to bear in mind the fact that users of the same social network often share a lot of things in common such as interests and culture, so getting to know the actions of other members of the same social network may be very influential and interesting for people that are part of that social network. For instance, if a user receives that a friend of him has recently played a certain game and scored 300 points, the user might feel like playing the same game to beat his friend. Another example could be the one of a user receiving in his news feed that a friend of him has just bought a new TV from a certain store, this user might feel like buying from this same store another TV or product.
The main flaw of this way of spreading the viral message is that the way in which the news feed work, by sharing other users information about recent actions, has created some controversy regarding user's privacy. Users concern with their privacy is one of the main causes why users leave social networking websites.
This second way of advertising through social networking websites is closely related to the main advantage that these offer to advertisers. This main advantage has been explained in deep before, but it is mainly the fact that advertisers can make use of user's profile information to target their advertisments. With the use of personal and demographic data such as age, sex, religion, and country, advertisers make sure the advertisment is only reaching the audience they want. This is a very important thing to mention, since one of the most undesirable things to happen for advertisments is to be considered spam  . If an advertisement is considered spam, this will clearly damage the brand or firm image of the business.
As well as the first way described, this type of advertising is closely connected with viral advertising and to groups and pages in social networks. The number of suscribers or members of pages and groups respectively, make pages and groups more popular beacause of how members of a certain group or suscribers of a page can influence other people within their social network to join. Thus, the increasing number of people joining and suscribing will raise the public awareness of a certain product, politician, show or others within the social network. Moreover, groups and pages are very useful tools for creating a brand image.
Social network advertising forms and cost analysis
Choosing social networks as media for advertisign is still nowadays cheap. This is mainly due to the fact that the social networking website charges advertisers for the advertisment's host and not fot the spreading of the advertisment, as it is spreads itself through the social network by communication between users.
In the case of Facebook, the most used form is banner advertising, which is priced by the CPM. CPM prices depend on the complexity of the targetting. In other words, the price depends on how many standards or filters had been applied to determine who are going to receive the advertisment.
Furthermore, Facebook also employs the PPC method for pricing advertisments hosted in the social networking website. PPC is more expensive than CPM since it is applied every time users click banners and the advertisment has been transmitted efficiently instead of charging only for the display of the ad.
As regards groups and pages, these are free forms by which advertisers may decide to advertise. However, the main drawback of these is that they often take several weeks to become popular and to build an effective image. Nevertheless, pages can complement with banner advertising, since pages can be promoted through banners with the purpose of raising awareness in users and increase the number of suscribers in the short-term.
As far as custom applications are concerned, these can be developed by a certain advertiser and then pay the social networking website for hosting the application online. The method employed for charging advertisers that use applications is known as "cost per install", this means that advertisers are charged everytime any user of the social network installs the application to his profile. Custom applications are in most cases are used mostly by big firms since developing applications is quite expensive and they have to be designed carefully. These applications should carry an effective interface for users to invite their friends to install the application or to let them know they are using this particular application in order to build up virality.
Any advertiser that uses any of these forms of advertising excluding groups, will receive further information from the social networking website hired regarding general characteristics of the group of people that clicked on ther advertisments, suscribed to their pages, or installed their applications.
Case studies on firms using social network advertising
The following case studies explain the results obtained by two different firms, from two total different industries. The first case study is based on a very big and famous firm called "FedEx" and the second one is based on a small firm from Milwaukee, Wisconsin, USA.
Case Study #1: FedEx
FedEx is a logistic services company dedicated to the worldwide transport of packages. The aim of the advertisment was to raise awareness of FedEx's service "FedEx express".
The form of social network advertising consisted in a custom application in Facebook named "launch a package". This application had a very effective layout and interface that allowed users to send "packages" that consisted of text messages and images. To reinforce and spread faster the application, FedEx advertised through banner advertising invitations for users to install the "launch a package" application. In addition, the segment that FedEx decided to aim was quite simple: males and females older than 20 years living in the United States.
The advertising campaign was very successful, as banner advertising of the application was very effective and resulted on 300000 active users in the first six days of launching the application. Moreover, the interchange of messages between users and invitations to install the application for those who did not try the application at that moment, meant that virality took place efficiently, reaching to the market aimed.
On the whole, it is clear social network advertising worked effectively for FedEx. Even though increase or decrease in sales can not be directly linked to the success of this application, the instant virtual launching of "packages" within users promotes "FedEx Express" as a fast and reliable service.
Case Study #2: Products for future brides
A business from Milwaukee, Wisconsin, USA that offers a variety of products for future brides ran a short advertising campaign on Facebook. The form used was banner advertising an the parametres that were set to reach the target audience were: females only, over 18 years old, residing in Milwaukee Wisconsin, engaged or in a relationship. Another important fact to mention is that the products offered are not cheap, they begin at a 1000 U$S. The CPL priced by facebook was 11 U$S per lead.
The advertising campaign lasted two weeks and results were very good. Four new leads (customers, suscribers) from all clicks on the advertisment were brought in, which means costs were 44 U$S and the minimum revenue for the business was 4000 U$S. This result is very effective considering that the advertisment was displayed for only two weeks and four new sales were accomplished.
In addition, advertisers got to know from the report of Facebook that almost every woman that clicked on the advertisment was suscribed as a fan of Grey's Anatomy. Even though the firm is still small and cannot afford to advertise on TV, this fact can be taken into account in future promotions.
On the whole, I strongly believe that the new phenomenon of social network advertising and its results can not be ignored mainly due to the fact that the number of social networking websites users increase every day and these can be transformed into new customers, followers or fans (depending on the what is the advertising promoting). Throughout this research process, the concept, functioning and results of social networks have been studied exhaustively as well as the principles of viral advertising and its uses.
Different forms and aspects of social network advertising have been developed to full extent and explained with relevant case studies that proved social networking advertising to be a very effective, fast spreading and interactive way of advertising.
Furthermore, this research has proven that social network advertising work as efficient for big firms as for small firms as a difference with other types of media such as TV, radio, newspapers, etc that can only be afforded by big firms. One of the most important factors that make this type of advertising so effective is that good results are obtained and expenditure is little or zero.
Even though an increase in sales of a business or popularity of a public figure can not be a hundred per cent associated with a successfull social network advertising campaign, social network as a media creates an interactive relationship between the business or public figure with the user which permits to build up a powerful image.
Finally, it is stated that social network advertising is an outstanding alternative to the traditional media used for advertising and proves to be effective in different scenarios; but it has to be kept in mind that the success of an advertising campaign do not rely absolutely on social network advertising; and other variables such as defining efficiently by advertisers which market segment to aim are detrimental to the efectiveness of social network advertising.