Are social media ads on sites like Facebook and Twitter effective? Gallup doesn't think so.
For businesses that want to expand their reach in the modern world, social media seems a logical place to start. But a new poll by research firm Gallup says these businesses are wasting their time.
In a new research report titled "The Myth of Social Media," Gallup begins by describing the perceived opportunity, noting that Facebook (NASDAQ: FB ) users post 4.75 billion items of content each day. Meanwhile, Twitter (NYSE: TWTR ) users on a daily basis send 400 million tweets, Instagram users "like" 1.2 billion photos, and YouTube viewers watch an incredible 4 billion videos. As a result, Gallup said U.S. companies just last year collectively spent $5.1 billion on social media advertising.
Gallup's argument sounds reasonable
However, Gallup said a whopping 62% of the 18,525 U.S. consumers it polled insisted social media has "no influence at all" on their purchasing decisions. By comparison, just 5% stated it has "a great deal of influence," 30% cited "some influence," and the remaining 3% weren't sure what to think.
The problem, Gallup said, is that "most consumers aren't visiting social media sites to engage with brands -- they are there to interact with people they know." Specifically, when asked their reasons for social media use, 94% answered "To connect with friends and family." By comparison, only 29% cited following trends or finding product reviews and information, and just 20% wanted to "comment on what's hot or new" or to write reviews of products.
That sounds fair enough. It is called "social" media, after all, and Facebook CEO Mark Zuckerberg has repeatedly outlined his ambitions of "connecting the world" through his platform. And, to our fickle market's dismay, those ambitions often come at the expense of near-term profitability.
Here's why it doesn't add up
However, a Facebook representative wasted little time chiming in with this: "The only thing this poll shows is that self reported behavioral data is unreliable. For decades, studies that look at people's actual, real-world behavior have shown that ads on all mediums, including social media, effect the things people buy."
I'm with Facebook on this one, and here are three reasons why:
1. Consumer, meet restraint bias
First, have you ever heard of restraint bias? It's the tendency to overestimate our ability to control impulsive behavior. Fellow Fool Morgan Housel touches on how restraint bias affects investors here. But whether consumers admit it or not, restraint bias also plays a huge role in advertising. And, as a collective group, we consumers tend to think we're much better at resisting the allure of advertisements than we really are.
2. Gallup's own generational data
Even so, have a look at this table, taken directly from Gallup's own report and titled "Influence of Social Media on Purchasing Decisions, by Generation."
| Millennials | 48 | 43 | 7 |
| Generation X | 57 | 34 | 7 |
| Baby Boomers | 68 | 26 | 4 |
| Traditionalists | 75 | 16 | 3 |
You might be tempted to respond to the data with a "Duh." But keeping in mind Gallup's 62% "no influence" stat, consider its broader implications. Gallup's poll only took into account consumers aged 18 and over, and there's a clear trend of younger consumers being more amiable to the effectiveness of social media ads.
This makes perfect sense considering these younger consumers are, by and large, much more comfortable than other groups with social media platforms. Compared to older generations, it's also no mystery that they comprise a larger percentage of the overall user base for burgeoning sites Facebook and Twitter. As today's youth age, it seems reasonable to assume their comfort in accepting social media as a viable ad medium will carry forward.
3. Improving ad platforms
Finally, consider that Gallup's poll was conducted from Dec. 12, 2012, to Jan. 22, 2013. Why does this matter? Because social media sites have gone to great lengths since then to continuously improve the effectiveness of their respective advertising platforms.
Twitter's "Tailored Audiences" product, for one, was only introduced in December 2013, and aims to drive better performance for advertisers by letting them target specific groups of existing and potential customers with more relevant ads.
To Gallup's credit, Facebook formally launched its own equivalent solution -- dubbed "Custom Audience" -- in September 2012, just a few months before Gallup's data collection efforts began. However, Facebook has revamped and expanded its Custom Audience tools several times since then, causing many big-name advertisers that had previously abandoned social media ads to dive back in.
Foolish takeaway
At first glance, Gallup's poll seems to frame a solid case against the effectiveness of social media advertising. But when you dig deeper into the holes created by consumers' own biases, Gallup's generational data, and the fact that social media platforms are continuously improving their advertising skills, the pollster's stated conclusion just doesn't hold water.
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Damian Dovarganes/AP WASHINGTON -- U.S. consumer spending advanced at a brisk clip in November as lower gasoline prices gave the holiday shopping season a boost, offering the latest sign of underlying momentum in the economy. The Commerce Department said Thursday retail sales excluding automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising 0.5 percent in October. The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. "It provides a bit of a boost to fourth-quarter growth estimates," said Dan Greenhaus, chief strategist at BTIG in New York. "We expect the lower gasoline price boost to continue into next year's first half and with an improving jobs market, GDP should be well-supported in coming quarters." November's increase in core retail sales exceeded Wall Street's expectations for a 0.4 percent gain. It also suggested that consumer spending, which accounts for more than two-thirds of U.S. economic activity, was accelerating in the fourth quarter after slowing in the July-September period. Forecasting firm Macroeconomic Advisers raised its fourth-quarter growth estimate by three-tenths of a percentage point to a 2.4 percent annual rate. U.S. stocks rose on the data, bouncing sharply from a three-day drop. Lululemon Athletica (LULU) shares surged after the yoga apparel maker posted quarterly results. U.S. Treasury debt yields edged up, while the dollar rose against a basket of currencies. The solid retail sales data added to November's bullish employment report in painting a fairly upbeat picture of the economy, despite a recession in Japan and faltering growth in the eurozone, China and major emerging markets. In a separate report, the Labor Department said new claims for state unemployment benefits fell last week, pushing them firmly beneath the key 300,000 level, in a sign of continued improvement in the jobs market. Tightening labor market conditions are starting to spur faster wage growth, which together with lower gasoline prices is helping to stimulate consumer spending. Broad-Based Gains U.S. gas prices have dropped by about 64 cents to $2.767 a gallon since the beginning of the year. Economists at Moody's Analytics estimate that consumers save about $1 billion over a year with each 1-cent drop in the price of gasoline. 
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Goodluz/Shutterstock When heading overseas, travelers often forget about the financial planning. Besides basic preparations, like making copies of your bank account and credit card information, there are some subtler financial measures that can potentially save you from myriad problems while abroad. 1. Notify Your Financial Institutions The money in your bank account has no significance if your account is frozen. Even the slightest deviation from your normal spending pattern can raise a red flag for a fraud department, which may result in your account becoming frozen or your credit card denied. Prevent this from happening by informing your bank and credit card companies about the location of your travels and the duration of your stay in the foreign country. 2. Set up Online Accounts An online bank account will give you added convenience and security over your funds while traveling overseas. With an online account, you can easily check your balances, transfer and deposit funds and stay on top of recent transactions. Setting up automatic payments can also help you pay bills on time and meet your financial duties while thousands of miles from home. 3. Have Multiple Forms of Payment Although the ideal form of payment depends on your travel destination and spending habits, it's a good idea to carry a variety of payment methods such as cash, debit cards and credit cards. It's also wise to have multiple bank accounts and credit cards – especially ones that are accepted internationally, such as Visa (V) and MasterCard (MA) for credit cards, and Chase (JPM) and HSBC (HSBC) for banks. Even if you're set on using one spending method for the majority of the trip, you should still carry the extra card with you. Also, it is crucial that you have the card you used to book the trip with you at all times, even if you don't intend on using it for foreign transactions. 4. Check Exchange Rates When traveling abroad, you should familiarize yourself with foreign currency and exchange rates to understand the value of a dollar. You can use an app, like Currency, to find out the latest exchange rates. Note that in addition to exchange rate conversion fees, you may encounter foreign exchange fees when converting money abroad. 5. Get a Travel Rewards Card With No Foreign Transaction Fees To find the right travel rewards card for you, first analyze your spending habits and travel pattern. Signing up for the right travel rewards credit card will get you a wide range of benefits and perks while traveling –- including no foreign transaction fees, which can help travelers who use credit cards as their main form of payment overseas. You can also rack up rewards points and miles for travel rewards or cash back. 6. Get an ATM Card from an Online Bank Signing up for a no-fee ATM card will give you the freedom to withdraw money without having to worry about racking up fees. Keep in mind that you don't necessarily have to change banks to avoid ATM fees overseas, as many banks will waive them for certain checking account holders. 7. Carry Cash, Too For Americans, U.S. dollars can be the most cost-effective form of payment, as you automatically save on any fees you would have to pay at a financial institution. Most vendors will also give you a fair exchange rate on the conversion from dollars to their local currency. Exchanging money at the airport may be convenient, but you'll pay for it with fees and expensive exchange rates. A better idea would be to withdraw the foreign currency through your bank or at an ATM machine upon arrival. And remember: No one turns down cash. Traveling with a couple hundred dollars worth of emergency cash is a smart decision in the event you can't access money. Just make sure to carry cash in small denominations, as it can be dangerous to flash large amounts of money in public. 
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