Facebook ad costs set to rise
According to Ad Age, Facebook has been able to boost revenue even as it sells fewer ads. In the final three months of 2014, Facebook served 65% fewer ads than a year earlier, but the average cost of those ads to advertisers was 335% higher.
How has it managed this increase without scaring off advertisers?
Despite a seemingly endless amount of inventory, Facebook has created a sense of scarcity around ads being served.
Over the last two years Facebook has cut the number of desktop ads displayed on its right hand sidebar. Facebook has also cut the number of news feed ads as well, despite this being more expensive for advertisers and the only place where Facebook shows ads on mobile.
Less space available for advertisers means higher costs - and higher revenue per user for Facebook:
Facebook's CEO Mark Zuckerberg said that the company has emphasised the quality of its ads' content over quantity.
The strategy is paying off: $3.59 billion was spent on Facebook advertising in the last quarter, 53% more than the same time at the end of 2013. It looks like this trend will set to continue in 2015:
There are two more reasons Facebook has been able to sell fewer ads at higher prices: mobile and data.
As the Ad Age article says:
"In the fourth quarter, 84% of the company's daily audience visited on a smartphone or tablet, while 69% of the company's advertising revenue came from ads shown on such devices."
Facebook's data is also a big reason it is able to raise advertising costs, as the more targeted an ad can be, the more they can charge. All the information Facebook collects on the people is used to raise its ad rates but keep them at an acceptable rate for advertisers.
We'll be recommending to our clients that they'll have to set aside more budget to achieve the same results through Facebook advertising, but an emphasis on quality over quantity should help to lower costs and improve results.