In just 4 months from the launch of Thefacebook (Facebook’s original nomenclature) on February 4, 2004, their first advertising contract, brokered by Mr Youth, was signed with Dunkin’ Donuts and Victoria’s Secret Pink for a meager sum of $5000, to provide for the server costs and provide the users with an uninterrupted service. This was the humble beginning to what later turned out to be an exploding market. In the years thereafter, it has been through several makeovers (including the name changing to Facebook) to evolve as one of leading corporations worldwide to this date when Facebook Inc. (NASDAQ:FB) became the fastest company in the Standard & Poor’s 500 Index to reach a market cap of $250 billion. With advertising being the most visible of its revenue sources, what it means to the advertiser is essential to be known.
Facebook’s earliest experiments in advertising, Flyers and Flyers Pro, helped social events on college campuses to be promoted by students who could set a max price for what they were willing to spend for the ad. As Facebook spread beyond the Ivy League colleges, sponsored ad partners were welcomed to the network significantly boosting the revenue. This soon gave rise to the Cost Per Mille (CPM) or Cost Per Thousand (CPT) views mechanism.
Owing to an end to the holiday season in Q4 2014, the data for Q1 2015 showed a reduction in the Facebook ad costs with its CPM decreasing by around 11% to settle at $3.30 as reported by Salesforce. The CPC also demonstrated a similar reduction (11%) to settle at $0.39 while the CTR was a bit more optimistic with only a marginal decrease (1%). This pattern is a clear indicator of the fact that engagement has been on the rise in Q1 2015 as compared to last quarter.
Facebook Ad Metrics: Regional Trends
According to the latest report from Salesforce, the highest cost per thousand impressions (CPM) of Facebook ads in Q1 2015 was charged for Australia ($5.59) followed by Japan ($5.01) and UK ($4.31). In the previous quarter, Japan had the highest CPM with $6.03, followed by Australia and the US with $5.11 and $4.13 respectively. It is evident that the highest CPM for Facebook has dropped by 7% worldwide. However, the lowest CPM in Q1 2015 ($1.39 for Brazil) has gone up by 15% as compared to that of the previous quarter ($1.21 for Brazil). This might be indicative of a shift in the price band for Facebook advertisement. The lower limit has been raised by a substantial amount while the higher limit is relaxed by a smaller proportion. Further analysis showed that social media titan’s CPM has reduced drastically in New Zealand (28%) and Canada (27%), while Brazil showed the highest increase of 15%. US was closest to the global figure with 10% reduction in CPM. Australia and the UK saw a rise in CPM by 9% and 5% respectively.
The regional trends for Cost Per Click (CPC) showed a greater range of variation with 52% cost reduction for New Zealand ($0.85 to $0.41) as compared to no change for France ($0.39). The global average stayed at 11% reduction with Germany being at the same figure as before. While US had a greater reduction in CPC of 19% as compared to its own CPM, Canada, Brazil, and the UK saw a rise of 13%, 11%, and 4% respectively on the same parameter. Brazil emerged as the country with the lowest CPC in Q1 2015, though the CPC increased by 8% while the highest CPC (for Canada) increased by 13%. This is in contrast to the trend observed in the case of CPM where the highest price point had dropped. This might be due to the anticipation of better prospects in the future.
The Click Through Rate (CTR) increased by 50% for New Zealand while that for Canada dropped by 35%. Almost 10% decrease was observed for France, Japan, and Germany while the US saw an increase of 9%. This trend indicates that there has been better engagement in most parts of the globe. A report by Doubleclick showed that a CTR of 0.1% (across all platforms) has been the global average for several quarters now. This brings light to the fact that Facebook is providing a great value proposition for its clients.
Changing face of Facebook app install campaigns worldwide
Mobile apps have become an integral part of the users’ life at present. An average user spends almost 88% of the mobile usage time on apps. This led to the investigation on the Cost of App Install campaigns (CPI) through Facebook platform. Among the studied nations, Brazil had the lowest app install cost at $1.00 while New Zealand stayed at a high $6.16. Sweden ($5.28), Australia ($5.22), Canada ($4.72) and Germany ($4.52) were on the higher side while Malaysia ($1.02), Turkey ($1.15) and Italy ($1.78) were on the lower side. US ($3.04), France ($3.06) and the UK ($3.67) were safely placed in the center of the chart, probably a depiction of how the app economy is stabilizing in these regions. However, the mobile app CTR was found to be independent of CPI. Countries like Australia and New Zealand that had the highest CPIs were lingering in the CTR race with mere 0.64% and 0.67% respectively. On the other hand, Malaysia and Brazil with a CPI of $1 had CTR of 0.98% and 1.08% respectively. Japan had the highest CTR of 1.26%. The US secured a position towards the higher side with 0.97%.
Mobile overtakes the desktop space
As expected the ads meant only for desktops became costlier than those for mobiles. Desktop ads had a CPM of $12.86 to that compared of mobiles at $6.63. Increasing time spent on mobile influences the inventory available thus reduces the cost. Still, the e-commerce companies favored the desktop ads over mobile ads due to the intuition of a larger section of their customers being on the desktop. An advanced platform called Facebook Audience Network was launched recently to place ads at a much cheaper rate (9% reduced CPM) as compared to only the news feed targeting. The performance has been below expectations with a 20% lower CTR which increased the CPI by 18%.
Various bid types offered by Facebook are targeted at specific goals which the advertiser wants to achieve. The CPM bid type offers the lowest CPM of $1.36 while the CPC bid type delivers the lowest cost per click at $0.18. Another bid type called oCPM tends to optimize at more than one levels. It offers the lowest cost per action at $0.07 while maintaining the CPC at $0.22 which is only marginally higher than that of CPC bid. This encourages the clients to choose a bid that will suit their needs in the best possible manner. Also, they have a prior idea of where to set their expectations.
Several new products launched recently are set to make an impact on the market and the advertiser behavior is expected to change. Also, owing to the rise in mobile usage, it is quite evident that there is going to be a huge shift away from desktop. One thing to be looked for might be if Facebook Audience Network can create the expected impact.