One of the most interesting metrics we track is the Facebook recommended CPC (cost-per-click) bid. When creating any ad through their self-serve tool, Facebook offers a suggested bid based on the demographics you have selected. This recommended bid is a dynamic calculation that reflects the real-time state of competition within the marketplace. For a new account, Facebook will assume that you can achieve an average CTR of 0.04% and suggest a fair CPC bid for your ad based on what other advertisers are bidding in order to achieve impressions.
Naturally, demographics where there is more ‘supply’ and less ‘demand’ will be cheaper and vice versa. For example, if you wanted to target all 13-17 year olds in the US, Facebook would recommend a low CPC bid. This is because there are many of these users available; they tend to spend a lot of time on the site; and they are more likely to click on advertising. On the flip side, if you micro-target a small sector of female alumni in an affluent city, your recommended CPC bid would be higher as you are going after a small population, and there is a lot of competition for these users. This analysis of recommended CPC bids based of a certain demographic is definitely interesting, but the real fun begins when we analyze these values on a macro-level.
Overall, across multiple demographic and targeting segments, what is Facebook recommending to advertisers to bid for a click? Is there a variance between males and females? How do these values fluctuate over time? At AdParlor, we create thousands of ads every day through the Ads API and closely monitor these recommended CPC rates for changes in market conditions. This allows us to take advantage of segments when clicks are cheaper – and even shift budget according to the dynamic market conditions. What we have done is averaged out the recommended CPC rate every day using the median recommended bid of all the ads that were created that day. The ads created represent an accurate cross section of demographics and aggregately provide a strong picture on the market conditions. Let’s begin by looking at the data in the US from June 6th, 2011 – August 15th, 2011
The first thing to note, is that recommended CPC bids fluctuate a lot day-by-day. The average median recommended CPC price in the US over this time period is $1.44. While a lot of the values fall around this line, there are noticeable trends away from this average. In the period between July 12th and July 25th, the rates stayed consistently around $1.07 before jumping back up. More recently, we have seen a significant jump since August 3rd, with a significant spike on the 10th and 11th of this month. Let’s take a look at the factors that can explain these fluctuations:
1 – A change in supply –the number of users, and their usage on the site can fluctuate over time. For example, there is a lot more usage on weekends than there is on weekdays. Additionally, Facebook is always making changes in the way ads are served to serve more valuable impressions on the site and this also has an impact. For example, adding a 4th ad to the homepage or having ads rotate after a period of inactivity are both ways Facebook can increase the number of impressions available in the market, and hence can drive down market prices.
2 – A change in demand – While a large portion of Facebook advertising is done within the long-tail, there are certain advertisers, that can have a significant effect on the market. If one of these big spenders decides to take a break from advertising, or put the foot on the pedal, we can expect to see fluctuations in the market. Similarly, groups of advertisers can have the same effect. We notice a very marked increase in prices during Christmas – as retailers compete for Facebook impressions. This could explain the spike we are now seeing as ‘back-to-school’ campaigns begin to flood the marketplace.
3 – An algorithm change – The Facebook ad serving algorithm is constantly changing. In fact, even the recommended bid presented is a calculation that is always changing. Often, the smallest change in Facebook’s code can have a real or perceived change in the way ads are served, and the recommended pricing for those impressions.
Because all three of these factors are constantly competing with one another, it is difficult to conclude the real reason for the change in the recommended CPC price. Looking at data for other countries starts to make things even more interesting. Mapping the United Kingdom, Canada, and Australia on the same graph as the United States, we can see that these countries follow a similar trend. If this fluctuation is due to a major advertiser, or group of advertisers, it seems that this effect spans across multiple countries.
While there is no real way of knowing exactly what causes these fluctuations in market conditions, it is important to understand that it does happen! The value of your bid one day can vary greatly from the next with the always-changing ad marketplace on Facebook. Be aware of this effect and realize that there is no direct answer to ‘How many impressions will I get if I bid $X on Facebook?’
One final graph with the data we have collected illustrates the difference between males and females across all countries. It seems that while prices for both genders spiked up last week, it can be primarily attributed to males.
As brands continue to increase their ad spending on Facebook, there is an ongoing conversation on how to most effectively deploy those dollars. Below is a six-step ‘Blueprint’ for effective brand advertising on Facebook. It combines the most efficient advertising medium (marketplace right-hand-column ads) with a splash of user engagement and re-targeting. These steps are not exclusive — you should not skip No. 1 and move on to No. 2. Rather, these should be added to the campaign one at a time, and by the end, all 6-steps should be running concurrently.
1) Standard Marketplace Ads
Objective: Grow your fan base
After you have built out the framework for your fan page — an attractive image, a thorough set of information, images, videos, as well as some custom tabs as you see fit — your initial marketing spend should focus on growing your fan base through standard marketplace ads. These ads pointing to your fan page will allow users to either “like” your fan page directly within the ad unit or click on the ad and “like” from the actual fan page. The goal will be to drive as many fans as possible at the lowest Cost Per Fan (CPF) rate possible while staying within your core target market. Ad copy should be kept short and effective (i.e., “If you like Cars, Like X”) and should be very direct in asking the user to like your page. Ideally, give the user a reason to like your page, effectively reducing your CPF rate (i.e., by liking X, your fans get access to exclusive content).
2) ‘Page Like’ Sponsored Story
Objective: Grow your fan base
A “Page Like” sponsored story is very similar to the standard marketplace ads. The difference is that it will be shown exclusively to friends of your fans and you have less control over the copy. For the user seeing this ad unit, he or she will specifically see some friends who have liked your page. The idea is that if one of my good friends has “liked” the page, I should also be interested. This ad unit becomes more effective as you grow your fan base. This is why it is important to first build up your fan base through standard marketplace ads before introducing “Page Like” sponsored stories.
3) Post Frequently
Objective: Engage your fan base
This is not an ad unit but it is crucial to mention posting strategy as part of brand advertising. Ensuring that you are engaging your fan base with regular posts will give you the ROI from steps 1 and 2 — and is essential for steps 4, 5, and 6. Since there is a load of literature on fan page posting frequency and strategy, I will just provide a few quick tips. Post at a minimum once a day. Keep your posts short (under 80 characters is ideal). Post when your audience is there (it may not always be during 9 to 5 working hours, depending on your brand). Provide clear instructions if you want them to engage. (i.e. ‘I think X is amazing. ‘Like’ this post if you agree!). Pose questions when you post to your fan page — these typically drive responses and a higher level of user engagement. If you do not engage your fan base with frequent and effective posts, you will be wasting your marketing dollars.
4) ‘Page Post’ Sponsored Story
Objective: Engage your fan base
This ad unit specifically leverages your hard work posting frequently in step 3 by taking the posts you make on your fan page and turning them into ad units which are shown to your existing fans. Here is the idea behind it: If you post to your page, it is quite likely that your fans may not even see it. They may log in several hours or days after the post has been made, and miss that post altogether. The page post sponsored story will convert that post into an actual ad unit and display it on the right-hand column — resulting in a much higher chance that your fans will see and engage with the posts that you make.
5) ‘Page Post Like’ Sponsored Story
Objective: Grow your fan base
This ad unit again leverages frequent posting to your fan page and is a hybrid of the page like sponsored story and the page post sponsored story. This ad is “created” when one of your existing fans likes one of your posts. It is then shown to the friends of your fans who liked your post. The concept is similar to the page like in leveraging the fact that a users’ social circle will influence their actions. This can be an extremely effective way to grow your fan base as the social context is there and the content is something much more engaging than simply your page alone. The content is leveraging a post on that page that can have a strong statement opinion, or question. Friends of your fans will be very likely to want to jump into the conversation if the post is powerful enough.
6) Standard Marketplace Ads
Objective: Leverage your large and engaged fan base
One of the biggest mistakes that brands make is feeling that growing their fan base and engaging them within the Facebook fan page is as far as this platform can go. This is not true. By growing your fan base and keeping them engaged you now have a phenomenal opportunity to direct these users elsewhere. By creating standard marketplace ads specifically targeted to your existing fan base, you can drive your fans to an external page. To give you an idea of how effective this can be, we ran a contest for a large telecommunications company that was looking for contest entries. When we targeted the brand’s existing fan base, we were able to get contest entries at 10% of the cost compared to advertising to the general public. These savings can become very significant as your fan base continues to grow and you can come up with effective ways to re-target your fan base. You can leverage your fan base for contests, market research and even promoting a sale and driving them directly to your e-commerce website to make a purchase. Be sure to use unique tracking links when targeting your existing fan base versus advertising to the general public and you will then be able to directly measure the difference in performance. This final piece is crucial for brands because it allows them to see a real and direct ROI on their entire Facebook ad spend.
Editor’s note: Continuing our exploration of how Facebook could eat Google’s lunch, guest author Hussein Fazal makes the case for Facebook’s potential advantage in advertising. Fazal is CEO of AdParlor, an ad management and technology company for Facebook campaigns.
Not too long ago—the common perception was that Facebook advertising did not work. Why would a user notice an advertisement with a small image discretely tucked away in the right-hand column? In fact, most users were building up their “banner blindness,” and ignoring the right-hand column altogether.
However, much regarding Facebook ads has changed since then. Changes in profile design encouraged users to provide more complete information and advertisers became educated in the value of hyper-targeting. Facebook’s ad serving algorithm improved dramatically and the launch of the Ads API allowed for an additional layer of intelligence to be built on top of that. Gradually, right-hand column marketplace ads became more effective for all types of advertisers—while Facebook concurrently grew its sales team to push out premium ads to brands and agencies. With all this progress, eMarketer estimated Facebook’s ad revenues at almost $2 Billion in 2010 and over $4 Billion in 2011.
Despite all this success, Facebook’s revenues are still far behind the search giant, and claiming that they will surpass Google is a bold statement. However, there is a very clear path for this to happen and it is simply a question of when. The timeline will be dependent on how aggressively Facebook executes on their advertising products. The fundamental reason why I believe Facebook’s revenues will surpass Google is the untapped power of social advertising. The concept that your friend “likes” and endorses the content behind a particular ad unit changes the game.
Data from over a hundred billion Facebook marketplace (right-hand-column) impressions that AdParlor has managed shows indisputable evidence that social ads produce a significant jump in performance. In several cases, we have seen social marketplace ads double the Click-Through-Rate (CTR) and deliver 5-10x the volume of impressions at the same Cost-Per-Click (CPC) bid compared to regular marketplace ads on Facebook (plain-vanilla display ads not socially targeted). Combine that with a lift in brand recall (1.6X), message awareness (2X), and purchase intent (4X) and we can see why social ads is an extremely powerful product. However, to see the real benefit, we need to look beyond the right-hand column ads and see how social advertising can be applied in other areas. Data from Nielsen shows a similar trend:
When looking at online advertising revenues as a whole, the IAB reports that roughly a quarter come from display. With over 2.5 million web sites having integrated with Facebook Connect and 10,000 new ones joining daily, Facebook is building up a huge network of external web sites with deep Facebook integration. The opportunity for these sites to display advertising that melds contextual and social is a stone’s throw away, and something that Facebook can aggressively turn on if it so chooses.
To take things further, as “like” buttons become ubiquitous across the web, user profiles are growing with data on what they do, buy, and endorse. While Google and others leverage re-targeting, Facebook will be able to take it one step further with social re-targeting. If my significant-other visits Nordstrom.com and “likes” a pair of boots, that advertisement could now follow both of us around the web.
Every few years, a new layer is built on top of traditional display advertising (contextual, behavioural, re-targeting) but we haven’t seen innovation in quite some time. Social will be the next fundamental change, and Facebook is positioned to take advantage of it.
The same IAB report shows that roughly 45% of online advertising revenues come from search. The reason why search is so much more powerful than any other medium is because it targets users that have explicit purchase intent. For example, if I search for “car insurance,” I have a very real interest in making a high value purchase. Insurance providers pay big dollars to Google for these clicks knowing that they have a good chance of converting that user into a sale.
Alongside Facebook’s deeper integration with Bing, it is inevitable that at some point we will see advertising that combines the power of intent-based search with social recommendations. However, this will be dependent on how much users are willing to share and “like.” Perhaps aggressive campaigns by car insurance providers (“Get $100 off your premium if you ‘like’ us on Facebook”) will allow us to one day search for car insurance, and see which provider each one of our friends is with. This will undoubtedly be more powerful than traditional search.
Even with this layer of social, in order to be successful, search market share must be won. With Facebook’s social graph, they have the first real opportunity at dethroning Google and winning that market share. Whether Microsoft ends up selling their money-losing search business to Facebook as a starting point, or whether Facebook builds an independent search product from the ground-up, this is where the biggest impact will be made in increasing Facebook’s advertising revenues relative to Google.
With over 250 Million active users accessing Facebook via their mobile device, Facebook is building up an audience on the hottest emerging platform. With free and popular iPhone, Blackberry, and Android apps available, Facebook has yet to serve up a single advertisement on mobile and doesn’t seem to be in a rush. However, things may be changing with a small but targeted recent acquisition. It will require some work to figure out the right format, but again Facebook is at a huge advantage with the user base it has and the social graph that connects these users.
The U.S. local online ad spend is estimated at $20 Billion – which is why Google was so interested in Groupon. Now combine local with mobile and social—and you have the blueprint to build a money-spitting machine. Facebook could theoretically serve you an advertisement like this directly on your phone—“You and your good friend John are a block away from each other, you both like Pizza and its lunch time, go to Pizza Hut together and save $5 on your order”—of course with less words and more pretty pictures.
Now that the mobile advertising dollars are finally starting to materialize, we still have not seen the hockey-stick curve that we all expected. This will occur when more innovative mobile ad products are built out—and again, Facebook is at a massive advantage.
When Facebook’s VP of Global Marketing Carolyn Everson said at Disrupt NYC, “We’re one percent done on our ad products,” it may not be an exaggeration. Ads that live within the Facebook site really are the beginning of where things can go. As Facebook gears up for an IPO, expanding its portfolio of advertising products through display, search, and mobile will change the landscape in each one of these areas. It becomes even more impactful when we think about how these different products can work together connected through the social graph.
While many people think about Facebook as a powerhouse due to the number of users on the site, the real power comes with the way they are mapping users to their friends and the products, people, and places that they “like.” When Facebook decides to turn up the revenue dial, they will be able to leverage this graph and create powerful social ads across multiple platforms to a degree of scale and sophistication that no other company can match. As these products develop, Facebook will command the lion’s share of online advertising dollars—and they will undoubtedly surpass Google.