Valuing Facebook's Ads

The Site Commands 24% of Online Display Ads, but the Dollars Don't Match

Facebook Inc. is attracting more advertising, but marketers are still trying to figure out the value of those ads.

 

Facebook served up almost a quarter of the 1.3 trillion online display ads in the third quarter, according to ComScore data. But marketers are trying to figure out how to value the ads on Facebook.

New data from comScore Inc. show that in September 24% of all online display ads in the U.S. appeared on Facebook—more than twice as many as any other publisher. Yet Facebook is far from capturing a quarter of the wallets of major marketers. The company accounts for just 9.5% of the spending on display ads in the U.S., according to research firm eMarketer Inc.

 

The difference underscores Facebook's growing status in the fight for digital ad dollars—and the hurdles it still faces. The Palo Alto, Calif., company has come a long way in ramping up what was a fledgling ad business just a few years ago.
But some marketers continue to question whether consumers pay attention to ads on social-networking sites, and wonder how effective they are in getting people to, say, buy cars.
Ad rates on Facebook tend to be cheaper than those of other sites. Several agencies put the average price of an ad on Facebook in the U.S. in the $2 to $8 range for a thousand views, depending on targeting options and where it appears on the site. The price is lower than the average $15 that other premium media sites can charge.

Figuring out the return on investment for an ad that nets a new follower on Facebook, rather than a purchase, is a challenge. "It is a question of, are we making sure we are getting the same value out of them" as more traditional banner ads, said Shiv Singh, head of digital for PepsiCo Inc.'s PepsiCo Americas Beverages.
Mr. Singh says recent efforts by Facebook to include interactivity within standard display ads show promise. "The display advertising business and the social media world need to come together," he says.
In an interview, Facebook Chief Operating Officer Sheryl Sandberg said growth in the company's ad business is "steep" and "really healthy." The company doesn't disclose ad revenue but eMarketer puts it at $1.28 billion.
"Where our ads show additional impact is that they can let people engage with them and share them with their friends," Ms. Sandberg said. "This is word-of-mouth-marketing at scale pretty much for the first time."
A Facebook spokesman declined to comment on the specific ad prices, but said the company has been able to maintain its rates in the weak economy.
Part of the reason for the gap between Facebook's scale and the amount of money it makes from ads is that Facebook sells a good portion of its ads on a cost-per-click basis, where advertisers only pay if a consumer clicks on the ad. The more people that click, the more expensive the ad campaign will be.
Although the prices are relatively low, the number of people visiting Facebook is so large that low prices can add up to big dollars fast, advertisers said.
The site is proving to be a hot spot for advertisers who want to drive direct response, like for deal-of-the-day sites. Marketers including PepsiCo, American Express and Radio Shack are using the site for ads that point consumers to interactive brand pages on Facebook, encouraging consumers to say they "like" the brands, potentially starting a two-way conversation on the site.
David Fischer, Facebook's vice president of advertising and global operations, said marketers are coming to Facebook not just for eyeballs, but also because they like the way it lets consumers talk about brands with their friends, he said.
Facebook's ad targeting capabilities are another major draw, he said. Facebook uses the information that users enter into their profiles to target ads to them, but doesn't share user-specific data with advertisers.
A flood of Facebook ad inventory has implications for rivals, potentially pressuring online ad pricing from other major Web companies. Last week, AOL CEO Tim Armstrong named Facebook as a competitor capturing a higher share of spending from advertisers.
Some agencies say Facebook is holding itself back by selling ads limited to small boxes that can include a picture, video or line of text that appear on the border of a Web page. Big marketers crave ads with interactive graphics, screen takeovers and other bells and whistles. But Facebook said it hears that complaint less often lately.
Some agencies also said the real value in Facebook lies in its consumer data and say they wish Facebook would release or sell much of their data to be used to target ads on other sites. But Mr. Fischer said Facebook doesn't entertain such requests. "We don't sell that data, and we don't pass that data," he said.

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Posted By: Rachel