Facebook Premium Ad Prices rising, CTR on decline

Ahead of its roadshow, beginning this week, to convince potential investors that its business is worth up to $96 billion in its initial public offering later this month; a few numbers are out on Facebook’s Ad prices.
Some revelations positive, others not so.

On the positive side, two recent studies have found that Pricing for Facebook’s premium “social” advertisements continues to rise.

A report to be released any time now, by Marin Software, a digital marketing platform that processes more than $100 million worth of spending on Facebook, found a 26 percent increase over the last year in the cost per click (cost per Click, is the per click price which advertisers pays to Facebook) for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

Marin’s report findings on the CPC is in line with the data published last month by TBG Digital, a digital advertising firm, which also showed a 23 percent increase in cost per click for the first quarter of 2012 compared with the fourth quarter of 2011.

On the flip side, the same study finds that the cost per click for Facebook’s standard ads, which contribute for an estimated three-quarters of the social network’s advertising revenues, fell 26 percent over the last year. The cost of delivering an ad to 1,000 people increased 41 percent in the first quarter of 2012 compared with the same quarter last year.

However, click-through rates on ads—a key measure of effectiveness of an ad (how many people visiting a page actually clicked on the ad)—fell an average of 6 percent across Facebook’s top five territories.

Inferences arrived at:

Some experts are of the opinion that Facebook is not actually able to deliver the promise of having 900 million users to its advertisers. The advertisers may be or may not be happy with their ability to measure the returns from that investment, as a CTR rate of 6 percent is not that bad after all; but a declining CTR can be problematic for Facebook, as Facebook has to justify a USD 96 billion valuation.

The fact that the standard and premium ad pricing trends for Facebook are heading for opposite directions; is making some suspect that Facebook may attempt to move away from keyword-targeted “direct response” advertising—so-called Marketplace ads, popular with online gaming and dating firms, which appear on the right-hand side of a user’s page—and towards getting big brands to buy “social” ads.

In this scenario, when a common joe (normal people like you and I) is removed from the Facebook ad scenario -- Will it be easy for Facebook to justify a USD 96 billion valuation, is any body’s guess. In short, Facebook can command a valuation that big, by solely depending on Big brand’s money.

It’s here important to note that, a slowdown in revenue growth from advertising in Facebook’s first-quarter results raised concerns about the company’s momentum.


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