FACEBOOK Q2 PREVIEW: Our Look At Prices, Performance And Demand

Simon MansellTBG Digital CEO Simon Mansell

Photo: TBG Digital, with permission

Facebook delivers its Q2 2012 earnings today. An analysis by TBG Digital — a major buyer and manager of various forms of Facebook advertising — shows that ad prices on Facebook have risen 58 per cent year-on-year.The improvement is due in large part to the introduction of Facebook’s mobile-only ad option, “Sponsored Stories.” (Sponsored stories appear in your News feed when your friends indicate they like companies or brands.)

“The introduction of mobile ads has made a big difference,” says Simon Mansell, CEO of TBG Digital. “Click-through-rates have been increasing, and CPCs [cost-per-click] are increasing, and CPMs [cost per thousand impressions] are increasing, it generally means there’s more demand in the system.”

Click-through rates went up 11%, TBG says, also in part to mobile Sponsored Stories, which users find more engaging than regular “desktop” display ads.

The survey was based on 406 billion impressions in more than 190 countries for 276 clients from Q2 2011 to Q2 2012.

The numbers reverse a worrying trend for Facebook that emerged in Q1, a decline in ad performance (we told you about that here and here).

Lastly, TBG’s data shows that Facebook’s Sponsored Stories ads are vastly more effective than Twitter’s in-feed ads.

Disclosure: The author owns 30 shares of Facebook.

CPM rates increased by 58% over the prior year.

TBG says: 'CPM rates are a good indication of Facebook's earnings per Marketplace ad served. The increases are definitely great news for Facebook as they signify that their inventory continues to work better for them. Increases in CPM could be attributed to more clients utilising Sponsored Stories, as these receive higher CPMs (see page 8), together with the introduction of mobile ads which are also providing Facebook with higher CPM rates.

Ad engagement increases by 11%

TBG says: This compares to a 6% decrease last quarter. Germany saw the greatest leap of 44%. The United States and United Kingdom follow with a 11% increase and 9% increase respectively. Canada saw an increase of 8% and France an increase of 2%.

The launch of Facebook's mobile ad targeting feature in early June 2012 may have had a positive effect on Click Through Rates (see page 9). In fact, Click Through Rates in the United States jumped 31% between May 2012 and June 2012. Also worthy of note is that this data set saw a 7% increase in Social Impressions (where the ad shown included social context e.g. John Smith likes this) from quarter to quarter. So, it would appear that Facebook is doing something right here; social context continues to make a difference to ad engagement and mobile targeting is positively affecting Click Through Rates.

Increases in global ad costs slow to 9%

TBG says: TBG Digital's Global Facebook Advertising Report in Q1 2012 documented a quarterly increase of 23% in Cost Per Click for the five major territories tested. The comparative increase in Q2 2012 is now 9% and, in fact, only the United States and Canada have risen.

Facebook's Marketplace advertising is based on an auction bidding model i.e. how much an advertiser is willing to pay for an impression or click. If, however, the CPC and CTR of an ad are not high enough, Facebook will not publish it because the ad's corresponding CPM will not be enough to secure its place on the page when compared to other ads.

More advanced markets such as the US and Canada are focusing on delivering highly targeted traffic at huge scale, which is probably why we have seen an increase in CPCs for those markets. A general increase in competition has also pushed max bid prices up in these territories.

Finally, it should be noted that advertisers who have low daily spend levels are unlikely to experience such high CPCs. Some of TBG Digital's clients can spend more than $100,000 per day so CPCs increase as we compete in the auction to maximise traffic levels.

Top 10 click-through rates by business sector

TBG says: There aren't many things that people feel more passionately about than charities and pets. This just goes to show in our Pets & Animals category which has shot into the Top 10 at number 2 and likewise with Not for Profit as Charities make up the majority of this sector. Our learnings in these sectors have led us to integrate 'passion centres' into our Facebook strategies for clients. For example, one of our clients is a leading US retailer and has seen engagement rates shoot up for Page Post Ads that have pet images.

Top 10 cost-per-click by business sector

TBG says: It should be noted that the top five sectors include clients that direct users off Facebook to their own web properties and require highly targeted ad campaigns at scale. This has the effect of increasing CPCs. For example, the Jobs & Education sector's targeting is extremely niche, matching user demographics and locations to specific job types or courses.

'Sponsored Story' ads are 53% more engaging than standard ads

TBG says: A previous study by TBG Digital in April 2011 investigated the differences between standard ads and the then-new Sponsored Stories. We found that Sponsored Stories received a 46% higher Click Through Rate, a 20% lower Cost per Click and 18% lower Cost per Fan than Facebook standard ASU ads.

In Q2 2012, The average Click Through Rates of the Page Like Story ads were 53% more than that of the Page Like ads (an increase of 15% since the previous study).

These findings are very positive for Facebook and advertisers alike as it shows the Sponsored Story ad format is even more engaging than our previous study indicated and, even though ad costs and Facebook's earnings per ad delivered have increased, fan acquisition costs are even cheaper than before. The increases in ad costs are probably due to more competition on the platform and more sophisticated targeting on Sponsored Stories.

Facebook mobile ads are more than four times more engaging than Twitter's ads

Advertisers can now place ads in a number of different ways on Facebook: 'Desktop' ads can go anywhere; 'Desktop Newsfeed' ads appear only in users' News feeds when they're using Facebook on a computer; and 'Mobile Newsfeed' ads are sponsored story ads which appear only in users' News feeds when they're using Facebook on a mobile phone.

TBG says: In a recent TBG study of 24 million Twitter impressions across multiple clients and sectors we saw an average click-through-rate of 0.266%, which would indicate that Facebook Mobile ad click-through-rate is four times more than that of the average of Twitter's. Facebook's Desktop Sponsored Stories are also more effective than Twitter's ads.

UPDATE: TBG made a correction to its assessment of Twitter CTRs here. Comparable ads--Promoted Tweets, for instance--have CTRs of 1-3%, TBG now says.

Mobile Newsfeed targeting also suggests great earning potential for Facebook which received $9.86 for every thousand mobile ads served (CPM), 13 times more than it received for 'Desktop' ads. The high CPM does not disadvantage advertisers. Mobile Newsfeed ad placements saw savings of 29% for Cost per Fan when compared to 'Desktop' ads. Facebook is earning money and brands are making savings. A win-win situation.

Want more detail?

Download your own copy of TBG Digital's Facebook report here.

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