Facebook Is 'Basically Throwing In The Towel' On Its Most Expensive Ads

Sheryl Sandberg Ignition 2

Facebook plans to allow third-parties to sell its most expensive “premium” ad inventory, we reported yesterday.

This is good and bad news for Facebook’s ad business, which has actually been decelerating for some time now, and is in need of help (witness the sharp sell off of Facebook stock from its IPO price).

The good news: According to one source briefed on Facebook’s plan, demand for Facebook’s “premium” inventory could go up by as much as 40 per cent.

The bad news: The amount of money Facebook will be able to charge for that inventory might crater. It won’t be so “premium” anymore.

A plugged-in industry source just explained why to us in an email. Here’s a lightly edited version of that note:

Advertisers were already getting frustrated with the performance of Facebook’s premium ads and were starting to shift more of the money they had allocated to premium to the cheaper self-serve ad units Facebook sells.

The reason: third-party ad companies are able to sell those units, and they were getting pretty good ROI for them. I have confirmed this with some of the largest advertisers on Facebook.

Then Facebook introduced ReachGenerator [where brands can pay Facebook to make sure their “fans” see content posted to brand pages] and those advertisers were like “wait, we’ve been paying you $10 CPMs to accumulate these fans now you tell us our posts were only reaching 16% of them and we have to pay you to reach more!?!”

So, being forced to put the underperforming premium ads into self-serve instead of direct sales their price will be determined by bidding, no sales effort will be involved. No way they get the CPMs they were getting before and better sellout isn’t going to make up the difference. It’s basically throwing in the towel on those premium units, let’s hope the new one (and any future ones) do better!!

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