Facebook jacks up ad prices as advertisers learn the game

Where social media sites are concerned, advertisers see Facebook as by far the biggest game in town. And for good reason. Facebook ads are working far better than they used to.

A report last month says that Facebook users are clicking ads far more these days. Clickthrough rates (CTR) in the first quarter of 2014 were up 160 percent from the first quarter of last year. Overall impressions were up, too, with Facebook users viewing 40 percent more ads now than they were a year ago.

These numbers have attracted more advertisers to Facebook, and the social network is getting higher prices for ad placements. The report says that during the 2013 holiday season, businesses saw the rates for cost-per-clicks (CPCs) on Facebook increase 120 percent over the 2012 holiday season.

Steve Katelman, vice president of global digital strategic partnerships at Omnicom Media Group, told VentureBeat Friday that Facebook’s improved performance numbers are simply the result of a maturing ad exchange. “Naturally you’re going to be able to get great-priced inventory at first because you’re not bidding for impressions against a matured buying community.”

As more and more agencies and brands get their systems integrated with Facebook’s exchange, Katelman says, bidding goes up and CPM costs go up. Advertisers have also needed time to gather intelligence and experience about which advertising buying strategies work and which do not.  What works for one client may not work for another, Katelman notes.

After Facebook’s May 2012 IPO many investors were concerned about the efficacy of Facebook as an advertising platform. Some advertisers complained that their ads weren’t being shown to the right people and that clickthrough rates were poor. But advertisers are more concerned now about the rising cost of Facebook advertising than they are about whether or not the ads drive sales.

Among social media sites, Facebook also is generating the lion’s share of referral traffic to retail sites — 75 percent, the Adobe report says. That’s an increase of 2 percent over this time last year.

Advertisers are still spending way more on Facebook placements than they are on Twitter sponsored tweets. But Twitter may be getting better at targeting ads at the right people. Twitter saw a significant increase in referrals to retail sites, according to the Adobe report, up 23 percent in Q1 2014 over the same period last year.