Bloomberg News

Facebook Ad Rates Hold as Inventory Rises, Easing Price Concerns

July 06, 2011

July 6 (Bloomberg) -- Facebook Inc., the biggest social network, said advertising rates have held up even after it added new ways for marketers to promote products, allaying concern that prices would decline as inventory surged.

Rates for so-called self-serve ads, which are sold through an automated auction system and account for most of sales, are unchanged since March, when the company completed a redesign to add promotions under photos and increase the number of spots on some pages to as many as five from three, Facebook said.

“We have hundreds of thousands of advertisers around the world -- that continues to grow,” said David Fischer, vice president, advertising and global operations. Without disclosing rates, he said, “We continue to feel good about where we are.”

Chief Executive Officer Mark Zuckerberg, seeking to profit from advertisers trying to reach his company’s 714 million users, needs to sustain ad prices amid competition from Google Inc. and Twitter Inc. Facebook must also avoid alienating users with a deluge of promotions, said Michael Gartenberg, an analyst at research firm Gartner Inc.

“There’s a certain point where you get a backlash, like watching a TV show with too many commercials,” Gartenberg said. “Right now we’re not seeing any backlash, but it’s something they’re going to have to keep tweaking in terms of design.”

Facebook’s Fischer says the company takes steps to ensure that new ad features don’t drive users away.

‘Constantly Testing’

“We’re constantly testing new ad formats,” Fischer said. “We’ve found, frankly, that users are getting value and advertisers getting value in putting more ads in.”

Facebook, which gets more of Web users’ time than any other site, will more than double global ad revenue to $4.05 billion this year, according to EMarketer Inc., an Internet research firm based in New York.

“Facebook is really offering advertising that can attract companies large and small,” said Debra Aho Williamson, an EMarketer analyst. “It’s really gunning on all fronts.”

About 60 percent of Facebook’s advertising revenue comes from self-serve ads, Williamson said. Companies bid for spots on user pages based on those people’s demographics or interests. These ads typically show up on profile pages or near photos.

The rest of revenue comes from ads placed on the home pages, where users typically begin sessions on the site. These spots are sold by Facebook’s in-house marketing staff.

Price Swings

As Facebook tested new features in recent months, some companies that help businesses buy ads on the site experienced price swings.

The average cost per click for self-serve ads dropped to 95 cents from $1.36 in June, said Hussein Fazal, CEO of AdParlor Inc., a Toronto-based promotion-placement company.

Another Internet advertising service, IgnitionOne Inc., said U.S. spending by repeat Facebook clients surged 22 percent in the second quarter.

Game developer Casual Collective Inc., doing business as Kixeye, has had prices increases of about 20 percent over the past six months as it has used more targeted ads, said CEO Will Harbin. He spends more than $1 million a month of Facebook and credits those promotions with a more than 10-fold increase in customers.

“It’s been profitable and we’ve grown our games, so it’s gone quite well,” Harbin said. “It’s much easier to target the correct demographic on Facebook.”

--Editors: Lisa Rapaport, Nick Turner

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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