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Social Networks Driving CPM’s’ Down



In economics any time there is an abundance of supply the price for that particular good goes down. The easier to obtain, the less ‘valuable’ that resource is. In today’s online world there is no shortage of traditional Internet measures like ad impressions because of the huge amount of traffic being run through social networks.

The trouble is that another traditional measure for advertising, cost per thousand or CPM then gets taken down with it. Of course, not all sites on the Internet are created equal when it comes to what kind of ads are served and how they are received but when clumped together, social network traffic is the high volume low cost drag on the overall market pricing. AdAge reports (with a hat tip to paidContent)

A recent analysis by ComScore shows social networks, primarily Facebook and MySpace, have over the last year drawn an average CPM of only 56 cents, compared to the $2.43 average for the internet at large. Looking more closely, the ComScore data show that the average pricing for online ads exclusive of social-networking sites, namely Facebook and MySpace, would be much higher, about $2.99 for every 1,000 views; social sites dragged down the average online CPM by as much as 18% over the last year.

The chart below from comScore shows this in an historical context.

The reality of the nets’ new world order because of social networks may very well turn out to be putting these two sources, publishers websites that want to have a more ‘in depth’ experience for their users (which usually translates into some kind of an annoying expanding banner that should be made illegal by anyone with any concern for web experience) vs. social network which are much more ‘wham bam thank you mam’ in their experience especially when it comes to advertising.

“There’s just an overall glut of page views on the internet,” said Richard Jalichandra, CEO of ad network Technorati Media. “And with all that inventory, there’s an overall drop in CPMs.”

Still, Mr. Jalichandra said social networks may be a large part of that inventory production. Among the top five U.S. publishers of display advertising, Facebook delivers the largest share of online ad impressions — serving 16.8% of total online ad impressions in the U.S. for the month of May, according to ComScore. Fox Interactive Media, a property that is primarily made up of MySpace, served 6.3% of total impressions for the same period. To put it another way, in the United States, Facebook and MySpace together are responsible for more than a fifth of all advertising traffic, while at the same time bringing in the lowest rates for those ads.

Using the term display ads to describe Facebook’s ads may be a misnomer and that’s where the industry may need to look into this in more detail. By the way was anyone else surprised that MySpace still gets mentioned in this conversation?

So what’s your take? Are all online ad impressions built alike? Should there be this ‘drag’ on overall numbers when in reality they could be so very different that they shouldn’t be clumped together at all?
I’m sure you have an opinion on this fine Monday morning. Why not share it?

  • http://www.koolaidantidote.com Tom Kasperski

    I haven’t seen any studies that compare the branding effectiveness of Facebook Ads to typical display ads, but in my experience with FB ads, the CTR is much higher. Also, the targeting options Facebook provides far exceeds what you can do via a typical display ad media buy.

    Unfortunately too many advertisers are using the PPC model and poorly targeted ads – driving millions of cheap impressions. FB users are being pummeled with irrelevant ads and will likely begin to view FB Ads as spammy, driving down both the CTR and branding effectiveness.

  • http://www.deckerton.com Lateef

    Tom is right that FB ads lack relevancy. I would also say that over time they will begin to damage their brands in the long run as more companies use non-ad techniques to attract new customers. Companies that advertise on FB, using the cheapest method possible, start to look desperate and out of touch – similar to how banner ads on Yahoo are now viewed.

  • http://www.simon-croft.com Simon Croft

    I agree, I never have seen the relevance of many Facebook ads, if any. You see all the ebooks to make the best out of Facebook but when it comes down to it, when was the last time anyone actually clicked on one? PPC ads fine, they have their place on google etc and at least are relevant to the keyword as do adsense ads but the social networking sites are a totally different kettle of fish and just because there is a high volume of potential customers, it seems to be a case of anything will do, no matter how appropriate.

    Regards

    Simon

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    very nice :)

  • http://www.makebigbuxmoneyonlinenow.com Allen Taylor

    I don’t know why anyone even advertises on Facebook. I’m afraid my ads would be shown to people who have no interest in the type of offers I’d present, making my own ads irrelevant, damaging my reputation in the medium and causing me to spend more than I should or have to in order to reach my audience. I’m better off just sending out relevant messages to my friends and see who responds.

    As for ad prices, I’m not sure that it’s fair to compare Facebook ads to other online advertising. Does the price of used cars bring down the average price of cars overall? If GM floods the market with an overabundance of Chevy Impalas and reduces the price significantly to reduce inventory would that then affect the price of Maseratis and Porsches? No, because those are niche vehicles. General drivers can’t afford them and aren’t interested in them even though they perform better than Chevy Impalas.

    Most people are going to migrate toward the “more affordable” option – that is, the option that is perceived as more affordable. More often than not, however, the more affordable option is more costly because it produces fewer results. But if a premium provider can justify a premium price for its advertising based on proven CTR across many advertisers then savvy advertisers who want to reach the right market will be more than happy to pay the premium price based on the promise of premium benefits. In essence, if the market will bear it then any advertiser can charge any amount for advertising if the consumer will pay for it regardless of the price of Facebook ads.

  • http://www.yoursearchadvisor.com/blog Andrew

    On the contrary, I find FB ads can be quite effective for local businesses and tangible products if used wisely. Just like any display ad, the message needs to be hyper-focused on the target audience (shotgun approach does not work) and even more importantly, landing pages need to give visitors an immediate call to action. CTR’s are very low, but with targeted messaging and effective landing pages, conversion rates can actually be quite high.

    Regarding the ads I actually see when logged in, I find that the more I tell Facebook about the ads (I like them, find them irrelevant/repetitive/misleading), the more relevant the ads become to my interests. It’s a win/win and will have to suffice until the social graph and/or targeting algos can better predict my immediate needs/tasks.

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