Following the “refocusing” of Facebook’s News Feed algorithm to prioritize posts from friends and family, Facebook’s ad costs spiked significantly, as ads are reaching fewer consumers.
Recode reports that shortly after Facebook’s News Feed algorithm update, which saw posts from users friends and family prioritized above publishers and other Facebook posts, advertising costs on the platform increased significantly. When the News Feed update was announced, CEO Mark Zuckerberg stated that he expected a drop in active users as a result of the change. As Facebook is an ad-driven platform, a side effect of this is that fewer ads are seen by users across the platform. Less time spent on Facebook means less time viewing ads.
Early data from AdStage appears to show that ad impressions across the platform delivered in the News Feed in January was down year over year, February impressions were up but at a smaller rate than months previously. Fewer ad impressions mean that the cost of ads across the platform are rising. In January, the cost of 1000 ad impressions — referred to as CPM — was up by 122 percent year-over-year. CPMs were up by 77 percent in February, marking the two highest year-over-year ad price increases for Facebook within 14 months.
JD Prater, the director of growth marketing at AdStage, commented on the ad price increase saying “If I were just looking at January and February, it looks like that algorithm change definitely was a huge factor. A lot more than I thought it was going to be, to tell you the truth.” However, this is only an insight into seven weeks of ad expenditure on Facebook, it’s also noteworthy that Facebook has had a trend of fewer impressions for higher ad prices quarter-over-quarter. Facebook may also be reaching peak “ad-load” as they struggle to find places to put ads within the News Feed.
Facebook’s biggest advantage in terms of advertising is the duopoly that they share with Google. The company made $12.8 billion in ad revenue last quarter and their pool of advertisers is constantly growing. Brands don’t have much of a choice where they advertise online in today’s market, if they want maximum exposure they go directly to Facebook and Google for their advertising needs. Whether Facebook’s increasing ad price will lead to advertisers abandoning the platform is yet to be seen.