Are Ads on Facebook and its Ad-Supported Properties Still Under-priced?

Author at TechGenyz Facebook
Facebook Ads

If you’re like most social media marketers:

  • You heavily utilize Facebook & Instagram
  • You are convinced these platforms to work for brand building and driving conversions
  • You’re unsure whether Facebook ads and ad properties are currently under or over-priced

Consider this recent report by eMarketer, which comes to the conclusion that Facebook advertisers are paying more for the user’s attention.

Then think of Gary Vaynerchuck, who continuously makes the bold statement that “the most under-priced product in the world right now is Facebook advertising.”

What you’re left with is nothing short of confusion as to where your advertising dollars should be going for maximum ROI.

Where are Digital Advertisers Putting their Marketing Dollars?

There is a clear Facebook-Google duopoly in regards to Ad sales outside of China. Advertisers are pouring their money into these two platforms because that’s where consumer attention is.

Google will continue to be the world leader in ad revenue in 2019, claiming 31.1% of global ad spending, equivalent to $103.73. Facebook comes in at No. 2, with $67.37 billion in net ad revenues, followed by China-based Alibaba at $29.20 billion. Amazon is still a relatively small player globally but is slowly starting to be a competing force to the current duopoly.

Despite the fact that Facebook is still under heavy scrutiny for its questionable business practices, it’s earnings from Q4 in 2018 prove that marketers are still spending. Virtually all these earnings are from Ad revenue, which has been steadily growing. In fact, average ad revenues per user (AARPU) went up nearly 30%.

Is Facebooks Continued Revenue Growth a Result of more Advertising or Higher Prices and Advertisers Paying more for User’s Attention?

In 2018 users dropped by a million in Europe and remained flat in the U.S & Canada, which are Facebook’s most lucrative advertising markets. Despite that, Facebook continues to massively grow it’s digital advertising revenues.

This could be due to three reasons.

1. It may be the case that there are higher ad loads, i.e. a higher ratio of ads to other content on Facebook’s News Feed product
2. Advertisers are paying higher prices for the same ads
3. Facebook Audience Networks ads are making a significant (unknown) contribution to ad revenues

For any of these reasons, the result is that Facebook advertisers are paying more for the user’s attention.

Facebooks Prized Ad Property: Instagram

Facebook’s acquisition of Instagram was a brilliant success. The purchase which only cost Facebook $1 billion, has over a billion monthly active users now. Apart from the significant ad revenue that Instagram is raking in for Facebook, it’s also contributed to two extremely unquantifiable advantages for Facebook.

  • A re-connection to young social media users
  • An elimination of Snapchat’s competitive pressures by cloning features

By any objective measure, one of the greatest takeovers in the internet era. Instagram is going to continue to become increasingly important for Facebook ads revenue.

What is it that makes Instagram such a brilliant sales channel?

It’s Captured People’s Attention

Instagram is undeniably good at capturing people’s attention, and attention is a marketer’s greatest asset. If you can capture attention, you can sell.

An astonishing one in five minutes spent on the internet is spent on Instagram or Facebook. Think of the impact that Instagram has with the amount of time that it’s grabbing from internet users.

With Instagram claiming it has over 25 million active business profiles, it is quickly becoming saturated. But more than 80 percent of Instagram accounts follow a business and Facebook’s News Feed is without a doubt more saturated and competition is over Ad Space is fiercer.

What makes Instagram so effective for Brand Building and Driving Sales?

As Instagram continues to innovate and add new features, marketers are continuously gaining new capabilities. These capabilities are aimed at assisting marketers with:

1. Creating greater awareness of their business, product, app or service
2. Increasing conversions in regards to sales, mobile downloads, and visitors to physical & online stores

Instagram is undoubtedly effective for brand building and the platform has actually created metrics to be able to better understand how effective a business’ brand building efforts are.

The metrics are:

As Instagram moves further into the commercial arena, it’s also becoming ever more effective as a sales channel.

The metrics for conversions are:

For the direction that Instagram is heading in regards to become a sales channel, consider the latest feature for native payments, for example. Some beta users can already register credit and make product purchases in-app. Naturally, this is the next step after the introduction of Shoppable Tags.

It’s likely that the native payments feature which will be available for merchants using Bigcommerce and Shopify in the not-so-distant future.

But aren’t Instagram Ads the Most Expensive Ads on Social?

Compared to Facebook’s advertising costs, Instagram is one of the most expensive ad channels. Moreover, cost’s have been consistently rising since the first six months of 2017.

As most marketers do, you’re probably thinking about the potential ROI and how much a click or conversion costs on Instagram.

It’s important to think about ROI, but CPC (cost per click) doesn’t always give you a comprehensive picture.

Consider this, if you have low CPC but a low conversion rate and average order value, you might be spending more than a scenario in which you have very high CPC but also high conversion rates and average order value.

Because Instagram has highly engaged users and advertisements integrate seamlessly with organic content.

Despite the fact that Instagram still lags behind Facebook in conversion rates, Instagram still has a relatively high conversion rate and a very high average order value (as shown below).

Facebook and Instagram: Under or Over Priced?

Facebook ads and its ad properties are without a doubt becoming more and more expensive. The trend in CPC is definitely upwards.

The exact reason why it is not fully clear, but Facebook advertisers are definitely paying more for Facebook users attention. The same can be said for Instagram, which is becoming a powerful advertising platform and a significant, growing source of revenue for Facebook.

Are Facebook and its ad properties becoming increasingly expensive?

Yes.

As with all successful platforms, they ultimately become saturated with marketers who compete fiercely for user’s attention. More competition means higher costs.

Does this mean you should stop advertising on Facebook and its ad properties?

Of course not.

There’s still massive value in advertising with these two platforms. And when you consider that more and more businesses are going to jump on the bandwagon and further inflate prices, you realize that now is the best time to exploit the opportunity!

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