Facebook's digital advertising numbers - Like!

Stuart Lauchlan Profile picture for user slauchlan July 24, 2013
Summary:
Total Facebook advertising business grew 61% year-over-year to $1.6 billion this past quarter with mobile ad revenue alone rising by 10% from the first quarter to hit $656 million to make up 40% of the total ad revenue. Digital marketers have got to Like! that.

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Just as Facebook surprised Wall Street by producing a cracking set of results built on advertising success, along comes digital marketing agency Greenlight with a 'piggy-back' survey that says that Facebook users are willing to pay $10 a month to get rid of ads from their news feeds.

Actually that's the headline grabbing claim.

Closer examination of the results shows that only 8% of respondents were so inclined while the majority of the 500 strong study group are in fact apathetic about the presence of ads.

Some 70% of respondents said they "never" or "rarely" clicked on ads or sponsored listings on Facebook.

Greenlight set out to explore claims by Twitter co-founder Biz Stone that Facebook could earn at least $12 billion per year by offering users the option of signing up for an ads-free experience at a cost of $10 per month.

This, according to Stone, would mean that Facebook could potentially earn three times more revenues from such a service than it reaped from advertising last year ($4.3 billion).

In fact on Wednesday Facebook turned in second-quarter revenue of $1.81 billion, up 53% compared with the same period a year ago and above analysts’ estimates of $1.62 billion.

Total Facebook advertising business grew 61% year-over-year to $1.6 billion this past quarter with mobile ad revenue alone rising by 10% from the first quarter to hit $656 million to make up 40% of the total ad revenue.

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Mark Zuckerberg

Validation 

For Facebook CEO Mark Zuckerberg, the mobile numbers are particularly validating:

"We now have more daily actives on mobile than on desktop. Nearly half a billion people use Facebook on their phones everyday and soon we’ll have more revenue on mobile than on desktop as well."

Advertising is all part of building what Zuckerberg describes as:

"a strong monetization engine for our company.

"A lot of new businesses have signed up to advertise with us and we now have more than 1 million active advertisers. Our News Feed Ad products are working well for them."

The 'apathy' cited by Greenlight's study is confirmed by Zuckerberg, albeit inevitably with more positive spin:

"One of the things I watch most closely is the quality of our ads and peoples' sentiment around them. Right now ads on average make up about 5% or 1 in 20 stories in News Feed.

"We haven't measured a meaningful drop in satisfaction when we ask people about their experience with Facebook. We're comparing that to the result we get when we ask the same question to people using a version of Facebook with no feed ads at all."

But it's clear he is aware of the dangers of people becoming irritated by the news feed ads over time:

"In recent studies people have told us that they noticed the ads more, so we're going to invest more in improving the quality. Our top priority is to expand the number of marketers and overall demand in our system rather than just increasing the number of ads that we show.

"We believe that this will help us improve the quality of the ads that we show by creating a more competitive auction and this will create the best experience for people who use our products, the best returns for more marketers and the best results for us."

Attrition is an ever present danger for the likes of Facebook. There is, for example, an increasingly frequently cited claim that the lucrative teenage demographic is losing interest in Facebook as a communications - and therefore as an advertising attractive - medium.

Zuckerberg denies this:

"It’s difficult to measure this perfectly, since some young people lied of their age. But based on the best data we have, we believe that we’re close to fully penetrated in the U.S. teen demographic for a while and the number of teens using Facebook on both a daily and monthly basis has been steady over the past year and half.

"Teens also remain really highly engaged using Facebook. It’s also worth mentioning that these stats are for Facebook only. Instagram is growing quickly as well. If you combine the two services together, we believe our engagement and share of time spend are likely growing quickly throughout the world."

Leaning in on the break down

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Sheryl Sandberg

According to Facebook COO Sheryl Sandberg, Facebook's ad products are delivering impressive ROI for multiple marketing constituencies:

"Direct response marketers, including ecommerce companies, increased their spent significantly. Year-over-year ad revenue from ecommerce companies doubled in the second quarter.

"Direct response marketers are taking advantage of our high click-through rates and competitive CTCs to grow their businesses. These marketers are typically very measurement focused and they quickly increased their budgets as we deliver compelling ROI."

The ROI aspect is critical, she explains:

"Direct response marketers tend to be buyers when they have an ROI metric. They're looking for that ROI metric and their budgets are flexible around those ROIs. So as they've invested with us and hit their ROI metrics, their budgets go up and they make those adjustments very quickly.

"That's why when they start using the products and see the value they create, they are able to grow very quickly even within a quarter or within a week or within a month because they adjusted their budgets."

Sandberg makes particular play of the potential advertising reach that Facebook can afford smaller, local businesses:

"Local businesses also grew spend significantly. We surpassed 1 million active advertisers this quarter, more than double the number we had only a year ago. We believe that this rapid growth is being driven by our unique ability to target ads and the simpler ad products we rolled out in the past year.

"We're all really excited that we can help local businesses grow around the world. One of my favorite local examples is right in our backyard, Artisan State, a San Francisco business that prints photo books. The owner told us that running News Feed ads gave him so many customers so quickly that they had to pause their campaigns to let their manufacturing catch up.

"Nearly 18 million local businesses now have Facebook pages, but we are excited to hit 1 million active advertisers, we know that this is just a small fraction of the local businesses on Facebook. So this remains a large growth opportunity for us."

Brand marketers are spending more, she adds:

"We have a massive and engaged audience around the world that brands can use to build awareness and drive scales. Every night 88 million to 100 million people are actively using Facebook during primetime TV hours in United States alone.

"One recent example is from Reckitt Benckiser, a global CGP company. Their campaign for Lysol targeted moms and drove a two times return on ad spent for their brand.

"Their campaign for Air Wick was even better driving a 5x return on ad spent. As they have seen these results, they have more than doubled their ad spent with us over the last year."

But there's still work to be done among the brand marketing and advertising communities. Sandberg notes:

"When you think about what brand spenders are doing, they're trying to get discovery. We've made a lot of progress there. We now work with every one of the global AdAge 100 over the past year.

"Now that said, people are in different parts of that spectrum. We have brand advertisers who are looking for discovery who have advertised with us for a long time, proven the value and are really expanding and these others that are newer, that are experimenting that aren't as convinced yet and it's our job to get there and convince them.

"I think what people are increasingly seeing is we have a big brand opportunity. We have a massive engaged audience, 88 million to 100 million people in the US during primetime hours who are on Facebook. We offer discovery and we have a unique opportunity to take people all the way through the funnel.

"In one example, T-Mobile did an ad campaign with us to attract people to sell new phones. They used our offer ads to do it. Nine percent of the people who claimed the offer converted to T-Mobile within 10 days and they had over 20 times return on their ad spend which is just incredibly strong in the industry.

"That shows the power of what we can do with impressions, taking people all the way through the funnel."

As for those controversial news feed ads, Sandberg says they're working well:

"In an analysis by Datalogix of 55 ad campaigns on Facebook over the past six months, marketers saw a median return on ad sales of three times of campaigns that did not include adding new feeds, which is very solid performance. Campaigns that included News Feed ads, the median return on ad sales was nearly double at 5.9x.

"During the second quarter we increased the number and type of ads in News Feed. At the same time, our click-though rates and cost-per-click metrics for News Feed ads remains strong during the quarter providing a good indicator of healthy and growing advertiser demand and continued user interest in these ads."

A lot of the continued success of news feed ads will of course be dependent on improved targeting and relevance of content, Sandberg concedes:

"Targeting is really important, because what takes an ad and makes it a good ad is whether it's relevant to you. When I see something on Facebook or anywhere that I’m interested in that’s a great experience. When I see something that I’m not interested in, that’s not. So we have done a lot of work around targeting.

"The most important work we've done over the past year is around Custom Audiences, which enables people to use their data in a privacy-protective way with us. It enables them to show different ads to people who are current customers versus new customers who are interested in different things.

"We're really pleased with the adoption. The number of marketers using Custom Audiences more than doubled in Q2 and we're now up to 50 of the AdAge 100 who have already started using the products.

"We also think there is room to improve. We can do more and we will continue to do more to improve the targeting, the relevance of our ads."

Verdict

The 20% share price increase following the release of the results speaks for itself - not quite back to the 2012 IPO price, but heading in that direction.

Startling numbers in places :

  • Mobile now 41% of Facebook's revenues, up 10% in a quarter.
  • Seven hundred million people using Facebook daily.
  • Profits up 65% to $488 million.
  • Facebook ads now 5% of our news feeds - and none of us seem that particularly bothered by them.

Increased mobile presence will help to open up new markets of course.

The challenge now of course is to hold steady and find new ways to monetize the existing user base - which must be just about at saturation point in the Western economies at least.

But a good day for Facebook. Carry on like this and we might start to forget about the IPO nonsense...

Like!

 

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