Privacy Concerns May Not Hurt Facebook, But Rising CPMs Might

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Andy La Fond, executive media director at R/GA Chicago.

Facebook and concerns about privacy have been in the headlines since March, but that news may have hidden a bigger problem for Facebook: the rising cost of impressions for advertisers.

CPMs – the cost per thousand impressions – on Facebook have increased by an average of 51% over the past 14 months, according to data from AdStage. Year-over-year increases spiked in January at 122%. Increases in the past year follow a 41% increase between the end of 2015 and the end of 2016, based on data from eMarketer.

Several factors are likely driving the CPM increases. Facebook’s changes to the news feed have caused some users to spend less time in the app, reducing the number of impressions available with some audiences. Some users may also be spending less time on Facebook because of privacy concerns or changing preferences for different social apps.

At the same time, advertiser demand has likely increased because Facebook has restricted organic reach and continues to deliver broad reach with paid placements. Positive campaign performance, especially for direct-response advertisers, likely has led to more advertiser spend on Facebook.

Regardless of the cause, CPMs that continue to increase will make Facebook less attractive, relative to other media and digital channels. Some advertisers use marketing-mix models that once favored social media and Facebook in past years, based on the relatively low CPMs. Low CPMs have also offset the lower viewability, video view rates and view times on Facebook, allowing the platform to effectively compete for video dollars.

With Facebook CPMs creeping above $6-$8 for some campaigns, the marginal value will decline and the effective viewable CPMs could be higher than other digital channels. CPMs consistently above $8 may start to impact advertiser demand as brands reconsider Facebook relative to programmatic display or other social platforms.

Improvements in campaign measurement and direct-response conversion rates may offset the rising CPMs. As long as direct-response advertisers see better costs per acquisition – a result of more effective targeting and ad products – they may ignore CPMs. For brand advertisers, Facebook has been making added-value brand lift and sales lift studies available, which give marketers a way to understand campaign value beyond CPMs.

However, for many brand advertisers, CPM – and the total reach and frequency from a campaign – will remain a key buying metric. CPM will still be a key input for marketing-mix and ROI analyses. Lower CPMs are often the most straightforward way to improve the overall results for a channel or campaign.

Guidance from Facebook, in response to this issue, has focused on following best practices. That includes broadening the audience, scale and placement types for a campaign. Creatively, Facebook recommends a mobile-first strategy and an emphasis on vertical formats and short videos or executions that include motion or animation. Buying in auction instead of using Facebook’s fixed-CPM “reach and frequency” option may help advertisers see lower CPMs, but it also makes the overall campaign reach and frequency more unpredictable.

Advertisers who see rising CPMs on Facebook can follow those guidelines to optimize campaigns. Ultimately, keeping options open with other platforms provides the best safeguard against higher prices on Facebook.

Expected CPMs on Snapchat have been lower than Facebook recently. YouTube TrueView comes with a higher CPM but also delivers higher view times and view rates. Pinterest can be relevant for many verticals, especially those with a DIY or curation component. Display ads are often maligned, but, with the right creative, can be effective brand and sales drivers for some advertisers.

Many options are available, and the simple economics of rising prices may be, in the end, what loosens Facebook’s grip on digital advertising budgets.

Follow R/GA (@RGA) and AdExchanger (@adexchanger) on Twitter.

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