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Facebook is changing how it charges advertisers for click-based campaigns to make sure that, in return for their money, marketers are getting more than social currency.
Until now, if a brand opted to pay for a Facebook ad based on how many people clicked it, the brand was paying for clicks to its website as well as clicks to like, share or comment on the ad. Those social clicks are nice and helpful when competing to secure an ad slot in Facebook's news feed, but they're not very useful business-wise for a brand paying to push someone to its e-commerce site. So Facebook's going to start giving them away for free, and the marketer will only have to pay for the actual ad clicks.
Now advertisers who buy Facebook ads based on how many people click on them will only be charged for these types of clicks: clicks to visit a site, including clicks on "Shop Now" and other buttons that link to another site; clicks to install an app; clicks that link to in-Facebook apps like, well, only Zynga's "FarmVille" comes to mind; and clicks to watch a video on another website, cough, YouTube, cough.
If advertisers preferred the old way that Facebook counted clicks by including social clicks, they will be able to continue to buy ads that way, and Facebook will try to make sure the ads are shown to people as likely to click on one of the social links as on one of the ad links. Otherwise if a brand is basing its buy on people clicking links to navigate to the brand's site or install the brand's mobile app, Facebook will prioritize people more likely to click on the respective ad links.
Advertisers should be able to avoid any measurement headaches that may be induced by the change. While the clickthrough rates that Facebook reports to marketers will look deflated because the social clicks no longer count, Facebook already breaks out non-social ad clicks into its own metric, so advertisers will be able to compare old and new campaigns on an apples-to-apples basis.
The move caters to advertisers who are already looking to pinch pennies when they don't get what they think they're paying for, like actual people actually seeing their ads or clicking on an ad's actual link. It makes sure marketers' money goes toward fulfilling the marketers' business objectives. But that added clarity on what brands are getting in return for their investment comes with an added cost.
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At first glance it would seem that Facebook's click-charging change would discount how much advertisers have to pay for these click-based campaigns. Before the change, an advertiser may have paid $100 for 20 clicks, which include the social clicks and ad clicks; that would work out to a $5 cost-per-click. Conceivably after the change, an advertiser could get those 20 clicks for only $50 and know that all of the clicks are ad clicks.
But that won't actually be the case, and here's why. Brands don't buy Facebook's click-based ads according to how much they're willing to pay per click. Instead a brand tells Facebook its budget for the campaign and that its objective is to get people clicking on its ad. Facebook's technology then figures out how to get the advertiser the most clicks for that budget.
Under the old pricing structure, Facebook's technology tried to aim the ads at anyone who might click on it, whether they click on the social links or ad links. But under the new pricing structure, Facebook's technology will try to aim the ads only at people likely to click on the ad links. Those people may be harder to come by, and that scarcity drives up pricing because Facebook's taking a risk each time it shows one of these click-based ads. If the person clicks on the ad, then Facebook makes money, and the bet paid off. If they don't click, then Facebook just gave away an ad impression and lost its bet as well as revenue. That ad impression may not be worth anything to the click-oriented advertiser, but Facebook could have found a brand advertiser willing to shell out for the attention.
As a result Facebook expects that its click-charging change will increase the average amount advertisers pay per click because the bid prices advertisers place for these ads will need to be higher in order to better compete for Facebook's available inventory.
Facebook continues to be an increasingly expensive piece of real estate for advertisers to rent. In the first quarter of 2015, Facebook got its advertising customers to pay 285% more money per ad than they did a year ago. And in the two periods prior to that, Facebook's average ad prices jumped by 274% and then 335%.
But the advertiser base that Facebook appears to be appealing to with the cost-per-click change may not mind the price increase. These are direct-response advertisers, a group more concerned with ad clicks and product sales than ad impressions and brand awareness. These are the types of advertisers that would rather have 100 people click on their ad than have 1,000 people see it. These are the types of advertisers that would rather pinpoint the exact audience it wants to show its ad -- getting as specific as that audience's income and purchase patterns -- than spray-and-pray the spot to the "18 to 34" demographic. And these are the types of advertisers driving up ad rates because they're more willing to pay for their specific audience and business outcome than other brands may be willing to spend on their more loosely defined audiences and end-goals.
They're also the types of advertisers buying most of the digital ads available today. Of the $50.1 billion that eMarketer projected advertisers to spend on digital ads in the U.S. last year, 59% was expected to go to direct-response ads.
Facebook has made several announcements this year aimed at direct-response advertisers, a group that Google won over with its search ads years ago. Earlier this year Facebook started giving all of its advertisers the ability to measure how their Facebook ads drove sales. Last month Facebook said it's testing auto-filling the forms in marketers' ads with people's Facebook profile data, and Facebook-owned Instagram announced plans to let brands include links in their ads, which are just the kind of ads direct-response advertisers like to buy.