Report: Sponsored Stories, Mobile Ad Targeting Drive Facebook’s 2Q Ad Metrics

By David Cohen 

Facebook’s oft-criticized advertising sector got some good news in the form of the second-quarter 2012 Global Facebook Advertising Report from social media advertising specialist TBG Digital, as numbers were up across the board in several key metrics, driven largely by the success of sponsored stories.

TBG analyzed some 406 billion impressions between the second quarters of 2011 and 2012, from 276 clients based in more than 190 countries, and it credited greater use of sponsored stories, as well as Facebook’s introduction of mobile ads, for the social network’s 58 percent jump in cost per thousand impressions (CPM) over the 12-month period. TBG said in its report:

CPM rates are a good indication of Facebook’s earnings per marketplace ad served. The increases are definitely great news for Facebook, as they signify that its inventory continues to work better for it.

After an analysis of 13.8 billion impressions during the first two quarters of 2012, TBG found that sponsored stories received click-through rates 53 percent higher than standard Facebook ads, and the cost per fan for sponsored stories was 39 percent lower. The company elaborated on sponsored stories in its report:

These findings are very positive for Facebook and advertisers alike as it shows that the sponsored story ad format is even more engaging than our previous study indicated and, even though ad costs and Facebook’s earnings per ad delivered have increased, fan acquisition costs are even cheaper than before. The increases in ad costs are probably due to more competition on the platform and more sophisticated targeting on sponsored stories as we demand better quality for our clients.

CTR increased 11 percent over the same period, according to TBG, which again attributed the increase in engagement to mobile ads. CEO Simon Mansell also pointed out that the CTR for Facebook applications was higher than that for Twitter apps. TBG said on the CTR increase:

The launch of Facebook’s mobile ad targeting feature in early June 2012 may have had a positive effect on CTR. In fact, CTR in the U.S. jumped 31 percent between May 2012 and June 2012. Also worthy of note is that this data set saw a 7 percent increase in social impressions (where the ad shown included social context, e.g., John Smith likes this) from quarter to quarter. So, it would appear that Facebook is doing something right here; social context continues to make a difference to ad engagement and mobile targeting is positively affecting CTR. The increase of 11 percent in engagement could also be partially due to a general improvement in targeting techniques and ad creative.

On the topic of mobile, Mansell said it is where Facebook users are spending most of their time, adding that mobile users are more focused, lacking some of the distractions when accessing the social network via desktop computers, such as email.

When breaking down CTR by sector, entertainment, which topped the list during the first quarter, slipped to fourth place, trailing health, pets and animals, and not-for-profit, respectively. TBG said health normally places in the top five, while not-for-profit rose four slots, and pets and animals was a newcomer to the list.

“People click on things they’re passionate about,” Mansell said of the rise by the pets and animals category.

Cost per click, or the cost paid by advertisers to Facebook, topped the $1 mark for the first time in the U.S. and Canada, rising by 13 percent and 12 percent, respectively, but CPC fell during the same period in European countries including the U.K., France, and Germany. Overall cost per click rose 9 percent, down from a 23 percent leap during the first quarter of 2012. TBG explained how Facebook calculates CPC:

Facebook’s marketplace advertising is based on an auction bidding model, i.e., how much an advertiser is willing to pay for an impression or click. If, however, the CPC and CTR of an ad are not high enough, Facebook will not publish it, because the ad’s corresponding CPM will not be enough to secure its place on the page when compared with other ads. Facebook uses CPC and CTR metrics to calculate CPM (what it earns per ad served). As targeting increases, so does the CPM that Facebook charges. Advertisers therefore have to increase their bid prices to ensure that ads are delivered. More advanced markets such as the U.S. and Canada are focusing on delivering highly targeted traffic at huge scale, measuring it against basket value, type of Facebook fan recruited, etc. which is probably why we have seen an increase in CPC for those markets. A general increase in competition has also pushed max bid prices up in these territories.

When breaking down CPC by sector, jobs and education surged to the top spot, at $1.42, trailed by finance, retail, games, and computers and electronics.

TBG said in the introduction to its report:

While this report is a good indication of the Facebook ad market as a whole, it is important to understand the data in context. Our clients, upon our advice, are now willing to pay more for quality clicks and fans. Focus is shifting toward measurable engagement and the difference social media connections are making to their bottom line.

And Mansell concluded:

All eyes are on Facebook at the moment, and a key part of its progress is the performance of its sponsored stories and mobile ads, which, in particular, are showing great potential for all parties.