Ads in News Feed reduce Likes and comments by marginal percentage, Zuckerberg says

Facebook CEO Mark Zuckerberg said on the company’s earnings call today that he was surprised just how little effect inserting ads in News Feed has had on overall engagement.

The addition of advertising in the feed has led to a 1 to 2 percent reduction in Likes and comments, which is less than expected and Zuckeberg says he feels “very confident” about the direction of advertising on Facebook.

The reason there’s a decrease at all is because Facebook shows a paid story instead of one that would have appeared organically from a friend or other connection. However, Facebook made a number of other changes to improve its ranking system and show users more content they’re interested in and overall increased News Feed engagement “on the order of 50 percent,” Zuckerberg said.

“So over the period of last year, we’ve had on the order of a 50 percent increase and then a very marginal offset of 2 percent for putting ads in, which just makes us feel really confident that we’re continuing to very strongly net improve the experience of feed,” he said.

Zuckerberg says he expected to have to spend a lot more time tinkering with ads in the feed to avoid hurting user experience, but instead Facebook has been able to increase the number of these ads without significantly hurting engagement levels. It also means the team can focus on the next step of improving targeting and developing new ad formats sooner than expected. Zuckerberg suggested that the company was working on new ad types that go beyond text, links and images. We’ve heard that a new video unit will launch this year.

COO Sheryl Sandberg says 65 percent of Facebook’s advertisers are running ads in News Feed, up from 50 percent the previous quarter.

Mobile ads accounted for about 23 percent of Facebook’s advertising revenue in the fourth quarter of 2012, bringing in more than $305 million. In Q3 2012, mobile supplied only 14 percent of the social network’s ad revenue, but Facebook is opening more and more inventory in the mobile feed, and advertisers are enthusiastically buying it up. Because mobile ads are so prominent in the feed, they often receive higher clickthrough rates than those on desktop. That means Facebook can charge advertisers less per click but still earn more revenue per impression than it can with less effective ads. As the social network improves ad relevance and offers more engaging formats, the returns can be even higher.

Overall, Facebook’s ad revenue was up 41 percent from the same quarter last year, for a total of $1.086 billion. This is the first time the company’s ad revenues have exceeded $1 billion in a quarter. In Q3, the company saw $992 million from ads.

Facebook continues to increase feed-based ad inventory, most recently allowing non-social page Like ads on its mobile site. Although ads haven’t had a significant effect on engagement thus far, the social network must consider qualitative feedback as well to keep a pulse on users’ perception and enjoyment of Facebook as it becomes more commercial. Policy changes like the one preventing ads from including more than 20 percent text are efforts to make advertising blend in with organic content on Facebook and feel less obtrusive to users.