Facebook's Problem: Not Enough Good Inventory

Over the past few months I have been spending a fair amount of time testing out Facebook’s advertising platform. While I’ve been advertising since early on, when Facebook’s program was called “Flyers”, I never had a chance to put substantial resources into testing it out. Since then, I’ve launched a number of campaigns each with varying success. I’ve also spent the last few months speaking with people about their experience with Facebook advertising.

What Results Are People Having?

The result has been mixed but there is one thing that has been consistent throughout: nobody can ever spend all their money that they want to on Facebook advertising. The reason for this? Well the most obvious is that not enough people click on the advertisements on Facebook. A look at my own ads would reveal click through rates (CTRs) of 0.03 percent to 0.11 percent.

Other people that I have spoken with have also produced similar results. Some click through rates have exceeded 0.11 percent but those are not the norm. Ultimately it depends on the ad that you are running. The best model is to run multiple campaigns within the Facebook ad network, each targeting similar groups.

Are the Numbers Comparatively Low?

While I’m sure there are ways to increase the overall click through rate, the numbers are still dreadfully low. These low rates demand an extremely high number of impressions. It seems almost counterintuitive though to suggest that Facebook doesn’t have enough inventory. Time and time again we hear about the excessive amount of inventory driving down CPMs for publishers.

On a CPM basis, it would be accurate to state that there is too much inventory. In a world where search marketing provides advertisers access to consumer intentions, impressions simply don’t suffice. If you wanted to pay for advertising on a CPM basis on Facebook, you could most definitely go through your entire advertising budget. It doesn’t make much sense though to pay on a CPM basis when you can pay per click.

Not everything is bad news for Facebook though. After doing a little research, we found that Facebook’s click through raters were not necessarily that bad when compared to traditional banner advertising. Many advertisements on top blogs around the web provide click through rates of around 0.10 percent to 1.0 percent, most of which trend toward the low end.

Those numbers were based on data of large campaigns run around the web that we received from advertising campaigns run from within agencies.

Not Enough Inventory Among Quality Users

Facebook has a large group of “quality” users. When saying this I mean that there is a large group of users that fall within valuable demographic categories for advertisers. Every single person that I have spoken with about Facebook advertising has said the exact same thing: Facebook limits their budget and they are never able to spend everything they’ve allocated to Facebook advertising.

The main reason behind this (from the sample group of advertisers I’ve spoken with), is that there are not enough impressions by the demographic groups being targeted with advertisements. As Facebook grows in popularity, the number of impressions will change significantly but for now there is still a lack of quality impressions.

I would assume that this is why Mark Zuckerberg continues to speak about focusing on growth. If there are numerous advertisers that don’t hit their daily budget on the ad network, Facebook clearly has a problem with inventory. Compare this to Google where advertisers consistently hit their daily budget limits. Facebook needs to build their inventory as much as possible if they are going to build a successful advertising network.

Is Facebook really not focused on monetization currently? No way! There is most definitely a group of people dedicated to monetization in Facebook. The main problem is that the company still doesn’t have enough inventory even though it may have the 4th most trafficked website on the internet! Either that’s a sign of a failed monetization solution or a sign that the company simply needs more pageviews.

What results have you seen when running Facebook ads? Are you able to hit your daily budgets? What do you think would improve the Facebook advertising program?