3 Reasons Facebook CPMs are Exploding
Facebook and Instagram are a necessity for any brand looking to grow its business, right alongside search and clever (or sometimes creepy) subway ads.
But there is growing discontent due to the steady rising cost of advertising on the Facebook platform. Between January 2017 and January 2018, research revealed that CPMs grew by 122%, and indicators suggest that trend has continued into 2019.
So, what exactly is causing this increase in cost and what can marketers do about it?
Supply and Demand
What we’re facing is a classic case of supply and demand dynamics dictating market prices. The walled gardens of Google and Facebook have a valuable commodity in the form of massive logged-in audiences that are actively engaging with proprietary media. Brands are willing to pay a premium for this audience because of relative confidence of reaching a known person. But while Facebook has about 185M daily users, the actual number of people interested in any given product is a lot smaller. With Facebook’s growth now plateauing, every new customer acquired increases scarcity, causing the price to further escalate as campaigns scale.
Additionally, as more advertisers compete for audiences, bidding grows increasingly competitive. Deep-pocketed DTC brands, in particular, are flooding the platform. Facebook is trying to increase supply by opening up stories as a new source of inventory, but even advertising on stories is becoming too expensive.
The Rise in CPMs is a Result of Facebook’s Algorithm Choices
Facebook’s dominance in the market means when they make changes, advertisers have little recourse.
For example, the platform launched news feed algorithm changes in January that shook the confidence of businesses spending on Facebook. The new algorithm prioritized status updates from friends and family while de-emphasizing news articles and promoted posts from brands. This reduced ad impressions available through the platform and made the competition more fierce, resulting in higher costs.
Additionally, Facebook has been eliminating ad targeting options. Just this July, Facebook got rid of thousands of “rarely used” targeting options such as older song titles and specific location-based targeting.
Earlier this year, Facebook allowed users to delete data Facebook had garnered from outside of the social network, curbing some targeting options available to advertisers. And in March, as part of a legal settlement, Facebook agreed to redact age, gender, and ZIP code information from being targetable for housing, employment, and credit ads.
These limitations on targeting features in turn limit the audiences available on the platform, which also contributes to rising costs.
So, what can marketers do to survive? In short, they need to start diversifying spend into channels that are similarly logged-in, similarly tied to identity, and responsive.
One such logged-in channel that doesn’t have a gatekeeper is email.
Email represents a direct relationship with a consumer and is not beholden to any single platform’s algorithms. With over 3 billion users worldwide, email is the most preferred communication channel for US consumers, who spend an average of 5.4 hours per day on it. For brands frustrated with Facebook, email represents a channel for future digital investments that is capable of delivering comparable performance for a fraction of the cost.
Additionally, another channel to consider is Amazon. Amazon offers a logged-in audience that works across devices, channels, and platforms and is able to tie intent to nearly every visit. Of course, investing in Amazon offers its own risks to brands. Amazon has a history of using that intent data to launch its own lines, so while it may seem like a powerful option, buyers beware.
There are many issues that are causing the cost of advertising on Facebook to go up, but the benefits of Facebook advertising — reaching a logged-in audience with highly targeted and measurable campaigns — isn’t restricted to just Facebook. It’s time for marketers to diversify their ad spend and turn elsewhere to reach new audiences with a high return.
Nick Dujnic is Vice President of Marketing at LiveIntent.