Facebook has once again beaten its earnings forecast. But the share price dropped by almost 8% after the earnings call. Why? Because the CFO cautioned that Facebook ad load was nearing max capacity and would meaningfully affect revenue by mid next year.
What does that mean and what does it mean for advertisers?
Facebook ad space won't increase, despite greater demand from advertisers. This is to maintain the quality in a user’s experience by turning off users with too many ads.
As Shira Ovide from Bloomberg explains succinctly:
Facebook has three main ways to increase revenue.
Signing up more people to Facebook, Instagram or other company properties, or lure existing users to spend more time there. More people or time on Facebook-owned sites translates into more opportunities to show ads. Revenue goes up.
Dialling up the "ad load," or the number shown to each person per minute or hour on Facebook's digital hangouts. Revenue goes up.
Charge higher prices for each ad. Revenue goes up.
The focus has been on 1 and 2 in recent times. User and advertiser growth has been the rocket that has propelled earnings and reinforced Facebook's position as an integral part of any digital marketer's or indeed marketer's plans.
In the near term, number 3 will be the engine that drives the stock price. If space in the news feed becomes more premium, advertisers will have to compete more aggressively in bidding for media inventory. This will inevitably drive impression costs higher.
For marketers, it means going back to doing their sums. It will never be more important to ensure that everything that can be optimized is, to achieve the same return on investment as before.
Creative is a major factor as it can push a campaign’s performance up or down by many orders of magnitude.
In this new world of limited news feed inventory (arguably the most valuable piece of internet advertising real estate) having enough, high quality, nuanced creative has become supremely important.
Stale creative; low-quality creative; one size fits all creative; single format creative; will all be penalized in this massively more competitive marketplace.
Access to high-quality creative at scale will be a key weapon in the fight for distribution on Facebook in 2017.
Is your creative team ready?