Facebook Ad Rates Fall As Coronavirus Undermines Ad Spending
Advertisers can reach more users per dollar—or save money for whatever is ahead. Facebook Ad Rates Fall As Coronavirus Undermines Spending
Facebook Inc.’s ad business is feeling the impact of the new coronavirus.
Even as people stuck in their homes spend more time on social media, advertisers are pulling back during the economic shock now under way.
Facebook is trying to keep what spending it can, partly by chasing ad budgets that were once intended for televised sports, according to senior ad agency executives familiar with the matter.
Prices in Facebook’s ad auctions nonetheless plunged between February and March, according to executives at several companies that do business on the platform.
The cost to put an ad in front of Facebook users 1,000 times in March dropped 15% to 20% from February, according to a recent analysis by one advertising holding company’s buying group.
Such rates fell about 25% in the same time frame for the digital marketing agency Wpromote LLC, which said it manages more than $130 million in annual ad spending on Facebook.
The decline was 20% at 4C Insights Inc., a marketing technology company that helped brands manage $350 million in ad spending across major tech platforms including Facebook, Instagram and Twitter Inc. from January to March.
“I would characterize Facebook ads as being quite the bargain right now,” said Aaron Goldman, chief marketing officer at 4C.
While prices were down, total ad spending on Facebook and Instagram through 4C was up 2% in March compared with February, Mr. Goldman added. Absent the pandemic, he said he would have expected month-to-month growth of at least 10%.
March ad spending on Facebook and Instagram through 4C was down 5% from March 2019, Mr. Goldman said. Without the coronavirus, he said he would have expected a 30% increase.
“This is the impact of the pandemic: It has slowed Facebook’s growth,” he said.
Facebook isn’t alone: The cost of 1,000 impressions fell 22% on Facebook sibling Instagram from February to March, Mr. Goldman said. YouTube, part of Alphabet Inc.’s Google, also saw a 15% to 20% drop in prices from February to March, according to the ad-holding buying group.
And advertisers are pulling back in all sorts of media.
But Facebook’s popularity among marketers, including small businesses and direct-to-consumer brands that rely on it for sales, mean low ad prices create both opportunities and new strategic questions for many advertisers.
Facebook declined to comment, but said on March 24 that rising use of its apps and services wouldn’t protect it from expected declines in digital advertising across the globe. The company plans to report its next quarterly earnings on April 29.
The drop in ad rates is making Facebook advertisers decide whether to take advantage by reaching more potential customers—or by pocketing the savings heading into an extremely uncertain economy.
“Right now the cost is in the advertisers’ favor,” said Doug Rozen, chief media officer of Dentsu Inc.-owned ad agency 360i. “We have clients asking us if they should be spending to budget or spending to goal: They might have $100,000 to reach 1,000 people, but because media is cheaper right now, if they spend $100,000, they might reach 2,000 people.”
“Our view is to spend to goal right now,” Mr. Rozen said. Marketers might need the money later in the year if the economy improves and ad prices leap, he said.
Money in play
Facebook was accelerating its efforts to attract advertisers’ TV budgets this year well before the pandemic forced sports leagues to suspend play and delayed the Olympics until 2021, depriving marketers of anticipated big, live audiences.
But in March, Facebook proposed to ad buyers that its video ad offerings could be a suitable landing spot for ad dollars being reallocated from sports sponsorships and media, according to senior ad agency executives and an email reviewed by The Wall Street Journal.
“Many ad agencies have begun the process of reallocating budgets previously earmarked for live sports into other content categories, and in some cases, even adding additional dollars,” said Mike Evans, senior vice president of demand facilitation at SpotX Inc., a technology company that helps publishers sell video ads.
Other ad sellers are also in pursuit. Snap Inc., for example, has been pitching a package of sports content and audiences on its Snapchat platform, arguing that fans are still watching sports-related content, one of the senior agency executives said.
However, some advertisers are now electing to save the money they are no longer spending on sports programming.
“The sports budgets were supposed to be invested into news and Sunday morning programs, but in the end, everything wound up getting cut and removed from the media budget,” said another senior agency executive, whose marketer clients spend millions of dollars annually on sports TV programming.
“That money is not staying in media,” he said. “That money is going to the bottom line of the clients.”
Other TV ad buyers were skeptical about Facebook’s ability to draw from traditional TV budgets, arguing that most of the platform’s video programming isn’t comparable to TV fare.
Facebook is a top marketing platform for advertisers that want to drive users to take certain actions. And people in physical isolation have certainly been clicking plenty of ads, according to executives. But whether they have been converting into actual customers is another question.
Conversion rates, measuring whether people actually buy items or take other steps after they click an ad, declined 7% for Wpromote’s e-commerce clients in March compared with February, according to the agency.
“People were still searching for things, but they weren’t purchasing,” said Kevin Simonson, vice president of social for Wpromote.
The drop in conversion rates also propelled one direct-to-consumer brand to reduce its monthly Facebook ad spending by 30% in March, said the brand’s founder.
Most recently, however, both ad performance and prices seem to be ticking back up. Conversion rates rose 10% in the week of March 30 compared with the previous week, according to Wpromote. The cost of 1,000 impressions on Facebook increased 8% in the same period, Wpromote said. But they aren’t yet back to February levels, Mr. Simonson added.
In the long run, large ad ecosystems such as those owned by tech giants including Facebook, Google and Amazon.com Inc. will fare better than some rivals in the pandemic and its aftermath, said 4C’s Mr. Goldman. They have hundreds of millions, if not billions, of users spending more time on their platforms, as well as the data and capabilities to precisely target them with ads, he said.
“Anytime there is a crisis that impacts the economy, that’s when marketers need to focus most on what is driving a return on investment,” Mr. Goldman said.
Facebook Warned That It May Lose a Key Seal of Approval for Ad Measurement
Media rating council says social-media giant could be denied accreditation.
Facebook Inc. is at risk of losing a key seal of approval that gives companies confidence they are getting what they pay for when it comes to advertising with the social-media giant.
The media industry’s measurement watchdog has warned Facebook that it could be denied accreditation due to deficiencies in how its reports on the effectiveness of advertising on its products, according to a letter reviewed by The Wall Street Journal.
The letter highlights continued tension between the world’s largest social network and advertisers, who are seeking to verify what they are getting in exchange for billions of dollars spent on Facebook’s platforms.
The notice from the Media Rating Council says that Facebook has failed to address advertiser concerns arising from a 2019 audit performed by Ernst & Young, most notably concerning how it measures and reports data about video advertisements.
“The Committee felt strongly that the lack of response and detailed action plans by Facebook within 60 days would lead them to take negative action,” the letter says. “This feedback should be considered a strong message to Facebook.”
Accreditation from the watchdog is considered a signal of trustworthiness to advertisers. Losing that certification wouldn’t have a formal consequence, but could influence how some brands allocate money to Facebook in the future.
The audit is being closely watched in the industry, according to one advertising executive that has seen the letter. “We need these audits completed. They are grading their own homework, so we have to know that their measurements can be trusted,” the executive said.
In its earnings announced on Wednesday, Facebook said it collected more than $17 billion in advertising revenue in the first quarter.
Facebook said it was disappointed that the letter was made public.
“These exchanges are part of the audit process. We will continue working with MRC on accreditation, as we have since 2016.”
George Ivie, MRC’s executive director, said the Facebook audit is “at an interim stage” and declined to comment further.
The audit process arose after the revelation in 2016 that Facebook had overstated its video viewing statistics for more than two years. The erroneously calculated statistic—which Facebook acknowledged had inflated reported viewing times by as much as 80%—created pressure for the company to open its metrics for review.
With Chief Operating Officer Sheryl Sandberg pledging to “get it right,” Facebook agreed to provide the MRC with the access and data needed to evaluate its compliance with industry standards on an annual basis.
The letter suggests the audit process has had rough patches. While the council decided to maintain an accreditation already granted to Facebook for 2018, it closed the audit for that year without granting the company additional certifications.
Among the issues is the company’s failure to adequately separate statistics for video advertising from those for static display ads, which prevents advertisers from making meaningful comparisons among those platforms.
The committee “is looking for a proper accounting for video in a compliant manner,” the letter says. Failure to comply within 60 days could result not only in Facebook being denied accreditation both for video ad views but in the broader display advertising category it has already been granted.
The letter listed several other lines of questioning. The watchdog wants more information about Facebook’s efforts to monitor fake accounts on the platform and data about ad impressions served to “invalid accounts.”
The group also asked to discuss Facebook’s apparent request to temporarily halt a separate process intended to reconcile the company’s statistics with third-party data from independent measurement firms. Facebook had asked Ernst & Young for an indefinite delay citing the difficulty of managing its platforms during the Covid-19 pandemic, the letter said.
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