Does Facebook’s Ad Price Slide Reveal the Firm’s Long-​Term Strategy?

Facebook’s star is rising as the company prepares to roll out its IPO next month. The company is competing hard to control a larger share of the display ad market. In fact, it’s competing so hard, it’s willing to discount ad prices – a move that’s reminiscent of Amazon’s strategy in its quest for domination of the retail sales market.

Last fall, Facebook began increasing the number of ads displayed on each page. The average number now stands at 7 ads. During the holiday season, the popularity of its site meant that CPM (cost per thousand impression) increased 41% when compared to a year earlier. For Facebook, this trend was great. For advertisers, it was another story. They were having to pay more. Research provided by TBG Digital found that marketer cost per fan was increasing rapidly.

But the company has just released new data which shows the average cost-​per-​click fell during the first quarter of this year. The rate went from $0.62 to $0.45.   Analysts say that the change in Facebook’s financials offers a clear picture of the seasonality of display ad buys. Demand rises in the last quarter of the calendar year because of the holiday shopping season.

As demand has dropped, the average CPM has been falling. Some analysts believe that marketers are holding back funds until the company releases it mobile offerings.  Other analysts point to the additional inventory as the cause of falling prices. But, this lower cost for marketers may be part of Facebook’s plan  to lure more advertisers to the site and accept less money in exchange for loyalty and a bigger market share of the display industry.

Only Facebook execs know for sure. And they’re not talking  until the quiet period is over.

[Sources: Edwards, Jim. How Facebook’s Ad Prices Collapsed in Q1 2012. Businessinsider​.com. 20 Apr. 2012. Web. 25 Apr. 2012; Fowler, Geoffrey and Ovide, Shira. Facebook’s Growth Slows. Online​.wsj​.com. 24 Apr. 2012. Web. 25 Apr. 2012] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.