Facebook Advertising is Getting Less Rewarding
Advertising on Facebook looks less appealing today than it did before 2010, and the future doesn’t look all that appealing, either. According to Trefis, a stock analysis service, the average advertising revenue generated by Facebook for every 1,000 searches conducted on its site has declined significantly and is expected to continue its descent into the foreseeable future.
Revenue per share (RPS) currently stands at $5, according to Trefis. This is down from $8 back in 2008 and $6 back in 2009.
“We expect Facebook’s RPS to decline over time as Facebook is not yet a search engine at its core like Google, Microsoft’s Bing or Baidu,” according to Trefis. “It also is also not an open web portal like Yahoo or AOL and requires users to login to run searches. Also the international mix of total searches increases will lead to RPS decline.”
More specifically, Trefis notes that RPS in the U.S. has always been higher than in most other global markets, which means that as Facebook’s mix of total searches gets more international, RPS will be dragged down.
Also, the company highlights the ambiguity of Facebook’s future as a search destination. “If search becomes central to Facebook, than the nature of searches may become more commercial which will attract higher paying advertisers to advertise on Facebook. A risk is that search on Facebook remains an ancillary feature and that the nature of searches on Facebook will not be as attractive to advertisers.”
Trefis expects RPS to decline to $4.60 in 2011, and $3.20 in 2017. Its members expect a slower decline, however. Trefis members foresee RPS to be $5.30 per 1,000 searches in 2011, and $4.70 in 2017.
The company values Facebook at $45.1 billion, with 60.1 percent of this market cap attributed to text and display ads, 16.8 percent to credits on games and applications, 11.0 percent to e-commerce, 8.3 percent to search advertising and 3.7 percent to cash (net of debt).
Meanwhile, Webtrends recently unveiled some findings of its study of more than 11,000 campaigns on Facebook in an attempt to establish benchmarks for brands looking to advertise on the social networking site.
The study found that in 2010, the average click-through rate (CTR) for Facebook ads was 0.051 percent, down from 0.063 percent in 2009, and half the industry standard of 0.1 percent
Cost per click (CPC) was $0.49 in 2010, up from $0.27 in 2009, according to Webtrends.
The company notes that older users click on ads more often on Facebook, and that women have a slightly higher CTR than men.
While users in Wyoming and North Dakota have higher-than average CTRs, users in Hawaii have a CTR nearly half the average.
Tabloids and blogs boasted a CTR of 0.165 percent and a CPC of $0.12, while media and entertainment ads had a CTR of 0.154 and a CPC of $0.25, making those two categories the most successful. The least successful were health care (CTR of 0.011 percent, CPC of $1.27) and Internet and software (CTR of 0.021 percent, CPC of $1.30).
Sources:</strong
https://www.trefis.com/company?ovd_urlid=310209&hm=FBOOK.trefis
http://mashable.com/2011/01/31/facebook-half-click-throughs/
http://www.businessinsider.com/chart-of-the-day-facebook-ctr-cpc-per-sector-2011-1
