How Facebook Could Disrupt Traditional Online Display Advertising

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Facebook’s advertising revenue dropped slightly in the first quarter of 2013 compared to last quarter, but analysts at Spruce Media say that the company “is poised to disrupt traditional online display advertising by becoming the starting point for all media buys.”

Their findings are outlined in Spruce Media’s State of Facebook Advertising Q1 2013 report, in which the analysts explained that “Facebook is laying this foundation through a combination of acquisitions, monumental ad product releases, and market strategy.”

By acquiring Atlas’ advertising suite, Facebook has opened the possibility for creating an advertising network outside of Facebook, the analysts said.

Facebook also noted in its first quarter earnings report that its partnerships with Datalogix, Epsilon, Acxiom, and BlueKai will “enable marketers to incorporate off-Facebook purchasing data in order to deliver more relevant ads to users.”

The company added that these partnerships will enhance marketers’ targeting capabilities on Facebook through new products including Managed Custom Audiences, Facebook Lookalike Audiences, and Partner Categories.

Partner Categories give marketers “the ability to target based on 3rd party data,” Spruce Media analysts said, “which can save advertisers a lot of wasted impressions as well as drive up the overall CPMs, as advertisers are then able to value each impression more than ever before.” The targeting information includes data such as household income, home ownership, and grocery store purchases.

CPM, or Cost Per Mille, refers to the amount paid per thousand impressions on Facebook. Spruce Media explained how Facebook’s CPMs changed between the fourth quarter of 2012 and the first quarter of 2013 in this chart.

“At first glance, the declining CPM trend from Q4 2012 to Q1 2013, follows the standard holiday seasonality of advertising spend and appears to indicate that Facebook’s 1st quarter revenue may be down,” Spruce Media analysts said. “However, Facebook’s revenue may have actually increased from this period due to policy changes affecting the frequency caps of these placements.”

In its quarterly earnings statement, Facebook reported that its advertising revenue actually rose year-over-year to $ 1.25 billion, an increase of 43 percent compared to the same quarter in 2012. Mobile ads represented 30 percent of this amount.

Specifically, the analysts said, “By lifting restrictions on how many ads a user could see in News Feed and by increasing the content that is eligible to appear in News Feed, Facebook effectively ‘opened up’ more inventory for one of its highest eCPM ad type + placement combinations — Page Post Ads in News Feed.  While individual placement CPMs may have suffered due to increase of supply, the overall page eCPM is likely much higher, meaning Facebook is monetizing its users better.”

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