Why Facebook Ads are Undervalued & How Advertisers Can Take Advantage

A pile of coins with two magnifying glassesOne of the most appealing parts of Facebook ads is the across-the-board low CPCs – almost universally lower than display ad CPCs.

These ads, which act very much like display ads (and are arguably more valuable given their rich social context), are worth a lot more than advertisers are paying for them.

Let’s look at why Facebook ads are undervalued and how advertisers can take advantage.

Facebook vs. Google Display Network

What’s my basis for making this case? Let’s start with noting the similarities of Facebook and display ads (specifically, Facebook and ads on the Google Display Network):

  • People notice both GDN and Facebook ads in a careless glimpse, and only click them occasionally.
  • GDN ads are triggered by things like demographics, context, and placement; Facebook ads can lay the same claim – only "context" is derived not by sites visited but by personal interests, activities, etc. (If you’re advertising on Facebook and you’re not targeting by demographics, context, and placement, you’re doing it wrong to begin with.)

Facebook ads are much higher quality than GDN ads. Why? The reasons are obvious but often overlooked:

  • Facebook ads are smaller! Facebook ads are tiny compared with GDN banner ads – and yes, this is a good thing. The smaller size means that a typical user will have to pay more attention for a click on Facebook than on GDN. This size factor works as a mechanism to screen out careless/erroneous clicks.
  • Facebook ads have limited fraud. GDN ads are subject to fraud because the millions of website owners making money through those ads are motivated to inflate the number of clicks. Facebook ads, on the other hand, are served by a single entity, Facebook itself, and the risk of inflating clicks is not worth it.
  • Facebook browsers are more loyal. The people who click Facebook ads are truly loyal Facebook users (I won’t quote the time-on-site stats here). They use Facebook often and are more likely to click ads. Non-Facebook users can't possibly click Facebook ads. The people who click GDN ads are often random, passing-by audiences who never come back to the same ad spot twice. (Yes, with retargeting you can serve the same ad on different sites, but the Facebook Exchange is at the least poised to be an equalizer here.)
  • Claims aside, Facebook ads may actually have more integrity. There was a controversy a few months ago about a site owner looking at his traffic logs and claiming that the Facebook ad traffic is 80 percent bot traffic. This claim was debunked handily here on SEW by Merry Morud, but we don’t even need numbers to take the claim apart. Simply put, filtering out bot traffic is easy, and there is no reason for Facebook to take such risk to inflate clicks. A bigger, gnarlier problem is click fraud by third parties, which is in play for Google but not for Facebook.

Why Facebook Ads are Sold Cheaper

It’s pretty simple: Facebook doesn’t provide conversion tracking. On the GDN, conversion tracking is standard (Google is way, way ahead of Facebook in reporting – and monetization); the price we are willing to pay on the GDN backs into the requirement of CPA, which Google provides, and the platform can therefore extract the max dollar value from advertisers.

But Facebook offers no comparison in conversion tracking. The CPC we pay isn't based on our max tolerance for profit margin but is mostly based on gut feelings (there are dozens of companies devoted solely to untying the attribution knot). Because of this we rarely dare to go aggressive on Facebook ads. So, the auctions never heat up, and the CPC is capped at some random price and people often race to the bottom to get cheap clicks.

Because Facebook doesn’t have native conversion tracking, you will have to devote engineering resources to writing code to track and attribute conversions to Facebook, search, and GDN, to see which channel works. For a competent engineer, this isn't difficult.

I recently worked with a very small start-up, and they implemented this conversion tracking in a few days. Their product is a general consumer product, and Facebook traffic's conversion rate beats GDN hands down. The variance is so high that they now focus their spend entirely on Facebook.

Conclusion

Facebook ads are of higher quality than GDN. If you're spending money on GDN, and if your product is a general consumer product, you can get more on Facebook for less money and higher return.

Facebook should put out standard conversion tracking ASAP. Once the conversion tracking is in place, advertisers will immediately see they are getting a steal from Facebook, and aggressive bidding war will start across the board. Facebook’s ad prices will go up quickly from there – at least to the GDN’s price levels.

We have heard rumors that conversion tracking is already in beta testing in Facebook. The quality of Facebook traffic will shine in the light of conversion tracking, and so will their CPC.