Is digital ad inflation a pain?

Facebook's popularity with brands is driving up prices. By Alasdair Reid.

Brand campaigns on Facebook have rise almost 20-fold
Brand campaigns on Facebook have rise almost 20-fold

There's an old joke in the retail trade about Tesco being unpopular with customers because of the queues - and, indeed, success always drags its own sorts of problems in its wake. For the seller, they tend to be rather nice problems (for a while, at least); but for the buyer, they soon seem to feel like nothing more than a pain.

According to a report from TBG Digital published last week, brand campaigns on Facebook have grown almost 20-fold over the past 12 months, driving up cost- per-thousand impressions globally by 45 per cent and cost-per-click scores by 74 per cent across several important categories. In the UK, specifically, cost-per-click rose by 55 per cent year on year.

Advertiser demand, in short, is significantly outstripping audience supply. There will be those willing to argue that Facebook should milk this for all its worth - because, with Google+ having been released into the wild, its 15 minutes of digital media fame will soon be up.

And, indeed, there will be a price point at which some advertisers will curb their natural enthusiasm to be where all the cool(ish) kids are - and a natural market corrective will kick in.

On the other hand, this might not just be a case of an isolated hotspot - this year, the online display market seems to be gaining momentum right across the board.

All of which, you might assume, is giving cause for concern in certain quarters. Damien Hodge, the head of online investment at MediaCom, says that increase in demand on Facebook used to be matched by growth in user numbers and by existing users spending more time on the site. That's no longer true. But, happily, there's a new anti-inflationary mechanism now coming into play - the launch of real-time bidding ad exchanges. He explains: "Exchanges and demand-side platforms ensure healthy competition online, meaning advertisers can go elsewhere if inflation causes Facebook to miss targets. That, in turn, will lower inflation."

And, he adds, we'll see fewer examples of several advertisers chasing the same audience: "For example, while data points currently may be able to class a cookie as a female new car-buyer, additional data points may show that cookie to represent a mother who goes camping and is looking for a new car - and that will allow for different bidding strategies. Of course, there may still be competition for that cookie - raising bid prices. But the advertiser is getting a purer audience, which will work out cheaper for it when charted against consumer response - as measured, say, in terms of sales or test drives. By this constant addition and refining of data points, coupled with increased supply, sales inflation should be controlled."

Meanwhile, Nathan Levi, the media director at Razorfish, ponders whether the overheating market in Facebook may soon run out of steam for other reasons. True, there's a clear perception in the industry that Facebook can drive real engagement for brands - so it's no surprise that it has the revenue momentum it clearly has. And yet its click-through rates are down there with the lowest in the industry.

Levi says: "While value can be measured in more ways than just a click, advertisers will eventually want to know how many Facebook ads they need to serve to make the impact of a good television ad."

However, Will Smyth, the head of digital at OMD, says you shouldn't lose sight of the fact that the Facebook situation is hardly representative of the digital display market as a whole. He comments: "If you look at display more generally, we've not seen the same demand-led inflation. But even where Facebook is concerned, there are ways round that, if you're a bit clever in your approach."

And Paul Vassallo, the head of digital trading at MPG Media Contacts, points out that the homepages of portals are inflation hotspots too. But there are plenty of stratagems you can adopt to avoid the real trouble areas: there's plenty of viable inventory to be found on ad networks and ad exchanges, for instance. And you can counter some of the price pressure on Facebook by using its biddable interface, rather than dealing directly with Facebook itself.

But he agrees with the general proposition that, as data provision becomes richer, it will become easier to plan around the worst of the problem areas: "As we begin to grow the usage of data, power begins to return to advertisers, as they gain an understanding of who their potential customers are and where to find them - therefore reducing their reliance on the big players and slowing the price increases."

MAYBE - DAMIEN HODGE, ONLINE INVESTMENT HEAD, MEDIACOM

"While revenue online will continue to rise, the growth of ad exchanges will see an increase in supply, counteracting inflation. And the ability to collect more data and use it to bid in real time will mean fewer advertisers chasing the same audience."

MAYBE - NATHAN LEVI, MEDIA DIRECTOR, RAZORFISH

"The real question is whether this trend will last. Advertisers were able to see an immediate, measurable impact from paid search. The jury is still out regarding the true value of a Facebook ad."

NO - WILL SMYTH, HEAD OF DIGITAL, OMD

"Facebook is where the audience is. It's a cost-effective platform, especially if you have good brand equity and a story to tell. But inflation shouldn't be a problem if you have the resources and people to evolve your strategy."

MAYBE - PAUL VASSALLO, HEAD OF DIGITAL TRADING, MPG MEDIA CONTACTS

"Is inflation becoming a problem? Yes, but only in certain places. But as technologies improve, we have scope to begin to plan around some of the areas where inflation is visible."