The end of an era in performance ads

Facebook ads has been the biggest revolution in the advertising industry since the invention of TV. Not only because of the platform itself, but because it has created dozens of new job categories, hundreds of thousands of new companies directly related to Facebook, and has made millions of people work every day with the advertising platform and make a living from it.

When it was first launched in 2007 it completely changed the rules on how we advertised, how we made creatives and how we tracked results. In a few minutes, a small independent brand, was able to advertise next to big companies such as Nike, Adidas or Volkswagen, sharing the same platform and competing for the same audience. That had never happened before in the history of advertising.

Back in the 90s and in the early 00s, you could only advertise in newspapers, radio or TV if your company had big budgets to make great creatives, to buy media and to afford to FAIL in a specific campaign. Small companies can not afford to fail, so they need to be sure, in real time, that every $ invested is going to give them back X times in revenues the investment made.

That was the GREATNESS of Facebook Ads.

You could track EVERYTHING and moreover you could retarget any kind of audience you could think of: People who have seen a specific product, who have added 2 products to their cart, who have spent x time on your site... And all of this was made safeguarding the privacy of users. It was aggregated data not individually treated. In fact, most of the audiences couldn't be used if there were less than 1.000 users in the audience.

What we know today as DNVB, back these days, could boost their sales from 0 to millions of $ in a matter of months.?At that time, you could invest a few hundreds of $, test your creatives in real time, and get 4, 5 or 6 times in sales the money you had invested. These first companies such as Hawkers, Gymshark or Allbirds exploded and became growth machines.

?But this era has come to an end.

"We expect that advertising revenue growth will be driven primarily by year-over-year advertising price increases during the rest of 2021." That is the statement of David Wehner, CFO of Facebook Q2 2021 earnings release.

“Our goal is to create technology that keeps people’s information safe and protected." said Craig Federighi, Apple's VP of Software in January, months before the iOS 14.5 release on the 26th of April.

In other words, the party is over.

And that is what is happening since the release of iOS14.5: We are tracking less events from Facebook (we have less information), results are decreasing, margins are decreasing, and the ads spend will also decrease in the short term.

If Facebook does not make major changes, the future of Facebook ads will be more similar to the traditional TV ads: You know there’s a big audience with a few segmentations, you’ll pay a big amount of money to test and to drive traffic to your website, you'll need to have great expensive creatives, and you will not have clear results of what you are doing. At the end of the campaign, you'll compare the results vs other periods and you will drow your own non data-driven conclusions. We will go back to the leap of faith of TV.

2021 will probably be the year of the biggest step back in the advertising industry. Small companies will not be able to afford anymore to invest in Facebook Ads (or Snapchat Ads, or Tiktok Ads, or Twitter Ads), thus, their income will start to shrink, their margins will be worse, and the entry barriers for new players will dramatically increase.

Marketers are starting to work with new KPIs that didn't matter so much before: BROAS (Blended ROAS), Time Spent on Site, Bounce Rate, Number of Page Views per user, COS, CPC... But as the privacy policies continue to evolve, we also risk losing most of this information too.

Today, we practically need to start from scratch. We need to set up new acquisition tactics and we need to take as much as we can from our existing customers base. Today, customers are more valuable than EVER before. We must create community around the brand and set-up loyalty plans. But more importantly, we will need to creatively redefine how we approach those audiences that are still in Facebook but are harder to target and track.

I'm sure Facebook will find ways to help those millions of SMBs around the world continue to scale and to help them drive profitable growth. But, by now, we should switch from the term performance ads to simply digital ads, and start over in this new advertising paradigm.

— Ferran Llisterri Eyre. Investing €5m per year in Facebook Ads.