Is Facebook Running Out Of Ad Space?

“Our Facebook CPM costs have doubled over the past two months alone!” This was the message I received from my contacts at three different cutting-edge Facebook advertising companies. Once the initial shock and panic that settled in when having their advertising placement costs double, the next question was naturally “how did this happen?” The answer may have come from Facebook’s record earnings call last week and it likely has to do with a foreign phrase to many advertisers called “Ad Load.”

All advertisers have a limited number of space to place their ads. Phone books, billboards, TV commercials, radio ads, print ads, PPC ads, etc. all have one thing in common: space is limited. Facebook seems to have discovered the same problem in 2016.

The most popular and effective ads to run in Facebook today are the “native” ads which are placed in people’s chronological newsfeeds. Since these ads can be highly targeted, retargeted, relevant, and undistinguishable, they are rapidly becoming a very popular alternative to more traditional forms of advertising such as TV, radio, PPC, and print. Until recently, the CPM costs (or cost per 1000 reach) have been lower than the traditional ad mediums making them even more attractive.

Until now.

Facebook has an amazing reach. In many metro areas I have clients in today, fully 68% of the population is active on Facebook and Instagram. Since Facebook owns Instagram, they make it easy to reach both audiences through one ad management system. Since people are now largely mobile, social media reach on mobile is the best way to get to today’s audience as they continue to shed their TV’s, radios, and other forms of print media which were yesterday’s advertising vehicles. Thanks to mobile, people’s heads are now down – and increasingly away from most traditional “non-native” ads today as a result.

As people began to recently discover the benefits of Facebook advertising and the superior results they could now receive, the market quickly reacted in 2016 and the results are an exploding supply of new Facebook advertisers. This supply has come at the same time as the mobile revolution where the screens we now search and interact with online have dramatically shrunk from a large PC screen to a pocket-sized smart phone. But Facebook isn’t the only online advertising company feeling the pinch of mobile. In fact, these problems are much more pronounced at the former ad leader online for many years preceding Facebook.

The Incredible shrinking Google

For over a decade, Google Pay-Per-Click (PPC) was the only real game in town for small business advertising online. And since Google owned the gateway to search, they could naturally configure it to their own advantage and “configure it” they did with plenty of space to work with and create. First ads came on top of search. Then they were added to the right, to the bottom, and then to their network of affiliated AdWords sites. All was great for Google until the most disruptive innovation of our lifetime starting changing it all.

Enter the mobile footprint

2015 was a landmark year when the amount of people searching through mobile exceeded the PC – and the trend continues to grow. The decline and death of the PC as an internet and information access point was well underway and Google now had no choice but to react – they were running out of ad space. What once expanded has now started to contract with the removal of the side-bar ads (supply) and making the top 2-3 PPC ads the only real game left in town for PPC advertisers. The result? Record costs (demand) for these now coveted and limited spaces.

Is Facebook next?

As previously mentioned, ALL ads have limited space (or supply) – even Facebook. Despite the hundreds of millions of active users, Facebook news feeds have limitations. Facebook became powerful as a place to stay socially connected and active – which is why we spent so much time there today. So how many ads can be placed in this environment before Facebooks users hit a point of apogee between the tradeoff of their time for the value they receive being on Facebook? In other words, how many ads are too many ads? Naturally Facebook has a pulse on this which is why during their last record earnings call they indicated for the first time that they are now facing an “ad load” problem moving forward. BTW, the phrase “ad load” is advertising geek talk for “limited supply” and as we saw with Google; limited supply + high demand = increasing ad fees. And why not – we learned the same lesson years ago from Google.

Those who control the battlefield can control the battle.

If Facebook recently doubled their CPM ad rates over the past few months, as my contacts have indicated, then my simple response is “why not?” They own the largest active base of audience reach in the US today. They have developed what is arguably the most effective market tools to now reach that audience. They have been doing all this at lower rates while all other traditional marketing mediums are in various stages of decline. And they have a limited supply of ad space to sell. In short, they now own the battlefield everybody wants to do battle on. The only thing that can now rein in any potential price increases from Facebook will be determined at the market level. As long as Facebook can continue to provide superior ad value compared to other mediums (measured in demand) and deliver on that demand with the needed supply in Facebook (measured in “ad load”), their prices will change. Simple supply and demand.

See; it pays to not sleep through economics class. Unless of course your ad rates just doubled as a result. Ouch!

About the author:Dustin Ruge is a an award winning sales and marketing professional with over 20 years of successful sales and marketing management experience. Dustin’s experience in sales, marketing and business strategy ranges from technology startups to Fortune 500 companies. Dustin is frequently referenced by Grant Cardone, STNTV, and in such publications as INC and Selling Power Magazines and is a frequent speaker at professional conferences across the nation.

Dustin is also the author of two best-selling books: THE TOP 20%: Why 80% of small businesses fail at sales and marketing and how you can succeed and The Successful Sales Manager: A Sales Manager's Handbook For Building Great Sales Performance. Both books are available today on Amazon.com or on our website at www.thesuccessfulsalesmanager.com

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