Facebook has made it clear that it wants to find ways to persuade its brand advertisers that they can make money off of the site. After all, General Motors pull its ads off of the social network just days before its IPO because of how ineffective they were. If Facebook can’t start convincing big brands that it worth spending money to advertise on the site, the social network will be in big financial trouble.
Facebook plans to do this with a tool, which expands its Optimized CPM (cost per thousand impressions) bidding program. The Optimized CPM service allows an advertiser to prioritize its marketing goals. Facebook automatically delivers ads against those goals in the most effective way possible, allowing the advertisers to maximize the value they get from their budgets.
Facebook will now allow retailers to track how many sales were translated from ads on the social network with two new additions to the service, Facebook told InsideFacebook.
Marketers are allowed to add snippets of code their website, which will allow them to measure conversions. They can also select the Optimized CPM bidding, which will allow Facebook to show ads to those that are most likely to convert into sales, lowering the markets cost per acquisition.
The tools will be available on Facebook’s self-serve ad platform, so it will be able to reach a larger number of advertisers.
The service has been tested by a number of retailers, including Fab.com, which saw its cost per new customer acquisition go down by 39% as a result.
The news was first reported by Reuters on Friday.
In October, Facebook said that, instead of focusing on the number of clicks an ads gets, Facebook was going to start using other methods to determine if the ad was worthwhile, including how the an ad translates into actual sales.
Facebook will use its partnership with Datalogix, a company which purchases data based on retailer loyalty cards, whose information is kept in a database. Datalogix can cross reference who has seen an ad on Facebook with who used their loyalty card to buy a product to determine how many actual sales were generated by the ad, instead of just how many people clicked on it.
Facebook has been working hard lately to increase its revenue from advertising, which is not surprising given how much of its money it makes from that one area.
In its first quarterly report as a public company, Facebook’s advertising grew 28% year-over-year to $992 million. In total, advertising revenue accounted for 84% of Facebook's total sales.
In its most recent quarterly earnings report, advertising revenue grew to $1.09 billion, or 86% of total revenue. It increased 36% from the same quarter in 2011.
As you can see, Facebook’s advertising revenue is only growing, and becoming a bigger percentage of its overall revenue. To capitalize, the company confirmed in September that it would be creating a system where its formerly free Offers program would suddenly cost businesses money if they want to run the offers in user News Feeds.
Only a few days before that it was announced that Facebook would be creating a its own mobile advertising network to increase revenue from advertising. The network would use data it has collected on its users to advertise on third-party apps and websites.
In June, Facebook began running sponsored stories on Zynga.com, based on activity that had been shared on a user’s Facebook page, and in August Facebook’s introduced new mobile ads for apps, which allow app developers to advertise on News Feeds on Facebook’s mobile app.
These ads are made to look like suggestions, or recommendations, for what a user may like. For example, the ad may come under the header "try these games." Once a user clicks on one of the ads, or suggested apps, they will be redirected to either the iOS App Store or to Google Play to purchase that app.
Facebook stock finished up 6.27% on Friday, trading at $23.56 a share.
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