There was a reason that Facebook was valued at $104 billion upon it’s IPO almost two years ago. But there certainly were skeptics to that valuation. It had an unproven ad model. It was easy for companies to get relatively cheap advertising and reach a huge number of people combined with their organic efforts.
Well, the other shoe has dropped so to speak. First quarter ad prices in 2014 have increased 10% from Q4 in 2013. While that might not seem like a huge increase, it has been enough to draw complaints. The kicker is that organic exposure to people’s News Feed has dropped dramatically. Brands previously were reporting free, organic exposure reaching up to 25% of their fans. How does 5% or less sound under the new format?
I believe the higher prices and shrinking organic reach will hurt small businesses, especially individual enterprises, the most. While larger companies are seeing a four times return on investment (ROI), many small businesses and individuals simply don’t have the budget for ad spending on Facebook. They rely on their organic reach by pumping out free content and engaging with their fans instead.
With an ROI of four, the dollars will flow in and result in more ad spending further driving the price up over time. Paid advertising through social media is still cheap compared to other avenues. Facebook has positioned itself nicely, though. The reach is huge and the demographics are right. Companies need Facebook advertising. Unless companies find a creative way (which I’m sure they will) to make their ad dollars go further, that four times ROI is going to start shrinking as prices continue to rise.
Read more at AdWeek about Facebook’s ad prices.