1Q EARNINGS: Advertising, Advertising, Advertising

1QKeyboard650Legend has it that when famous bank robber Willie Sutton was asked why he targeted banks, he replied, “Because that’s where the money is,” and the same logic applies to why Facebook’s quarterly earnings calls devote so much time to advertising. The social network’s first-quarter earnings call Wednesday was no exception.

In his opening remarks, Co-Founder and CEO Mark Zuckerberg devoted a chunk of time to advertising, saying:

Advertising and the ability to reach people more broadly is one of the most important technology platforms for achieving this, and we’re investing a lot to serve four major kinds of partners: small businesses, brands, developers, and ecommerce partners.

After introducing News Feed ads, which increased the supply of ads in our system, our recent efforts have primarily focused on improving the relevance and quality of these ads.

To do this, we’ve been working to improve the tools we provide for marketers, so they have access to better targeting capabilities, simpler ad products, and more useful measurement tools.

Our approach is less about developing new products for marketers and more about improving our existing ones and helping businesses to use them efficiently. Our goal is to make our ads as interesting as organic content on Facebook, so that more people find ads useful and businesses can engage effectively with our community and grow.

Our most recent data shows that this approach is working well, and we continue to be really encouraged by the feedback we’re seeing from people about our ads. There is still more work to be done here, but we’ve shown that we can continue to serve our community well while also growing a healthy business.

Chief Operating Officer Sheryl Sandberg also devoted the lion’s share of her opening remarks to advertising, saying:

We also continue to grow the number of marketers using Facebook and saw growth from existing advertisers, as well. Our growth is very broad-based and coming from all types of marketers, with particular strength from SMB (small and midsized businesses) and direct-response.

We saw strong performance this quarter from verticals such as mobile gaming, ecommerce, and consumer packaged goods.

I am especially pleased with what we are seeing and hearing from clients around the world as they shift budgets to online, to mobile, and to Facebook. One recent powerful example is Sport Chek, Canada’s largest sports retailer.

It recently decided to pull its paper circulars — which the company has relied on as its primary ad vehicle for 92 years — for two weeks and replace them completely with digital spend, a majority of which was on Facebook.

During those two weeks, national in-store sales grew 12 percent year-over-year, and in-store sales of the items it promoted on Facebook grew 23 percent. As a result, it is going to continue with its tests, and its goal is to transition more than 25 percent of its print spend to digital and Facebook in the next year.

And last week, I was in Europe meetings with clients, agencies, SMBs, and developers, and what I heard from them was how Facebook was becoming increasingly important in driving their businesses.

Sandberg also discussed at length the social network’s ad products and their evolution:

Investing to improve and expand our ad products remains a very important priority for us. Our goal is to continue to develop new ways to help marketers reach their customers.

We’ve done this over the last couple of years by enhancing our targeting capabilities, simplifying our ad products, and improving our measurement tools. I’ll touch on each of these three areas.

First, targeting: Along with Facebook’s reach and scale, marketers value our proprietary targeting to help them reach the right customers and create more personalized and, therefore, more efficient and effective ad campaigns. Ten times more marketers are now using our custom audiences targeting feature compared to last year.

To share just one recent example, Ben & Jerry’s wanted to drive more sales from its classic flavors. It used a wide range of our targeting capabilities, including custom audiences and partner categories, to reach premium ice cream buyers.

Its campaign reached 14 million people, roughly 90 percent on mobile, and drove an 8.1 percent sales lift from those consumers. As more marketers use our targeting tools, our ads become more relevant for our users and drive even better results for marketers.

Second, we are simplifying and enhancing our ad tools for the more than 1 million advertisers on Facebook. The tools that were previously available to only the biggest and most sophisticated advertisers, like custom audiences and partner categories, are now available in our self-service ad-creation process.

By making these tools more accessible, we believe we can grow the number of advertisers on our platform and improve their results. Additionally, for direct-response marketers, we’ve added more specific calls to action in our ads, including “buy now” or “install now” buttons that greatly improve the efficacy of these ads.

Finally, we’re also really pleased with the results we’re seeing from our investments in measurement tools. Our online conversion-measurement tools enable our direct-response advertisers to measure the impact their Facebook ad campaigns have on online sales. And, we recently launched new offline conversion tools to measure in-store sales, which have yielded positive initial results.

Our ongoing focus will continue to be on improving the quality, relevance, and performance of our ads and demonstrating value to marketers. We believe we still have a lot of opportunity to generate future returns by continuing to focus in these areas.

In his last earnings call as Facebook’s chief financial officer, David Ebersman naturally offered up the numbers behind the advertising:

In the first quarter, the average effective price per ad displayed increased 118 percent year-over-year, while total ad impressions declined 17 percent. The decrease in ad impressions was due to factors including the continued shift toward mobile use, where people are shown fewer ads compared to desktop.

The increase in average price per ad was primarily driven by a mix shift, with more ads being shown in News Feed. News Feed ads have significantly higher engagement, click-through rates, and price per ad compared to right-hand-column ads, so a higher proportion of ads appearing in News Feed drives up the overall average price per ad.

Readers: What did you think of Facebook’s advertising performance in the first quarter of 2014?

Image courtesy of Shutterstock.

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