Spruce Media, a Facebook Strategic Preferred Marketing Developer, examined the state of Facebook advertising in the first quarter of 2013, and reported mostly positive results, in advance of the social network’s first-quarter earnings call Wednesday afternoon.

Some of the findings from the quarterly report by Spruce Media follow:

Overview

Spruce Media wrote:

The past year has been Facebook’s most productive ad product development period since its entry to the ad world in 2007, and it is showing no signs of slowing down. A number of new measurement and targeting product releases has sparked a massive shift of direct-response budgets, transitioning from traditional desktop display to Facebook, showing its ability to court more than just brand and mobile advertisers to its ecosystem. We expect continued momentum in product releases that will further solidify Facebook as a must-have in all marketers’ toolboxes. As a result, we expect advertisers to continue to increase their marketing investments on Facebook in 2013.

As you will see in the following report, the first quarter of 2013 saw expected decreases in media rates due to seasonality. However, the intricate trends across click-through rates and cost per click offer a more telling story that highlights Facebook’s long-term strategy. News Feed and mobile are the future for Facebook, and by developing a focus on measurement, Facebook was able to show advertisers the value of their buys, allowing them to optimize their placements. These optimizations shifted more advertiser demand into the News Feed but did not lead to a demand shortage for the right-hand side because Facebook Exchange reached maturity in the first quarter, increasing overall demand. In addition, Facebook should see a nice uptick in revenue in 2013 after lifting the frequency caps of its most-prized News Feed and mobile inventory in the first quarter.

Cost Per Thousand Impressions

Spruce Media reported that the all Facebook placement which includes the right-hand side and News Feed was the only category to see its CPMs increase during the first quarter of 2013 due to the increased percentage of ads served in the News Feed, which generate CPMs eight times to 15 times higher. The company added:

By lifting restrictions on how many ads a user could see in News Feed and by increasing the content that is eligible to appear in News Feed, Facebook effectively “opened up” more inventory for one of its highest eCPM (effective CPM) ad type and placement combinations — page post ads in News Feed. While individual placement CPMs may have suffered due to increase of supply, the overall page eCPM is much higher, meaning that Facebook is monetizing its users better.

CTR

Spruce Media again cited the increased number of ads in the News Feed, which yield eight times to 15 times higher CTRs than right-hand-side ads, saying that the “sharp decrease” in CTRs for desktop placement is a result of a shift in advertisers’ buying strategies. The company added that mobile inventory saw a 7 percent rise in CTRs for the quarter due to the social network’s continued focus on mobile monetization.

CPC

Spruce Media pointed out that News Feed CPC is 30 percent to 50 percent lower than right-hand-side CPC, and media buyers shifting their spending to desktop News Feed from desktop led to a 16 percent gain in CPC for the latter, the worst-performing placement.

Facebook Vs. Traditional Online Display

Spruce Media described how the social network is making inroads against traditional online display advertising:

First, Facebook’s proprietary data give it a huge advantage in targeting age, gender, interests, customer-relationship-management data (through custom audiences), and even finding large lookalike audiences based on CRM data. Second, Facebook has greatly improved its bidding algorithms and even launched a bidding portion of cost per action, which no other publisher has done before. Third, Facebook has the advantage of offering “identity buying” versus “cookie-based buying.” This in particular is becoming more and more critical, as advertisers need a way to reach and optimize to users across devices, and identity buying is the only way to do this effectively.

One area that Facebook seems to be improving upon as of late is attracting performance-based advertisers to its ad platform. Of the more than $115 billion that eMarketer projects will be spent on digital advertising globally in 2013, the largest digital advertisers (AT&T, Experian, Verizon, Scottrade, Progressive, eBay, etc.) all have direct-response business objectives. These performance-based advertisers have strict targeting requirements, measurement requirements, and success metrics that must be satisfied in order to justify ad spend. If Facebook is able to meet and exceed these requirements (which it does already in several categories), it can contend for and potentially win ad dollars currently being spent on traditional online display.

Conclusion

Spruce Media summed up its findings as follows:

Following an extremely productive 2012, Facebook’s dedication to developing a rich advertising experience for marketers and for consumers has only gained momentum in 2013. Facebook’s ad product releases in the past two quarters have made it one of the best advertising channels for brands to reach more of their target customers and for direct-response advertisers to deliver immediate return on their media investments. We anticipate that Facebook will continue to identify features that advertisers like about open Web display buying and develop its own improved version.

Moving into the second quarter, partner categories, Nielsen Online Campaign Ratings, and CPA bidding will be at the forefront of advertisers’ minds, offering better targeting, better measurement, and better optimization than they’ve ever had before. Facebook continues to release products that put it in the position to serve advertisers of every vertical, and this becomes clearer with the vast array of diverse products that it releases each quarter.

With greatly enhanced targeting options such as custom and lookalike audiences and partner categories, the successful expansion of Facebook’s FBX real-time bidding program, and the purchase of Atlas for a potential off-Facebook ad network, Facebook is poised to disrupt the world of traditional online display advertising over the coming years.