Facebook’s premium ad prices still rising

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Pricing for Facebook’s premium “social” advertisements continues to rise, two recent studies have found – a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the internet company’s initial public offering.

A report to be released on Monday by Marin Software, a digital marketing platform that processes more than $100m worth of spending on Facebook, found a 26 per cent increase over the last year in the cost per click for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

However, Marin’s report also found the cost per click for Facebook’s standard ads, which make up an estimated three-quarters of the social network’s advertising revenues, fell 26 per cent over the last year.

Facebook will this week begin a roadshow to convince potential investors that its business is worth up to $96bn in its initial public offering later this month.

Marin’s report follows data published last month by TBG Digital, a digital advertising firm that buys Facebook ads on behalf of 235 companies in 190 countries, showing a 23 per cent increase in cost per click for the first quarter of 2012 compared with the fourth quarter of 2011.

The cost of delivering an ad to 1,000 people increased 41 per cent in the first quarter of 2012 compared with the same quarter last year. However, click-through rates on ads – a key measure of effectiveness – fell an average of 6 per cent across Facebook’s top five territories.

Advertisers’ desire to grab the attention of the social network’s 900m users is still running ahead of their ability to measure the returns from that investment, which is seen as a key long-term challenge for the social network.

The dichotomy between standard and premium ad pricing trends reflects Facebook’s attempt to move away from keyword-targeted “direct response” advertising – so-called Marketplace ads, popular with online gaming and dating firms, which appear on the right-hand side of a user’s page – and towards getting big brands to buy “social” ads.

A slowdown in revenue growth from advertising in Facebook’s first-quarter results raised concerns about the company’s momentum.

In a recent note to clients, Brian Wieser, analyst at Pivotal Research, said first-quarter ad revenue growth came in well below his expectations.

“The company’s re-orientation around large brands and away from smaller ones may be the driver of the difference,” he said.

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