Facebook advertising costs in India: What to expect in 2015?

If you are a regular advertiser on facebook, you’d have likely witnessed a steady and steep increase in advertising costs on the platform. We discuss a few factors which are driving this and what to expect on pricing for paid facebook ads & social media in general.

First off, facebook would continue to be a significant force (within social platforms) at least for 2015 in India. The numbers & time spent are significantly higher on facebook versus twitter, linkedin or instagram. Whatsapp & Hike are other disruptive platforms which could change the way social interactions between brands & consumers work. But not so fast! Maybe 2016 and beyond is when we could expect them to change the demand-supply dynamics for social ad-impressions.

Factors driving the costs up

Facebook advertising costs shot up 123% in Q3, 2014 versus the same quarter last year. That’s a steep rise in costs. The number of ad-impressions went down 25% which is a significant decrease in the number of ad-opportunities despite the growth in the number of users of the platforms. What should advertisers expect on this front in 2015?

1. The demand for ad-impressions is on the rise and will continue to be driven by two primary reasons:
   1. More brands are taking on to social media advertising in a big way. It only makes sense to be in front of consumers on a medium where they are spending the most time.
   2. The consumption story in general is very strong in the country. More consumer facing brands are coming up, getting funded and will vie to get notices on the social media.
2. The user experience – ad-impression trade-off: Generally speaking, more ads on your news-feed is inversely proportional to your experience on a social platform. The platform is as good as the good time it can provide to its users. This trade-off implies that lower ad-impression opportunities will be available in order to improve user experience, lowering supply of ad-inventory.
3. Structural changes in ad-formats: The ad-formats are changing from smaller sized images to larger ones. All of the recent changes are in favor of increasing visual ad-sizes and therefore, relatively lower number of impression opportunities.
4. Decreasing organic reach of pages: If you cannot reach your audience for free, you spend! As discussed in the previous blog article, organic reach of facebook page posts is increasingly being limited to enhance user experience. So brands who already use facebook for reach & engagement will need to ‘boost’ their posts with spend. That increases demand for impression opportunities and pushes costs up.

Factors driving costs down

Thankfully, there are a few things working in favor of pushing costs down:

5. Additional inventory because of smart phone usage: Mobile ad-inventory is expected to increase manifold in the next few years. Data usage on mobile phones is growing significantly. First time users are using that for social media consumption. More the number of users, more the impression opportunities, increasing the supply of ad-inventory.
6. Other platforms with niche audiences are coming up in India: Noteworthy is the increasing usage of instagram, pinterest and others on mobile. Multiple channels would taper demand for facebook ads

Net-net, do the costs go up?

Unfortunately, yes, the costs go up. The factors driving costs up far outweigh the impact of those driving these down. At least in 2015!

So, how about ROI? Shouldn’t that go down?

The upshot in this entire increasing ad-cost story is that the ROIs are increasing! A Kenshoo report suggests that while ad-cost (cost/impression) on an average rose 7x year on year in November 2014, the advertisers ROI doubled. How was that possible?

1. The ad-forms became richer (increased visual sizes) improving click throughs
2. Consumers are less skeptical and more willing to check out offers, promotions now increasing the click throughs

In fact, the same Kenshoo report states that CTRs rose five times year on year in November 2014.

Does social still work in terms of ROI?

Yes, it does. It is still a significantly cheaper form of communication versus other ATL channels. It is measurable. It is two way and interactive. In fact, the ROIs are improving (see above) and should continue to remain attractive. To quote Tamara Gaffney, Principal Analyst at Adobe Digital Index, “Social media is still a bargain in every sense for brand marketers so increases in ad rates will come from new dollars flowing in.”