After changes to news feed algorithm, Facebook ad costs spiked

by | Mar 27, 2018

In early January, Facebook made changes to its news feed algorithm aimed at prioritizing posts from friends and family while reducing user exposure to posts from brands and publishers. This announcement left many in the digital marketing industry on the edge of their seat, waiting to see how the changes would affect the social media presence of employers and clients.

Facebook CEO Mark Zuckerberg had stated in several interviews that the change would likely result in people spending less time on the social network. This was confusing for some, given Facebook’s ad-driven business model. One would think that they would want to maximize the amount of time that user’s spent on their site. Apparently, internal data had convinced Facebook that the consistent appearance of brand messaging on the newsfeed was harming user experience.

Initial Effects of Facebook’s News Feed Change

While the initial panic among social marketing professions does seem to be somewhat reactionary, there have been some predictable effects from the change. Based on the small amount of available data since the change was first rolled out eight weeks ago, the changes appear to be consistent with Facebook’s public statements. Reducing the number of ads in the news feed was a focus of Facebook’s change and advertisers have seen fewer ad impressions.

According to AdStage, January 2018 reflected the first month that Facebook has seen negative growth in year over year impressions in years. While February did see an 18 percent growth in year over year impressions, it was the smallest amount of growth that the platform has seen in several years.

Source: MarketingLand

With fewer ad impressions to go around, you would expect to see ad prices rise and this has been the case since the news feed algorithm changes went live. Facebook’s cost per thousand ad impressions (CPM) was up more than 120 percent year over year. February also saw a jump of 77 percent in CPM, making the first two months of 2018 the highest ad price jumps for Facebook in the last 14 months. The rise in ad pricing has been steep, but peaked right after the algorithm change and have been coming back to Earth ever since.

Intuitively, the changes make sense and reflect Facebook’s stated goals for the algorithm change. If they wanted to reduce the amount of branded messaging that users were exposed to in their news feeds, it makes sense that Facebook would show fewer ads overall, leading to fewer ad impressions. Additionally, if the algorithm change is indeed leading to less time spent on the site, users would scroll less and naturally see fewer ads.

Source: AdStage

As you can see, ad costs saw a dramatic increase directly following the rollout of the changes. However, since its initial spike in January, the CPM has come down quite a bit, while impression numbers have slowly grown in that time. It’s important to remember that this is still very early in the process. While we did see an initial spike in pricing, this has been consistent with the trend that we have seen for several years now, with 2018 seeing larger CPM growth than previous months.

Source: MarketingLand

While this trend is worrisome, things do appear to be leveling out. It hasn’t been the armageddon for news feed brand messaging that some thought it would be, it does have measurable effects for publishers that relied heavily on news feed ads.

How Should Facebook Advertisers React?

The initial reaction to Facebook’s news feed announcement was somewhat overblown among marketers. Initially, there was a lot of concern that the changes would also apply to followed, liked pages, and communities on the news feed but it seems to have almost exclusively focused on ads and publishers.

With that said, there changes to Facebook’s news feed ads should be concerning to any companies that relied heavily on news feed ads. It remains to be seen if the dip in impressions and spike in price will lead to decreased advertiser demand, but for now, the environment has become increasingly competitive with advertisers fighting over smaller pieces of the pie at higher ad rates.

Facebook advertisers should take a few steps in the next few months to monitor how the changes affect their advertising and prepare themselves for similar future events.

Stay Calm

Now isn’t the time to divert your advertising budget because you are seeing fewer impressions at higher cost. Taking a long-term view of the situation shows that while the spike in ad cost is steeper than normal, Facebook ads have been steadily moving in this direction. Early numbers seem to show an initial spike that is working its way back toward the mean, so it is not time to panic yet.

Watch Closely

How Facebook’s news feed CPM reacts in the next few months will give us critical data about where we can expect it to be a year from now. Keep a close eye on your ad prices during the next few months and make changes to your budget as necessary. Additionally, watch for any public comments that Facebook makes on the matter moving forward. They have been relatively quiet since the changes were rolled out, but have been known to release comments on issues like this unexpectedly in the past.

Test Other Ad Formats

Remember that this change only affects ads in Facebook’s news feed. Now may be a good time to experiment with other Facebook ad formats and ad placements. Certain formats, like page likes (because liked pages were not subjected to the same changes that news feed ads were) may become more valuable as companies look to increase their news feed visibility on the platform.

The Bigger Picture

Perhaps the most interesting aspect of Facebook’s news feed algorithm change is the fact that they were willing to make changes that resulted in fewer ad impressions and less time spent on the site by users. This could be an indication that Facebook will be prioritizing user experience over advertising growth in the near future. The company has been warning publishers for years that eventually impression growth would slow as their user base growth slowed. These changes seem to be speeding up that process.

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