It was not long when Facebook rejuvenated the idea of Ad selling on its popular timeline feature. Today, Ads are flooded here with cheapest of cost but this status quo would not last for long as Mark Zuckerberg recently share that the Facebook is mulling over revamping the news feed in order to prioritize the content from friends over content from brands, businesses, and publishers.
This comes amidst growing criticism of Facebook over growing video content and advertisement in the timeline. The stock price of Facebook dropped by up to 5 percent following the announcement by Facebook CEO.
The drop in the stock rates comes from Publishers, Advertisers, and creators who see they’re future gloomy on the decision was taken by Zuckerberg. They are not taking the decision lightly and hence every focus must be given to it by all means. Facebook does update its news feed algorithms regularly, as Adam Mosseri, Facebook’s News Feed VP, shared last week: “This one is bigger than the average tweak. It’s not a tweak.”
Impact of the Decision
They understand the impact of the shift in the Facebook mindset over its business, we need to also understand its business model which is primarily driven by advertisement revenue and to tamper it with such decision would directly impact the business as well. Here is a simplified view of the key inputs into determining revenue for any ad-supported business model:
The Total Revenue for any Advertisement supported business model revolves around four key aspects such as Active Users, Time Spent per Ad, Density of the Advertisement, and Price of placed advertisement. While Active Users define the number of monthly unique visitors or users on the Platform, their time spent derives the average time spent on the platform. Ad density defines the average number of shown to each other and the Ad price is the rate each advertiser pays on average for each advertisement.
How will the Business get Impacted on Facebook?
Currently, if we go by stat, there are 6 million businesses which advertise on Facebook today. The decision will reduce their visibility of organic posts as a result of the news feed algorithm change. But there are worst possibilities here also – “Now, I want to be clear: by making these changes, I expect the time people spend on Facebook and some measures of engagement will go down,” Zuckerberg wrote at the time of the announcement.
If Facebook decides to make their products less addictive to encouraging time well spent versus more time spent, the overall usage of the platform will decrease. This impact will be slow yet continuous and hard because it is likely to reduce the average time spent on the Advertisement on Facebook as the opportunities for brands, businesses and publishers will shrink for both organic and paid posts. The supply will decrease which means the price to advertise on the platform is about to skyrocket.
Expected Forecast for Facebook Ad Price
Let us assume as to how the ad prices might change following such announcements regarding the revamping of Facebook timeline ad feature. We can assume the modest user growth in line with the historical trends, declines in time spent from 10 percent to 20 percent over the next year and static ad density. On the basis of such assumption, the price of advertising on Facebook could go up by 25 percent within three months, 48 percent within six months and 79 percent within 12 months. Now, this is a big growth on the part of ad prices and it might have the massive impact on the industry as well. This price surge for ads on the Facebook will not remain limited to Facebook.com only and might also transgress to its other products such as Instagram and messenger as well. Hence, the brands, advertisers, and creators should brace for impact and hence be ready for the change.
Source: Kunal Gupta, CEO Polar’s in-depth analysis of Facebook’s algorithmic changes