Facebook has announced its advertising revenues will slow down “meaningfully” next year as the social media platform cuts down on the number of ads appearing on the newsfeed, in order to maintain good user experience. The network’s shares fell by 7% following the update.
The company believes it has now maximised ad loads and showing any more would alienate its users, but with ads being the company’s key source of income, the social network has been candid about the effect it will have on revenue.
“Over the past two years we have averaged about 50% revenue growth in advertising. Ad load has been one of the three primary factors fueling that growth,” explained Facebook’s CFO, Dave Wehner.
‘Inevitable and right’
While the move is a seemingly drastic one for a company which gains the lion’s share of its revenue through ads, Karl Knights, VP UK for Kenshoo, called the decision “inevitable and right”, shedding some light on its logic.
“Eventually you would expect demand to start outweighing supply, meaning advertisers will have to start paying more for ad clicks,” he commented, adding that they will also need to get ‘smarter’ about their ad strategy to maximise ROI.
“This will include a greater emphasis on ad targeting and personalisation using tools such as Facebook custom audiences to retarget people who’ve visited their websites or interacted on another channel, for example – as well integrating Facebook even more into their broader marketing strategy.”
Knights said that advertisers on the platform are also likely to ramp up their use of ad testing - generating multiple versions of ads and using audience-specific imagery and copy - with the aim of getting the most out of their placements.
Facebook’s advertising pot recently received an additional boost after the company found ways to sidestep ad blockers, gaining additional desktop ad revenue of 18% year-on-year this quarter.