What Facebook’s quarterly earnings didn’t say about FBX

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Facebook surprised Wall Street on July 24 with a quarterly earnings report that exceeded revenue and profit expectations by a wide margin, largely due to the growth of mobile advertising, which now accounts for 41 percent of total ad revenue generated by the social network. Little mentioned, however, was the status of the Facebook Exchange (FBX) ad business, except for a comment by Chief Operating Officer Sheryl Sandberg, who noted that FBX remains a “very small part” of the company’s overall ad revenue.

Facebook doesn’t report FBX ad revenue specifically, so we cannot know the true size of this business. That being said, those of us with visibility into the real-time bidding (RTB) platform can attest that the reason for its relatively slower adoption has more to do with the challenge of raising marketer awareness of Facebook’s effectiveness as a direct response channel than it does with the actual performance and value of FBX, which by most measures has been wildly successful for marketers.

Given this context, we decided to take a look at FBX activity over the first half of 2013 for Kenshoo Social retail clients and what we found was very illuminating. In this article, I’m going to keep it relatively simple; because at the end of the day, it actually is quite simple:

FBX ad performance rivals the results of search engine marketing (SEM) campaigns and, if you’re a direct response marketer who is not leveraging this new channel, you’re missing out on an opportunity to drive significant incremental value for your organization.

What we did:

We looked at a sample of FBX campaigns over the first half of 2013, including billions of impressions, clicks and conversions.  We limited our sample to major retailers actively running SEM, Facebook Marketplace and FBX campaigns. We also limited the sample to retailers who use multi-touch attribution models that apportion revenue and conversion value to each touchpoint in the customer journey rather than simply apply full credit to the ad or channel that generated the last click.

It’s important to note that using multi-touch, multi-channel attribution is critical in order to understand the true value of FBX (and any campaigns, really) given the significant percentage of conversions that include multiple touchpoints from search engine text and Product Listing Ads (PLA), as well as traditional Facebook and FBX ads. Multi-touch attribution ensures that touchpoints at the end of the purchase path or that “close the sale” are not given undue credit (a quick side note: Kenshoo recently conducted a study which showed Facebook ads are undervalued up to 30 percent when not using multi-touch attribution models). This can be true when comparing FBX to other channels because conversion paths frequently start with other channels like search or Facebook Marketplace ads and are completed through a click on an FBX ad. Looking at FBX in a silo is not the full picture.

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What we found:

Over the course of H1 2013, Kenshoo Social FBX clients achieved significant positive results on FBX, garnering an average Return on Investment (ROI) that rivaled that of their search engine campaigns. We also found some striking differences in performance by creative type.

FBX ads can be constructed with static images and copy or can be created dynamically using product feeds. Implementing dynamic, feed-based creative enables marketers to customize their messages based on the specific products that the consumer researched, thereby making a more highly targeted and relevant ad.  While static creative generally performed well and generated quite reasonable ROI, dynamic creative performed significantly better across key performance indicators (KPIs).

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Dynamic Versus Static Creative:

Click Through Rate (CTR): 1.9 X higher

Conversion Rate (CVR): 2.0 X higher

Cost Per Click (CPC): 16 percent less

Cost Per Acquisition (CPA): 52 percent less

Return on Investment (ROI): 1.8X higher ($8.10 versus $4.50)

Based on the positive results that direct response advertisers are generating with FBX, we can expect that volume and spend will continue to increase over time as advertisers become more comfortable and familiar with this channel. While the performance is clearly there, some hurdles to widespread adoption remain. We need to put to bed the question of whether Facebook can be an effective direct response channel.  It can and is. We also need to break down silos within our organizations, budgets and plans that prevent us from optimizing for maximum performance across channels.  Search, social and FBX are inextricably linked in the customer journey and to plan and optimize them separately will generally result in suboptimal performance.

I’ll close with one last thought – if you’re a direct response marketer and you are not already on FBX, run a test budget immediately.  The holiday season is just around the corner and you don’t want to miss out on the FBX opportunity in Q4. Your bottom line will thank you!

Todd Herrold is Senior Director, Product Marketing for Kenshoo Social. Contact him at Todd.Herrold@Kenshoo.com.

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