Facebook Ads Get More Competitive as Prices Rise in Q2 2011; Search Spend Growth Slows as Advertisers Focus on ROI

Data Based on Efficient Frontier and Context Optional’s Q2 2011 Digital Marketing Performance Report

SUNNYVALE, Calif. – Advertising on Facebook continued to get more competitive in the second quarter of 2011, with Cost Per Clicks (CPCs) increasing by 22% from the first quarter of 2011. Brands that are actively acquiring fans on Facebook are on course to double their fan base Year on Year (YOY) by October, demonstrating an increasingly competitive marketplace for consumers’ attention. Meanwhile, search spend was up 8% in the second quarter of 2011, but down from 17% YoY in the first quarter, likely due to advertisers focusing on Return on Investment (ROI) instead of volume, as well as the continued slower-than-expected global economic recovery.

This is according to Efficient Frontier, a leading performance marketing company managing more than $1 billion in marketing spend annually on behalf of advertisers worldwide, and its subsidiary Context Optional, the leading provider of social marketing management for global brands and agencies. This data and specific industry trends were released today in the first joint Digital Marketing Performance Report for Q2 2011.

“Facebook advertising is moving from a ‘nice to have’ to a ‘must have’ for global brands, which is illustrated by their increasingly competitive marketplace,” said David Karnstedt, President and CEO, Efficient Frontier. “We believe that Facebook CPCs will continue to rise at a double-digit pace for the remainder of the year, so brands would be wise to add social media marketing to their overall digital marketing spend sooner rather than later.”

Additional Report Highlights

Facebook comments have a viral effect

An analysis of 10 million fans managed by Context Optional demonstrated that for every brand post, there was an average of 100 comments in response. However, brands with more fans received additional interactions. For every 17,000 additional fans generated, the brand received one more comment per post. This demonstrated that there is a viral effect to having more fans as this creates more direct responses (from existing fans) and also indirect responses (from friends of fans).

Facebook spend mostly incremental

Facebook constitutes approximately 5% of search budgets, though for some advertisers this can peak at 25% during time-sensitive, offer-led promotions. In the entertainment category there are some large advertisers who solely advertise on Facebook. This hints that there are new advertising budgets from the gaming and dating sectors going to Facebook, which would not have gone into Search otherwise.

Bing/Yahoo! gained 3.4% points of spend share from Google since Q4

Bing’s continued focus on higher quality and higher monetized traffic is paying off. Last quarter it was noted that the ROI on Bing/Yahoo! was better than Google. Bid management technology such as that used by Efficient Frontier has enabled advertisers to take advantage of that by moving budgets as appropriate. However, in international markets where the search alliance has not yet been implemented, Google’s dominance continues unabated, with the exception of Japan.

Broad-based search is up across most sectors

Retail: Spend was up 9% YoY, with 3% attributable to CPC increases.
Finance: Spend was up 22% YoY partially from CPC increase and partially from click volume increase.
Auto: Spend was down 2% YoY despite CPCs increasing 6%.

International SEM Analysis

United Kingdom

In the United Kingdom, spend grew 7% YoY, reflecting advertisers’ confidence in the continued expansion of e-commerce. ROI fell slightly by 3% compared to last year but remains steady quarter-on-quarter. A more detailed look in the Q2 2011 data shows that the ROI was the highest in April in this quarter, being 3-4% higher than the other two months, corresponding to the Easter holiday season and the warm weather.

France, Germany, Australia, Japan

In France, Google has gained 1% market share from Bing and Yahoo! from the previous quarter. In Germany, Yahoo! is losing out to Google, down from 6.4% in Q1 2011 to 5.1% this quarter. This is also a significant quarter in Australia, where Google broke through the 92% share with an increase of almost 3%. However, their click share was only 90.6% and Yahoo!’s click share was 9.4%, making the cost efficiency on Yahoo! much greater than on Google. The Google/Yahoo! share trend has been the opposite in Japan, where Yahoo! gained an almost 4% share from Google in the last quarter.

Outlook for 2011

Facebook CPCs will continue to rise at double-digit pace

Even if CPCs increase at 20% per quarter for the remainder of the year, this will still result in an 80% growth in a year. This could reasonably equate to a doubling of Facebook’s revenue from marketplace ads. Also, with marketplace ad CPCs increasing and already-active brands exploiting the channel, advertisers should immediately focus their efforts on acquiring new Facebook fans, as well as exploiting new ad formats such as Sponsored Stories to find further efficiencies.

Advertisers will increase understanding of Facebook channel

Continued testing and investment in Facebook will see advertisers evaluate and likely increase their spend. Looking ahead, Efficient Frontier believes that advertising dollars will shift from offline media to search, Facebook and display. While we believe all online advertising channels will continue to grow, the Facebook channel will show the strongest growth in the months ahead.

Bing/Yahoo! will benefit if ROI improvements continue

The search marketplace is largely rational, so advertisers will move money towards Bing/Yahoo! to take advantage of ROI improvements. If the Search Alliance renews integration in international markets next year, non-U.S. advertisers should make the same budgeting decisions.

To download a copy of the full report, go to: http://www.efrontier.com/sites/default/files/EFCO_Q2GlobalReport_Final.pdf.

Research Methodology

This analysis was completed based on data from Efficient Frontier search engine marketing customers and the resulting Efficient Frontier’s Customer Index. The Efficient Frontier Customer Index represents a subset of Efficient Frontier clients who have spend data for six consecutive quarters or more whose resulting SEM metrics are then normalized to average industry category contributions established by multiple third-party data providers. The Efficient Frontier Customer Index consists of a fixed sample of large scale U.S. search engine advertisers across multiple sectors, including finance, travel, retail and automotive. The Efficient Frontier Customer Index sheds light on trends in search engine spending and performance on a year-over-year (YoY) and quarter-over-quarter (QoQ) basis.

Our analysis of Facebook performance was based on data from both the Efficient Frontier and Context Optional platforms. A client index representing more than 15 advertisers and 20 million fans from a multitude of verticals including retail, entertainment, CPG and Finance was built from a subset of advertisers, brands and fans managed through the platforms. Advertiser and user behavior was then analyzed for three quarters beginning Q4 2010.

About Efficient Frontier and Context Optional

Efficient Frontier is a leader in online digital marketing, managing search marketing, display and social media campaigns for advertisers and agencies around the world. Efficient Frontier currently manages more than $1 billion in annual digital marketing spend on behalf of its clients globally.

In May 2011, Efficient Frontier acquired Context Optional, the leading provider of social marketing management solutions for global brands on the leading social networks, including Facebook and Twitter. Context Optional’s Social Marketing Suite enables global enterprises to build, manage and measure their brand presence, and engage their fans to increase mindshare, word of mouth, customer loyalty and website traffic. Together, Efficient Frontier and Context Optional offer a complete solution for brands to acquire, activate and drive value from fans on Facebook and Twitter.

Efficient Frontier is headquartered in Sunnyvale, California, with offices in New York, Chicago, the United Kingdom, France, Germany, and India, and technology licensing partnerships in Japan, Hong Kong and Australia. Context Optional is headquartered in San Francisco. Efficient Frontier is a privately held company with funding from Redpoint Ventures and Cambrian Ventures. For more information on Efficient Frontier, visit http://www.efrontier.com and for Context Optional visit http://www.contextoptional.com.