Facebook: CPCs Up 22%, Forecast To Earn $2B In Ad Rev

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Facebook continues to show strong signs of revenue growth as ad rates on the world's largest social network keep climbing. The median cost-per-click (CPC) on Facebook increased 22% in the second quarter from the prior quarter, according to Efficient Frontier's Q2 2011 Global DigitalMarketing Performance Report.

While that figure is down from the 40% growth in the first quarter, the report advised not to read too much into the quarterly drop-off, given the volatility in the nascent social media ad category.

Ad spending on Facebook is equal to about 5% of search overall. But the study notes there are "outlier" brands where that percentage jumps to 25%, depending on seasonality and specific promotions. That means Facebook spending is mainly incremental and isn't cannibalizing search. It's mostly taking budget from traditional media, like TV and print.

The social networking powerhouse, however, has started to grab dollars from search when retailers advertise special offers and deals. There are also large entertainment marketers that advertise solely on Facebook. "This also hints that there are new advertising budgets from the gaming and dating sectors going to Facebook which would not have gone into search otherwise," states the Q2 report.

Market research firm eMarketer has projected that Facebook will take in $2.2 billion in U.S. ad revenue this year, up from $1.2 billion in 2010.

Efficient Frontier also teamed up with Context Optional to look at fan growth on Facebook brand pages. Based on the pattern since October 2010, brands are expected to double their Facebook fan bases by 2011. In terms of engagement, an analysis of 20 million fans tracked via Context Optional's social marketing platform showed an average of 100 comments for every brand Wall post. Brands with more fans generate more interactions, creating a viral effect. Every 17,000 additional fans generate one more comment per post, according to the study.

Looking ahead, the report suggested that the longer advertisers wait to go on Facebook, the higher CPCs they will pay. Even if the rates increase at 20% per quarter for the rest of the year, it will result in 80% growth for all of 2011. "This could reasonably equate to a doubling of Facebook's revenue from marketplace ads," it states.

When it comes to overall search spending, year-over-year growth was 8% during the second quarter, down from 17% in the first. The report pointed to three factors behind the slowdown. Advertisers changed strategy to focus on ROI rather than volume; declining GDP growth forecast for the second half of 2011 and global economic uncertainty; and the difficulty of keeping pace with high search spending growth a year ago.

Efficient Frontier found that Bing slightly increased market share (by spend) to 21.5% in the quarter, building on increases in the previous quarter. Click share remained stable as a result of marketers willing to pay higher CPCs for the higher ROI delivered by the Yahoo/Bing combination. Google remained dominant, with 78.5% of spend and 81% of clicks.

The search giant had a strong second quarter, reporting on Thursday a 36% jump in profit to $2.51 billion, and a 32% gain in revenue to $9.03 billion.

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