Today’s biggest ad platforms, like Facebook and Google, are powered by user data. This data is made up of things like what people post, purchase, watch, and search for online. Then it’s packaged into highly targeted ad space that advertisers buy, generating billions in profit for the tech companies selling it. But now some drastic changes are happening that present obstacles to this model. More users are taking steps to protect their privacy and data, tech companies are paying attention, and governments are enacting policies to rein in data theft.
Here we’ll dive into the problems Facebook ads are facing, and why these changes are happening.
Facebook’s popularity, and how it enables collection of user data
Facebook has become the second most popular online ad space (behind only Google), thanks to its immense user base (2.9 billion MAU, 3.5 billion across their whole suite of apps), and the mountains of data it collects from those users. And advertisers flock to Facebook because of this user data, which includes things like:
- On-site activity (likes, shares, comments, interactions, searches, friends, groups, etc.)
- Topics of interest (determined by on-site activity)
- Off-site activity gathered via cross-site trackers and cookies
- The content of messages in the Messenger app
- Apps and sites using Facebook login
- Location data (including primary location and location history)
- Payment history (for purchases via Facebook or Marketplace)
- Photo and video uploads
- Off-Facebook activity that other sites opt to share with Facebook (i.e. other online purchases that get reported back to Facebook)
For digital marketers, this info is (supposedly) a goldmine. In 2021, Facebook made $115 billion in advertising revenue—a figure that’s projected to increase for the foreseeable future. But the growth isn’t as healthy as you might think—it’s mainly driven by increasing ad prices. In 2022, Facebook earned just under $114 billion in ad revenue—a sign that may indicate the beginning of a downtrend for the ad platform.
Increasing costs and decreasing effectiveness of Facebook ads
Advertising on Facebook is becoming more expensive, and less effective.
In 2022, the average click-through rate (CTR) across all industries for Facebook ads was 0.9% (down from about 1.3% in 2020). And while the CTR is decreasing, the cost of advertising is skyrocketing. In 2021, Facebook’s average cost per thousand impressions (CPM) increased by 89% to roughly $11. In 2022, the average CPM was nearly $15.
(This trend isn’t isolated to Facebook, either: as of July 2021, Google and YouTube’s CPM increased by 108% year-over-year, TikTok’s by 92%, and Snapchat’s by 64%.)
Why are ad costs rising while effectiveness drops?
More than 200 million businesses use Facebook’s ad tools to reach customers—and everyone’s competing for attention from the same audience. Because more businesses are engaging in e-commerce, the demand for Facebook ads is oustripping the supply of ad space, leading to rising ad costs. To make things worse, the cost is increasing just as (and partly because) Facebook’s user base is stagnating—or even declining. In Q2 2022, Facebook lost two million monthly active users (MAU) for the first time in its history.
Simply put, Facebook ads are getting more expensive because the demand (businesses looking to advertise) is growing, but the inventory (number of users to target) isn’t keeping pace, or is even shrinking. But that’s not all that’s affecting Facebook ads: There are major changes happening for the entire landscape.
Changes to the digital ad landscape
The Facebook ads model, and traditional online advertising in general, face multiple new challenges:
Consumers are taking more steps to protect their privacy
Perhaps the biggest obstacle to the continued dominance of Facebook ads is consumer mistrust. Traditionally, the Internet has been characterized by a data model that places corporations before people, enabling Big Tech to collect and sell user data at the expense of individuals. Facebook is one of the key Big Tech players in this model.
From mood manipulation experiments and widespread data theft, to the infamous Cambridge Analytica case, Facebook has had repeated challenges with user trust. As a result, more and more users are taking steps to protect their privacy…and their data. Many are opting out of Facebook’s tracking mechanisms, restricting what data they share and how it can be used, or leaving the platform altogether.
Governments are taking action in support of user privacy
The days of unrestricted data collection are long gone: Governments everywhere are stepping in to enforce new online privacy laws. A slew of antitrust bills aimed at Big Tech companies are changing the way Big Tech operates. In 2019, for example, Facebook received a $5 billion fine from the American FTC, and was forced to make sweeping reforms to its privacy policies. And with legislation like Europe’s GDPR and California’s CCPA, governments are helping in the fight against Big Tech’s unchecked collection (and use) of user data.
Big Tech companies are enacting competitive data policies
In response to pressure from users and regulators, Big Tech companies are self-regulating, and adjusting what can and cannot be tracked, and how (or if) that data can be shared. Apple’s recent software updates, for example, are giving users more control over tracking, and the ability to turn off cross-site tracking. (And, when prompted, 95% of users do opt out.) Many of Big Tech’s new data policies limit data sharing, creating “walled gardens” between apps where there was previously seamless communication. Add it all up, and you see a real hit to Facebook’s bottom line: Apple’s 2021 privacy policy updates cost Facebook more than $10 billion in ad revenue.
Even Google—the world’s number one ad platform, and one of the worst data-theft offenders—is taking some limited steps toward eliminating third-party data tracking in Chrome, the world’s most widely used browser.
But three important notes:
- Big Tech isn’t making these changes willingly.
- They’re doing the bare minimum to look like they’re addressing user demands of privacy.
- In the end, they’re most concerned with their bottom lines. At the same time they’re making some limited privacy improvements, they’re inventing new and more complex ways of tracking (case in point: the move away from cookie-based tracking, and toward browser- or device-level fingerprinting). While their methods change, their philosophy doesn’t.
This means that savvy users will continue to abandon Big Tech platforms for alternatives that afford true privacy, and that savvy advertisers will meet them there—with advertising techniques that also respect user privacy.
To get ahead of this shift, read about the best alternatives to Facebook ads, and discover new, private ad units specially designed for the privacy-focused future. Or get started today by running a trial campaign on Brave’s private ad platform, Brave Ads.
