You may have had this feeling the last time you logged on to Instagram. Your feed, or the sequence of stories from the accounts you follow, is becoming increasingly plagued with advertising, to the point that it turns the experience into a kind of permanent banner, and even more so in the middle of the Christmas season as we are.
But no, it’s not that advertisers have detected that you are more predisposed or willing to buy, it’s simply that Facebook has been multiplying its number of ads year after year, especially on Instagram.
Facebook usually presents itself, after Google, as the largest advertising agency in the world. A definition that goes beyond its concept as a technology company and even as a social network to clearly identify the core of its business: marketing ads to its huge network of users on all the group’s platforms.
Throughout the company’s history, advertising revenues have accounted for practically all the money they have moved. Despite Facebook’s attempts to diversify with certain adventures in hardware, or the attempts it is making to position itself in micropayments, practically 99% of what it earns is thanks to ads.
This was also the case in its last presentation of results for the third quarter of this year. Despite fears that the pandemic could weigh on its data, Facebook announced $21.47 billion in revenue. A 22% year-on-year increase, though, than it had in recent years. And in those results, according to estimates compiled by the Wall Street Journal of large shareholders, Instragram, the ‘daughter’ social network, would already account for a quarter of all revenue.
According to data collected by this media, Facebook ads on all its platforms (mainly the original Facebook and Instagram, as long as WhatsApp remains ad-free) have been increasing by an average of 30% over the past five years, to the point of increasing by a factor of 4 during this time.
Interestingly, while the price of advertisements has increased during that period on the same basis, prices started to decrease in the second half of 2018, with the largest decreases this year. In the second quarter, for example, Facebook said that ad prices decreased 21% from a year earlier, while ads served increased 40%.
The increase in ads is a clear response from Facebook to try to continue generating revenue despite this price drop, which is due to multiple factors: from increased competition at TikTok or Pinterest, to the withdrawal of many advertisers due to the economic crisis of the pandemic, to the boycott that some major brands have led against the social network this summer.
But above all, this year’s most significant price drop also seems to be a reflection of the number of the economic problem of the coronavirus pandemic that Facebook customers, most of whom are small businesses, have had.
Perhaps the big question in all this is to try to predict whether there has already been some over-saturation of ads that may make users have a less and less good experience on Instagram, the network that right now captures the largest number of users in the face of the aging Facebook.
In her Q3 video conference, Facebook Vice President of Finance Susan Li noted that, after the pandemic, lower user participation should equate to more limited ad growth, making revenue growth in 2021 more dependent on ad pricing.
We’ll see how Facebook is getting around this kind of maze that it’s gotten into, and where its main advantage seems to be becoming its biggest weakness as well.