The Effect of the Promote Button on Click-through Rates
As we learned in class, the click-through rate is the number of clicks per hour that an advertisement will receive in the specific slot it was placed. Over the past year, there has been an increase in click-through rates on Facebook. This increase is due to mobile and newsfeed advertisements from its new “Promote” feature. This feature allows users to pay a small fee to move their post to a more prominent position on friends and subscribers’ newsfeeds. As a result, the ads placed through the “Promote” feature have a significantly higher click-through rate. These new features provide click-through rates (CTRs) over 3 times that of Google’s, possibly the most prominent advertiser in terms of CTRs. Since Facebook is providing higher click-through rates, advertisers will subsequently pay a lower cost per click. Facebook is getting high enough CTRs that they can afford to charge lower costs per click and still make a large ad revenue. This new feature can completely change Facebook’s advertising future, giving it the power to surpass Google.
This relates to our discussion of click-through rates in that an advertiser’s valuation for an advertising slot is the product of the click-through rate for the slot and the advertiser’s revenue per click. If click through rates are higher, then this affects an advertiser’s valuation of a slot. Advertiser’s valuations for Facebook’s mobile and newsfeed advertising have increased. These valuations are then used by Facebook to determine the market-clearing prices they wish to set (price per click.)
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