Facebook experiments constantly, driving 53% higher ad revenue – with fewer ads!
It “was a pretty controversial strategy internally” said Facebook CEO Mark Zuckerberg about his company’s strategy of selling fewer ads, but it’s paid off. According to AdAge, Google, Yahoo and others are squeezing more ads in, while Facebook has decreased the number of ads its users see.
That’s right: While Facebook showed 65% fewer ads in fourth quarter 2014 than the year prior, the average cost of those ads to advertisers was 335% higher. The net result: 53% higher ad revenue.
Facebook is increasing value by reducing clutter and distraction.
As a Facebook user, I’m happy because I see fewer, more relevant ads. The advertisers are happy—and willing to pay more—because their ads are reaching the right people and getting more attention.
How does Facebook accomplish this ad targeting, and achieve such impressive revenue growth?
Through constant, massive-scale experimentation.
Facebook runs hundreds of different versions of its site at any given time. You may see a version of an ad with one set of colors and features, and I see another—simultaneously. Facebook engineers measure customer response, and retain the versions that perform the best, eliminating the others.
No matter what business you’re in, there are three lessons we can learn from the Facebook example:
- Consider how you can increase value for multiple constituencies: Facebook simultaneously increased value for two of its major constituencies, its advertisers and its users. Think about how you can create a win-win-win by increasing valuing for multiple members of your ecosystem.
- Grow by shrinking: Facebook decreased the number of ads it sold, while vastly improving the revenue per ad. Could you improve profitability by reducing volume but increasing profit? For example,
- Could you increase the value of certain products or services by making them more targeted or exclusive?
- Do you have certain customers that generate very little profit, whom you would be better off without?
- Could you pare your product line to only those products which are most differentiated and profitable to increase the health of your business?
- Experiment, then keep what works, and eliminate what does not: Facebook experiments constantly to improve the value of its products, and the user experience. What experiments should you be running to learn what your customers really want, and are willing to pay for? How can you increase your rate of learning through experimentation?
