Facebook Bidding Updates July 2015

Executive Summary

Facebook announced changes to Cost-Per-Click (CPC) bidding on July 8, 2015. Advertisers using the CPC bid model on Facebook have historically paid for every click on an ad, including likes, comments, shares, clicks to a website and so on. With the new CPC model, advertisers will now pay only for clicks that align with the ad campaign’s objective. Advertisers will now pay only for:

  • Clicks to visit another website
  • Call-to-action clicks that go to another website (i.e., “Shop Now”)
  • Clicks to install an app
  • Clicks to Facebook canvas apps
  • Clicks to view a video on another website

This change aligns bid optimization with campaign objectives, so it brings clarity and simplification to the Facebook ads system. However, since all Facebook media is bought at an auction, advertisers should not expect to see a reduction in their costs to achieve the actions listed above. Advertisers should continue to test oCPM (Optimized CPM) and CPC bidding in tandem to determine what yields the best combination of scale and performance for their campaigns.

Facebook’s “Optimization Simplification”

While it is significant, this shift is part of a broader change that Facebook is making to its bidding system with their release of Marketing API 2.4 — it also follows on the heels of the Cost-Per-View (CPV) bidding rollout last week. Historically Facebook’s bid types have had a fixed bundle of an “optimization goal,” meaning the outcome the ad serving algorithm was trying to achieve, and a “billing event” – the event for which advertisers pay. Figure 1 below shows the makeup of the legacy CPC and oCPM for link clicks bid models:

Figure 1 - Legacy Bid Models
Figure 1 – Legacy Bid Models

Advertisers who bidded CPC were committing to an optimization goal of clicks and a billing event of clicks. Conversely, advertisers who bidded oCPM for link clicks were purchasing an optimization goal of link clicks and a billing event of impressions; the optimization goal and billing event were decoupled. Facebook wasn’t willing to take on the risk of only being paid for a highly specific outcome. Three years later, Facebook’s oCPM algorithm is sufficiently mature for reliable prediction of which users will take a desired action.

Optimization Simplification is Facebook’s name for the increased level of control it is now turning over to advertisers. Now, advertisers are able to couple the optimization goal of their ads to a wider array of billing events than before:

Figure 2 - New Bid Models
Figure 2 – New Bid Models

Cost and Performance Implications

Advertisers buying media on Facebook have long been competing for a limited pool of users likely to click on links in an ad, and it is that competition in the ad auction that drives the market price. These updates to the CPC bid model merely bring the billing event into alignment with the optimization goal; the methods by which Facebook optimizes delivery of these ads is not being altered. As a result, we do not expect to see any decrease in cost per link click due to this change. We may in fact see an increase in cost per link click as advertisers migrate from the old CPC model to the new link click-optimized CPC; more dollars will be chasing the same pool of users likely to click a link.

These new bid models operate on a hard cap, meaning that advertisers will never pay more for their optimization goal than the bid amount they specify. The implication is that if advertisers retain the bid amount they were using with the oCPM bid model and switch to the new CPC bid model, they will see reduced delivery. For more information on soft cap/hard cap dynamics, including visuals of how their performance differs in the marketplace, please see Resolution’s POV on Cost-Per-View bidding.

Summary and Recommendation

The change to CPC, and the general alignment of optimization goals with billing events, are welcome developments. Facebook’s relative opacity around how bidding and payment worked had long been a sticking point and stumbling block; now advertisers have more clarity than ever around how their campaigns are functioning. Advertisers should test the new CPC bid model with the expectation of cost-per performance similar to that of oCPM for link clicks.