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2010’s was the decade when Facebook and Google really came into strength. More than that: the two giants became advertising monopolies. Both companies can claim that they are also in the business of photo-sharing, mobile hardware, and so on and so forth. However, there is no denying that as of 2020 both behemoths dominate the digital marketing space. It seems that while it was extremely profitable to bet on Google ads at the start of this century, and on Facebook ads in 2014-2015, it is now getting more and more expensive. The question is: if this is the case, is this bound to happen with any platform, and if so, what is there to do for smaller marketers/advertisers?
The inevitable price increase
In 2000, Google Ads (at the time known as Google AdWords) started with mere 350 advertisers. In 2018, that number grew to 1.3 million advertisers. And naturally, price per click grew too. Same happened with Facebook – from a Harvard-based social network to becoming the most engaging social platform of 2019. And again, since the launch of Facebook Ads in 2009 the price increased.
Gary Vaynerchuk (“Gary Vee”) is widely known for his early “time investment” in YouTube, when he became the first “wine reviewer” on YouTube. From there he went on to build his huge Viner Media empire, but it all started with producing content on YouTube…and betting on ridiculously cheap keywords. Gary Vee goes as far as to claim that he could bet as little as $0.10 on the word “wine” in the USA on Google AdWords, compared to $1.37 as of 2020. Quite a difference isn’t it?
Facebook has also seen a price increase and drop in impression share, following its redesign of Facebook’s News Feed in early 2019. As of 2016, the average CPC globally was $0.35, compared to $0.97 at the start of 2020.
Is the increase in pricing inevitable for any platform?
The short answer is “yes”. Every platform and advertiser competes for user’s attention. When the platform just opens up, naturally there is no or very little competition (350 google advertisers are one such example). This is when you can achieve the highest reach while spending as little as possible on ads.
Over time, if the platform is successful, more advertisers flock to it – the network effect means that more people hear about the platform and register on it. The platform may start with just one person selling homemade wine. However, as more users join the ranks, more wine shops will look to advertise their products on the platform. Provided that there is no favouritism to particular advertisers, higher competition naturally leads to higher prices. If A bets $1 per click, and B then bets $2 per click, A will raise the bar further (for example to $3), provided that the ROI still makes sense for A.
When there are hundreds, if not thousands of As and Bs, it is inevitable that the prices will continue to rise, until they reach the point, where any further increase would mean that As and Bs are betting too much, and are actually losing money on ads… or so you would think.
Problems with the big fish, LTV and oversaturation
Some companies approach the above problem by saying: “Look, we may lose money now, but our users will stay with us and buy our products for at least three years. Their lifetime value will be 10x whatever we pay to acquire them now”. This practice of spending while ROI is lower than the acquisition cost (short-term) may seem counterintuitive, but it is one that is very prevalent these days. The Uber-like approach to “capturing the market first, and then becoming profitable” is very appealing to new businesses that managed to secure marketing budgets and investments during their seed or A rounds.
Another problem with cost per click lies with big brands. For a lot of them marketing budgets are about 100x if not 1000x higher than for startups and smaller companies. And for them it is more about brand awareness, rather than getting return on their ad spend. They play the long game, and they are competing on the global scale. Once the big fish get to the platform, which is exactly what happened with Facebook, the prices begin to rise up once again.
Lastly, as time goes by, it becomes increasingly hard to put out original content on social media platform that is popular, as over the years, more and more money is put into: video production, image quality and written content. Money that startups simply don’t have.
So what is there to do for smaller companies?
The possible solutions
- As a small or new brand you can make your targeting as pinpoint as possible. Choosing smaller audiences and tailoring to tribes that are your ideal clients, would mean that you won’t be competing with some of the biggest brands for vague terms, such as “sandwich” or “wine”. As mentioned previously, this can be very challenging on the top most popular platforms, as you are competing with thousands of original content pieces.
In addition to the above don’t forget about location. In 2020, it seems like the world is so globalised that it won’t take much to deliver a product from Shanghai to Vancouver in 24 hours. However, it is still possible to narrow down your focus and serve local communities. This means that rather than competing with millions of sellers worldwide, you can literally limit it to 3-4 other stores in your area. And under such circumstances, it is A LOT EASIER to find your unique selling advantage.
- New platforms and marketplaces are created every day all around the world. Being the first adapters on those platforms can pay dividends long-term. Another YouTube example – PewDiePie, the number one Youtuber-influencer in the world amassed his following, by joining the platform when very few people even knew about it. Yes, it can take time, but it does not seem like he is complaining about having 100+ million subscribers as of 2020.
Bear in mind that by the time advertisers (not regular users) start talking about the platform, it may be too late for you to be the “first mover”. However, the earlier you embrace the new “television”, and the sooner you start giving it a go, the more likely you are to find your advertising goldmine.
To conclude: the above does not mean that you cannot advertise on Google or Facebook in 2020. You may have the budget, or an idea that could go viral, or that is using current algorithms so ingeniously that you still find a way to minimise your Ad Spend and get the sales. However, a smart marketer would look to platforms that are on the rise, or have just begun their journey. You won’t reach as many people as the two monopolies mentioned above, and of course, ad targeting won’t be that precise. But if you are smart about using the tools at your disposal, and you figure out where the next “Facebook” is, it will bring you the results you need long-term.