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Facebook Follows Google's Lead in Online Advertising

By Daniel B. Kline – Jul 1, 2015 at 3:31AM

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The company is not the first to offer advertisers the choice of only paying for video ads that are actually watched, but it may be one that changes everything.

One of the biggest challenges facing advertisers has always been getting people to actually sit and watch broadcast ads.

Television has struggled with this in recent years as DVRs have made it easy to fast-forward through commercials, and the sheer volume of channels has made it easy to switch to another station as soon as a show goes to an ad break. That's why live sports has been able to command such high ad rates in the TV world. People, in general, watch sports in real time without skipping the commercials. That means they actually are exposed to the ad, which is good news for the sellers of beer, pizza, and male performance pills that seem to gravitate toward that space.

Not so for most Internet-based ad treatments. Since the early days of the Web when banner ads ruled, advertisers wanted to pay on a cost-per-click basis while publishers pushed for a cost-per-impression model. Basically, their argument went, there was value in your ad being seen, and a click was not the only measure of effectiveness.

It all comes back to being seen, and that's where Facebook (META 0.77%) is making a critical change.

What is Facebook doing?
The company will now give advertisers the option of only paying for video ads after they have appeared on-screen for 10 seconds, The Wall Street Journal reported. Previously, the ad was counted as a paid impression the second it appeared on your computer.

Facebook sells its ad space on an auction basis, so choosing this option could lead to higher prices for advertisers. Of course, spending more per video ad could also lead to paying less per person who actually watches at least 10 seconds of it.

The social-media site has long argued against offering this type of guaranteed view before charging, and it appears to be making the shift reluctantly in the face of pressure from major ad-buying groups.

"We don't believe it's the best option in terms of capturing the best value and brand objectives marketers care about, but we want to give them control and choice over how they buy," a Facebook spokeswoman told the Journal.

Of course, Facebook would feel that way, as the argument that advertisements are effective simply from being seen even for a fraction of a second has been made by companies selling online ads since the dawn of the Internet.

Facebook video ads play right in your News Feed. Source: Facebook

Has this been done before?
(GOOG 1.17%) (GOOGL 1.06%), Facebook's chief rival for online ad dollars, already offers advertisers buying video ads the option of only paying for the ones that actually are watched. Called TrueView, the program operates on YouTube and its partner sites. Advertisers buy ads that stream before videos and only pay if customers watch at least 30 seconds or the entire ad (whichever is shorter).

This model makes sense on YouTube because, in many cases, the person being shown the ad actually wants to see the video content that plays after it. Sitting through the ad becomes a necessary evil to get where you are going. Facebook does not have the same model -- its video appear in people's streams, and while they are targeted to your likes they don't stand as gatekeepers to content you have chosen to view.

This could be the beginning of a major shift
Since this pay-per-view model works better on YouTube, it's telling that Facebook had to give in to advertiser demands and offer the option. With the two leading online ad sellers on board with this program it becomes very hard for lesser players to charge using any other model.

That does not mean the old model will disappear. In the non-video online advertising world, cost-per-impression ads still exist, but in many cases the rates for just delivering impressions have declined. It's not uncommon for some ad networks (like Google's AdSense) to even pay a few pennies per thousand impressions. Of course, those numbers vary greatly depending upon a site's audience and how relevant the ads are to them.

Still, Facebook making this change suggests the video ad world will move away from an anything-counts-as-an-impression model to one in which advertisers pay higher rates, but only for the people who actually watch. That's not unlike the television world in which ad rates are generally determined based on live audience or live plus same-day, and do not include people who watch later on through a DVR because they are likely to skip the commercials.

Facebook, in following Google, is making it clear that standards have changed and advertisers will only pay to actually get their message out.

Daniel Kline owns shares of Facebook. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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