As digital advertising marches forward and companies funnel a growing amount of their ad spending into the Web and mobile apps, the ad platforms that stand to fare the best are those that can demonstrate the best bang for the buck.
To this end, Facebook (NASDAQ: FB) will begin issuing report cards to apps that are part of what it calls its "Audience Network," a collection of apps that have signed on to carry ads procured through the social network.
Facebook already tracks the performance of ads that run on these apps, but until now, it hasn't been sharing what it knows with the companies on whose apps the ads appear. Moving forward, the social network will start to issue each app what it calls an "Advertiser Outcome Score." The app will be graded based on how well Facebook ads perform within its property.
The goal behind the evaluation is to get the app developers to experiment and find the most effective places for specific ads on the platform. Facebook also plans to show the app publishers how different ads perform against one another.
Driving better ad performance
As an example of how this should work, Facebook shared the story of Android developer Cheetah Mobile, which makes an app that replaces a phone's lock screen. It had initially featured something akin to a standard banner at the bottom of the screen. But it was able to use the information provided by Facebook to swap that out for an image-heavy slideshow-type ad.
The result: a 150% increase in conversions and 200% increase in revenue from the ad.
Facebook hopes to get similar results across its ad network. If it can, it will make great strides in improving the effectiveness of the ads it's selling.
Facebook executive Brian Boland recently told AdAge that higher-scoring ad placements -- those that eventually lead to more conversions -- will fetch higher rates, "partly by increasing [advertisers'] confidence that actual humans are responding to their ads. Bots can simulate clicks, but they don't make actual purchases."
This is important for Facebook and any other company that's looking to grab a piece of the fast-growing digital -- and particularly mobile -- ad market. Clearly demonstrating ad effectiveness is becoming a key ingredient to winning digital ad revenue.
More eyes don't necessarily mean more sales
With roughly 1.5 billion users, and an average of some 46 minutes spent on its mobile properties every day, Facebook is commanding an audience that would appeal to virtually any advertiser. And more than 2.5 million businesses have at least given Facebook's platform a try.
But many companies remain skeptical of digital advertising, and for good reasons. Standard Web display ads have proved largely ineffective as compared with traditional forms of advertising, as Web users tend to flit from page to page much differently than we would in, say, a print magazine. That's left advertisers less willing to pay based on the number of impressions an ad is generating.
Measurements like an ad's click-through rate also have not served as a good gauge, since the number of people who see an ad and are actually moved to click it are typically so low -- an average somewhere around 0.1% for display ads.
That's left Web publishers scrambling for new metrics to offer advertisers. Some have experimented with cost-per-hour rates, offering advertisers rates based on the time their ad is in front of readers on a website or app. But those still don't deliver an assurance of an ad's effectiveness. Further complicating matters, ad blockers are on the rise.
Moving out in front of the pack
All of these factors make Facebook's work toward developing better ways of measuring how well ads perform crucial in its drive to continue growing its share of mobile and digital Web advertising, a market that's expected to grow by more than 60% between 2014 and 2018, according to eMarketer.
If Facebook is better able to show advertisers the connections between its ads and eventual sales, those companies should be more likely to increase their spending on advertising through the social network.
But Facebook also needs to find ways to continue making those ads more effective. And its Audience Outcome Score for affiliated apps is one way of doing that. On its own, it won't move mountains of advertising cash Facebook's way. But it's an important part of a larger effort that's been doing just that.
John-Erik Koslosky owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. 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.