Here’s Why Facebook’s Q1 Earnings Report Is Bad News For Your Business

While many businesses were flattened by the pandemic year of 2020, some companies weathered the storm and managed to come out ahead. Facebook was one example: the company reported a 48 percent earnings increase in the first quarter of 2021.

In particular, Facebook credited their soaring revenue to a 30 percent increase in the price per advertisement on the platform year-over-year, compared to a 12 percent increase in the number of ads delivered. The cost to advertise on Facebook has been rising for years, but this is an especially big leap. I don’t know many businesses who advertise on Facebook and saw their profitability grow 30 percent in the same period.

If this trend continues, many businesses who rely heavily on paid online marketing may soon find themselves priced out of the market and looking for new options. A marketing model where businesses invest hefty upfront fees to advertise in a premium channel, without guaranteed results, often becomes less profitable over time.

This is where partner marketing has evolved from its affiliate marketing roots into a thriving, broader channel where brands pay only after they get the desired results or outcomes. Here are three reasons why this channel’s popularity is increasing and will continue to win budget as brands look to grow and diversity their marketing strategy.

Avoiding the auction

The news of Facebook’s earnings raises a relevant question: how is the social media giant able to raise prices per ad so quickly? This ultimately stems from how Facebook and most major digital adverting companies such as Amazon and Google sell ads today: by creating an auction environment where brands are bidding against each other in real time for inventory.

The problem with auctions is they consistently make bidders act irrationally. Often, in a drive to win, we lose sight of the actual value of an item–be it a home, an antique or a Facebook ad.

Economists have written extensively on this phenomenon. In a study of eBay auctions conducted in 2007, economists Young Han Lee and Ulrike Malmendier discovered that the average eBay auction winner overpaid by 73 percent in their winning bid. Those buyers could have paid much less by buying the same item in a fixed-price listing!

Too often brands get caught up in these auctions when investing in digital marketing; as a result, they end up paying rates that yield uncertain value.

Paying for outcomes

Partner marketing offers a pricing model where brands determine the outcomes they want and the rate they are willing to pay. A common example of this is when a partner, or “publisher,” promotes your brand’s products or services on their site. For example:

  1. A blogger reviews a mattress on their site and links to the purchase page.
  2. A consumer clicks the brand’s promotion on the partner’s site is directed to your company’s website through a tracking link from an affiliate network or tracking platform.
  3. The consumer purchases a product or service from your company.
  4. Based on that sale or lead, your company automatically pays a previously-agreed-upon commission to the partner for driving the sale through the platform.

The best part of this model is that, unlike the auction model, the brand only has to pay for converted sales and leads, after those outcomes are delivered. This model helps businesses avoid the trap of paying competitive prices for metrics such as clicks and impressions for ads that don’t yield worthwhile outcomes. It’s a true performance-driven model.

Sustainable partnerships

In addition to its high-ROI pricing model, partner marketing is built upon long-term, transparent relationships between brands and the partners who advertise their products. Due to the long-term potential of these partnerships, both brands and partners view the relationship as mutually beneficial, rather than a win-lose transaction. Because of this, the players in a partner marketing relationship want to ensure alignment, transparency and trust.

Further, because partners are only paid for the results they generate, they are incentivized to produce the best outcomes. This leads partners to consult with brands on how to improve campaign performance and outcome delivery. This is very different from the auction platforms such as Facebook, which get paid upfront and will continue to draw customers even if the ads don’t produce strong results.

Facebook’s earning report highlights a clear trend: big advertising platforms are seeing their profits rise faster than the brands that advertise through them.

This isn’t sustainable, and business leaders need a way to diversify their spending and align their initiatives with their desired outcomes. Partner marketing is increasingly a great way to accomplish that goal.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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