Facebook CEO Mark Zuckerberg
Facebook has changed its policies to prevent media buyers over-charging for Facebook ads through what some in the industry call "arbitrage" — the practice of buying ad inventory cheaply and selling it to clients at a markup.
Arbitrage remains controversial throughout the adtech world, where pricing is murky and agencies frequently accuse each other of shenanigans with client money. Many clients still lack basic information about how online ad inventory is generated and sold. Procter & Gamble, Ford, Citibank, Unilever, Kimberly-Clark, and AT&T all pulled ad dollars from online ad agency trading desks because those agencies can't explain how their money was actually being spent.
The new policy, which we're told came online two weeks ago, is buried in Facebook's "platform policies" for marketing vendors who plug into Facebook's Ads API to buy ads within the social network . It states:
... You must not sell ads on a fixed CPM or CPC basis when using the Facebook advertising auction without our prior permission.
In plain English, what that means is that companies must not charge flat fees for ad prices on Facebook. That's because Facebook ad inventory is sold on an auction basis. Its prices change constantly depending on supply and demand. Companies that charge flat or fixed CPM or CPC prices are, essentially, hoping that they can buy the inventory cheaper than the fixed fee they're charging their clients — and then keeping the difference.
Facebook told Business Insider:
To increase transparency and client success in the ecosystem, we released this new policy regarding fixed CPM/CPC deals when using the auction.
Our goal is to protect end-advertisers working with 3rd and 4th parties, who may sometimes buy impression/click packages with no visibility on the strategy or conversions. It is important that brands, agencies, all advertisers understand where their dollars go and have a specific strategy when buying Facebook media.
Two sources who are ad-buying clients of Facebook told us they expect the policy to irk Facebook clients who have been arbitraging ad prices on the network. Once said:
I'm sure [it's] annoying for some people. Facebook are enforcing this more proactively I'd say, though.
It's causing a stir and I can tell you why, unintended consequences for agencies.
It's Facebook doing more to push arbitrageurs of their inventory out, or at least to make them more transparent. ... [Some] companies ... will have a huge negative impact to this I would expect (though they will obviously deny it immediately).
I'd love to see someone get a straight answer out of those guys ("how do you charge your customers for Facebook retargeting inventory, SPECIFICALLY? Do the ads run in their own Facebook ads accounts? Can they see the fees they are paying to you? Did this change at any point in the last 6 months? When? How?")
The policy isn't strictly "new," we're told. Facebook's existing policy also prohibited arbitrage. It said:
You must disclose to your clients the actual amount that you spent on Facebook advertising based on the auction pricing, including the actual Facebook metrics (e.g. CPC, CPM rate) and the amount you charged as fees. We reserve the right to disclose this information to your client upon their request. We may require documentation from you to ensure your compliance with this policy.
The new addition banning fixed prices appears to suggest that the existing policy wasn't explicit enough. We've heard rumors that at least two of Facebook's major ad buying clients have practiced arbitrage, and one was disciplined by Facebook for doing so. Of course, we can't confirm that — but the fact that such rumors even exist are an indicator that ad price arbitrage on Facebook is a controversy among its clients.
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