Question
Dynamic pricing models have a significant impact on online ad costs. As demand for online advertising space increases, the cost of ads also rises. This is evident in the increase in the average starting cost of 1000 impressions for a Facebook ad, which went up from $5.12 in 2019 to $7.19 in May 2020, and then to $11 in October 2021. This increase in cost is a result of the dynamic pricing model employed by online platforms like Facebook, where the price of ads is determined by the level of demand.
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Since the pandemic accelerated online spending to $26.7 trillion in 2020, the average starting cost of 1000 impressions for a Facebook ad went up with it. For example, the average starting CPM in 2019 was around $5.12, but by May 2020, it had risen to $7.19. In October of 2021, Facebook's average CPM is $11. Now compare that to TikTok, which brings in $1.3 billion in annual ad sales. In 2020, Facebook generated around $84 billion. In fact, for every one dollar per user TikTok makes, Twitter makes five, YouTube makes seven, and Facebook and Instagram make nine.
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