Facebook changed its strategy to have fewer but larger right-hand column ads

In the prior parts of this series, we’ve discussed Facebook’s (FB) 2Q14 earnings and how the shift to mobile platforms and News Feed ads are driving ad revenue growth at Facebook. In the previous part, we also saw that the price per ad for Facebook increased 123% compared to last year, mainly driven by News Feed ads.

But, at the same time, according to Facebook, total ad impressions declined 25%. This is because Facebook has started to redesign the right-hand column by having fewer but larger ads, making right-hand column ads more consistent with News Feed ads.

Why is Facebook focusing on fewer ads to drive user engagement?

User engagement is an important parameter that drives ad pricing

Facebook mentioned that the redesign of right-hand column ads is helping it gain user engagement. User engagement is an important parameter for Internet companies that helps drive ad pricing. As you saw above, Facebook’s price per ad increased 123% in the last quarter over the corresponding quarter a year ago. Similarly, Twitter’s (TWTR) average advertising revenue per thousand timeline views doubled from $0.80 in 2Q13 to $1.60 in 2Q14 as it focused on increasing user engagement.

Yahoo (YHOO) has also been trying to increase its user engagement. During the second quarter earnings announcement, Yahoo’s management mentioned that its new email application (or app) has drawn a lot of attention among users. Yahoo claimed that it has added one minute of time spent per user per day on Apple’s (AAPL) iOS app, while page views have increased 70% compared to the previous mail app. On the Android platform, it has seen time spent per user increase 65%.

Facebook becomes the top-ranked player in terms of smartphone app reach in the U.S.

Increasing user engagement has helped Facebook become the highest-reach app on smartphones in the U.S. According to a report from Comscore and as the chart above shows, Facebook’s reach on smartphones in the U.S. is 74%, while Google (GOOGL) properties like Google Play, YouTube, and Google Search come next. Pandora found itself the fifth-ranked app in terms of smartphone reach.

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