Facebook ad revenues are up, says Andreas Pouros – but is this aggressive advertising strategy posing a significant threat to the network’s future?
Facebook has confounded critics who thought it would be incapable of making money from the rapid growth of mobile device usage. Not only has it revealed a strong performance in Q4 with revenues up 40%, its mobile ad sales have more than doubled on the previous quarter to total $306m, to account for 23% of the social network’s overall ad revenues.
Facebook’s new ad units in response to the mobile challenge, such as Sponsored Stories, have proved successful in a world where smaller screens and 'apps' remove the space available for Facebook's traditional ad units on the right hand side of a Facebook page.
However, the markets expected more, manifesting in a stock drop, but this is cynical. Clear commercial progress has been made and Facebook is right not to be too aggressive in monetizing its user base too quickly, pointing out that the loyalty of that consumer base is its principle asset.
How much more advertising can be added until people begin resenting Facebook for it?
Key to the demise of historical market leaders, such as Altavista in Search and MySpace in social, was too much advertising. It served to increase revenue in the short term but undermined utility and loyalty.
Maybe this is why Facebook’s mobile revenue numbers were lower than the market expected, with Facebook perhaps understanding this risk and not being as aggressive as it could have been with pushing ads to the masses. Doing so would have spiked short term revenue but at a potential long term risk.
However, early data from Greenlight’s soon to be published annual research, ‘Search & Social Survey (2012-2013)’, suggests 15% of users would pay Facebook to see no ads at all (which may of course be an opportunity in of itself), whilst close to 70% say they ‘never’ or ‘rarely’ click on advertisements or sponsored listings in Facebook, so this apathy is very real.
Anecdotal evidence abounds of people seeing far more ads in Facebook than they have traditionally seen, as well as some rumblings of displeasure in not just the quantity but also the quality of the targeting.
According to Greenlight, Facebook users are seeing up to 16% of their newsfeeds taken up by ads although the average is closer to 3%. However, Pouros points out ads are typically larger in size than the average post so the percentage of real estate they cover is much higher.
For Facebook the challenge is in how it can increase monetisable engagement between users and advertisers whilst maintaining quality in terms of both targeting and also user experience. Graph Search is capable of doing this at the local business level, but getting increasingly more from big brands is the big challenge.
Andreas Pouros is COO at Greenlight.