Facebook chases advertising model as compelling as organic content
- Summary:
- Profits tripled, revenues up 72%, an 82% jump in ad revenues – oh, and nearly half of the global internet population using the product. No wonder Facebook CEO Mark Zuckerberg is able to say of the firm's first quarter 2014 numbers with some understatement that it's been a great start to 2014.
No wonder Facebook CEO Mark Zuckerberg is able to say of the firm's first quarter 2014 numbers with some understatement that it's been a
“great start to 2014.”
Some numbers of note:
- Net profits jumped to $642 million from $219 million for the same period in 2013.
- Revenues rose 72% to $2.5 billion.
- Advertising revenue grew 82% to $2.27 billion.
- Mobile accounted for 59% of advertising revenue, up 6% from last quarter.
- More than one billion monthly actives on mobile.
- Nearly 1.28 billion people now use Facebook each month – that's nearly half the estimated global internet population - and almost 63% visiting daily.
In terms of that all important advertising revenue, Zuckerberg says there is still work to be done in the wake of the introduction of News Feed ads:
“We see a big opportunity to continue improving the relevancy of the ads people see on and off Facebook, to help mobile developers better monetize their apps, and to help provide greater reach for marketers.
“After introducing News Feed ads, which increased the supply of ads in our system, our recent efforts have primarily focused on improving the relevance and quality of these ads.
“To do this, we’ve been working to improve the tools we provide for marketers, so they have access to better targeting capabilities, simpler ad products and more useful measurement tools.”
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Jan 30 2014diginomica.com
There's a basic principle underpinning this:
“Our approach is less about developing new products for marketers and more about improving our existing ones and helping businesses to use them efficiently.
“Our goal is to make our ads as interesting as organic content on Facebook, so that more people find ads useful and businesses can engage effectively with our community and grow.
“Our most recent data shows that this approach is working well, and we continue to be really encouraged by the feedback we’re seeing from people about our ads. There is still more work to be done here, but we’ve shown that we can continue to serve our community well while also growing a healthy business.”
There is a shift underway however, he notes:
“We have News Feed ads, which are higher quality and perform better and then we have this legacy of right hand column ads on desktop, which generally are just showing higher volume and they performed less well per ad unit.
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Dec 30 2013diginomica.com“So as we shift more towards News Feed, what you're seeing is the total raw number of impressions as decreasing, but actually the amount of value that we're delivering is increasing.
“That might continue to shift as we continue to shift towards mobile, but I think overall what we're trying to do is make it that the individual load on a per person basis isn’t increasing at a dramatic rate, but instead we're driving most of the wins in user experience, advertiser performance and our own revenue to increasing the quality primarily around News Feed ads.”
He adds:
"We want to get to a state where the ad content is as good as the organic content and we see we're getting pretty close in a few countries but we want to get to that everywhere.”
Early days
It is still early days, argues COO Sheryl Sandberg
A lot of effort has gone into enhancing targeting capabilities, adds Sandberg:“In terms of relevance, I think we are in really early innings. I think people can see it from their own experience. Those people I talk to and certainly the data we have across the base of people use Facebook suggest that the ads are getting more relevant, but there is a long way to go.
'Our goal is that every time you open News Feed, every time you look at Facebook, you see something whether it's from consumers, or whether it's from marketers, that really delights you, that you're genuinely happy to see.
“I think we hit that more than we used to with our ads, but I think the truth is we still have a long way to go to hit that bar and that's the bar we are striving for.”
“Along with Facebook’s reach and scale, marketers value our proprietary targeting to help them reach the right customers and create more personalized and, therefore, more efficient and effective ad campaigns. Ten times more marketers are now using our Custom Audiences targeting feature compared to last year.”
To support her claims, she cites ice cream giant Ben & Jerry's which wanted to boost sales of classic flavors:
Facebook is also simplifying and enhancing ad tools for the existing one million advertisers on Facebook, including those previously only available to the biggest and most sophisticated advertisers such as Custom Audiences and Partner Categories.“They used a wide range of our targeting capabilities, including Custom Audiences and Partner Categories, to reach premium ice cream buyers.
“Their campaign reached 14 million people, roughly 90% on mobile and drove an 8.1% sales lift from those consumers. As more marketers use our targeting tools, our ads become more relevant for our users and drive even better results for marketers.”
Sandberg explains:
“By making these tools more accessible, we believe we can grow the number of advertisers on our platform and improve their results. Additionally, for direct response marketers, we’ve added more specific calls to action in our ads, including “buy now” or “install now” buttons that greatly improve the efficacy of these ads.
“We’re also really pleased with the results we’re seeing from our investments in measurement tools. Our online conversion measurement tools enable our direct response advertisers to measure the impact their Facebook ad campaigns have on online sales. And, we recently launched new offline conversion tools to measure in-store sales, which have yielded positive initial results."
There are also relatively untapped opportunities to comes from Instagram ads and premium video. Sandberg explains:
She cites Levi's as a case in point, which is running an ad campaign that is made up of pictures of people wearing denim in outdoor spaces:“Instagram is a great product. I think that's why we see so much engagement from people who are using it and the gross passing 200 million.
“It's also a great advertising product and there's just tons of demand because you know, the picture themselves are so visually appealing and also there's so much consumer engagement.”
“They targeted people 18 to 34 in United States. Reached over seven million people and importantly they drove a 24 point left in ad recall which was three times the control group.
“I think that shows that just as people engage with consumer pictures on Instagram, they're going to engaged with the right pictures from marketers. That said, we're very focused on consumer growth and we move slowly and deliberately in monetization.
“So, we don't see the need or the urge to ramp this as quickly as we possibly could but really want to grow it slowly, grow it deliberately and continue the growth on the consumer side and a great returns for marketers.”
It's the same story with video, she adds:
“Video represents a really big opportunity, really driven by consumer behavior. Smartphones are going better and faster and more people have phones that can provide a great video experience. So we're seeing consumers do a lot more in video.
“There's also a lot more video going through News Feed that consumers are putting in and that creates an opportunity for us, both on the consumer side and the ad side. We have our current product in the market, it's a click to play video ad, it's part of the page post, you can post the video.
“We really want to see auto play video ads be something that's pretty common in the newsfeed experience based on consumer usage before we push very hard in the ads business. So we remain, long term very excited, we do expect that product, demand to premium product but we won't see a material contribution from it this year.”
Verdict
As Zuckerberg says, just a great start to the year.