Is it Facebook advertising all the way?
- Summary:
- Ben Thompson makes the bull case for Facebook advertising riding a burst bubble but is he right?
...as I’ve argued repeatedly, I think the bull case for Facebook is less about app install ads (another form of direct marketing) and more about brand advertising, particularly with their video ad units. It’s not just that Facebook is diversifying away from app install ads, but that they’re diversifying into a massively larger market (everything I wrote about Snapchat and the impending advertising shift from TV applies even more so to Facebook).
Still, that shift hasn’t exactly happened yet. Facebook has never said explicitly what percentage of their revenue is app install ads, although last summer Sheryl Sandberg said app install ads are not “a great majority”, which certainly implies they are the majority! Then again, Sandberg said last fall install ads were “a small part” of Facebook’s mobile business, so it’s hard to be sure.
Still, even if app install ads are super important to Facebook, it doesn’t follow that that this is a fundamental weakness. An argument Facebook has made repeatedly, and I think justifiably, is that app install ads are not just limited to venture-backed gaming companies. This actually makes total sense: if we truly live in a mobile-first world (hint: we do), then driving potential customers to your app is no different than driving potential customers to your web page, except that the total number of customers is much higher and the app install is far more valuable then a web page visit (notifications, increased engagement, and a de facto “bookmark” that Facebook can drive reengagement with, through an ad of course). Oops, I think I just made a bull case for Facebook!
Apologies to Ben for swiping a huge chunk of his stuff but this is an important discussion in the context of where money flows in the advertising world and how that impacts technology led innovation. First up, the data for ad spending supports Thompson's contention about the impact of mobile. This from AdWeek last December:
Global ad revenue growth might be projected to slow slightly in 2015, but ad spending is on track to increase more substantially. EMarketer, a research firm that reports on the advertising industry, predicts advertisers will spend $592.43 billion next year, a 6 percent increase from 2014.
...One key to this growth will be digital and mobile platforms. Mobile ad spending, in particular, will see tremendous growth in the coming years. It's projected to hit $64 billion in 2015 and $158 billion by 2018, when it could account for as much as 22 percent of ad budgets.
Despite Facebook's relative success, we have seen how time and again, advertisers have dipped their toe in the Facebook advertising pool and then just as quickly withdrawn or scaled back their activities. What's more, Facebook has been pretty ruthless of late in making sure brands don't get a free ride. This from last November in AdAge:
Facebook is becoming even more pay-to-play for brands.
Facebook announced Friday afternoon that it would begin curtailing the reach of brands' unpaid, or organic, posts that the social network's algorithms consider "overly promotional."
The change will not apply to all of a brands' posts, just the less creative ones that fit certain criteria, like pushing people to buy a product, install an app or enter a contest or sweepstakes. Also under fire: posts that are just repurposed ads.
Note the 'install an app' reference. Given those dynamics, it is no surprise to see brands thinking twice before stepping into the Facebook advertising pool. Even then you have to wonder. It seems that the value and impact of going with Facebook is far from clear coupled by highly variable mileage as an ever present risk.
Last year for example we discovered that buying Facebook ad placement is likely a waste of ad dollars and especially for small business. If anything, it is more likely to return useless 'likes' in the short term. On the other hand, some brands have enjoyed success. This from Jon Reed's discussion with Boston Celtics:
In the face of newsfeed algorithm changes, Forrester has gone so far as to recommend that marketers abandon Facebook entirely. (Forrester says that Facebook will downplay organic posts from Business Pages even further in the new year). But for now, Stringer [Boston Celtics Senior Director of Digital Marketing] is finding a way to make Facebook work – during a time where it’s getting harder to get audiences on-the-go to visit your own web properties, versus their social app of choice.
As a side note, Stringer agrees with our analysis about Facebook ads for small business, arguing that you need a substantial brand presence in the first place in order to benefit from Facebook 'likes.'
Then in this bizarre story, we recently discovered that IKEA complaints on Facebook get the porn treatment. You'd think that would spell all manner of problems for IKEA but no. Elsewhere we know IKEA has run a succession of contextual app teasers that increased footfall and ROI in targeted stores without requiring any help from Facebook. So no brand damage there from Facebook porn eh?
If as implied, Facebook is drawing a large chunk of change from app install ads - after all, a 100 million plus Candy Crush installs can't be wrong - right? - then Facebook is at risk. Candy Crush may have been the lighthouse beacon for app success but that only applies to a limited number of blockbuster applications. And let's not forget it took King more than ten years to reach a point where it could launch on the public markets and that happened only after it demonstrated blockbuster success.
If as seems likely, Silicon Valley investors are following the tried and tested lemming path to funding mobile apps, then it's only a matter of time before the investment plug is pulled. In that scenario, Facebook had better have a Plan B in place or take the hit that ripples out to its stock price.
Investors have a peculiarly weird form of quarterly memory loss. This is amply demonstrated by the fact King Digital Entertainment, the makers of Candy Crush, have had their own turbulent ride as popularity of their games ebbs and flows.
My take
- We're very much in the first inning of knowing what works and what doesn't on Facebook. On its face, the ephemeral nature of Facebook posts, notifications and the like in an ADD world doesn't play as well for advertisers today as they might be induced into thinking. Reed is right when he argues that contextual content of an innovative nature is needed but then hasn't that always been the case?
- On the other hand, we are seeing increased engagement inside Facebook which, while not necessarily adding obvious direct value is certainly spawning many more interesting conversations around the topics in which we express an interest and in turn delivering more views by those interested in our take. Even so, it is a very small part of activity which is hardly surprising given that we're mostly about business to business topics which so far have seen very little impact from Facebook attention.