This week, Facebook provided accounts for the company’s first quarter in 2017 to its shareholders. The company’s CFO, David Wehner, had to explain the slowdown in ad revenue growth within the platform, something that has intensified in the last year. How does Facebook intend to face the overcrowding of its inventory?
For about a year now, the social network has been warning investors and businesses that sometime in mid-2017 Facebook will reach the maximum load of ads that can be displayed in people’s News Feed . This has already been demonstrated with the slowdown in Ads revenue growth.
The “blame” is the videos
This slowdown is not a crisis, it’s just the opposite. The fact is, there are more companies and brands advertising than there are space to display. And increasing inventory can stress the user base and cause a bigger problem.
For comparison purposes, the number of Facebook ad impressions in the first quarter of 2017 increased by “only” 32% compared to last year, a lower figure compared to the last quarter of 2016, where the year-over-year comparison was a growth of about 50%.
Wehner’s justification for this slowdown before the company’s Board was categorical:
“(Comes from) Our decision to prioritize videos in News Feed. That means there’s more time on videos and that costs the impressions growth in News Feed.”
At first, you might think: this is crazy, Facebook! You are encouraging your users to consume content in which you only spend and do not receive money in return, especially now that the social network increasingly conditions people to watch long videos such as live posts.
But it’s all a matter of strategy. In the coming months, the company intends to insert ads in the middle of the videos, known as “mid-roll ads” or “ad breaks”. This type of ad is much more expensive and already has a giant “sleeping” inventory within the platform, which will create a ballast that will allow the company to grow its revenue rather than slow down in the coming years.
Want more? don’t stop there
You are also wrong to think that the company does not have a plan B or plan C for expansion. Even though the videos provide a great guarantee of inventory for years to come, the company needs to find new ways to distribute ads without becoming a boring experience.
After all, Facebook has always been an ace in this. When Facebook saw News Feed get a maximum impression count, it encouraged the creation of more timelines using Groups. especially those of buying and selling — in which the user can’t even complain about ads. Then it implemented the Instagram ads which were more of a timeline and so on.
It is in this context that Instagram Stories, WhatsApp Status, Facebook Messenger and the Facebook app’s Nova Camera (à la Snapchat) prove to be vital columns. The company needs to create products that allow for new timelines or new interactions that allow placing ads in the middle rather than increasing the number of space in users’ personal News Feed.
And that’s exactly the purpose of all these new products that we are seeing in 2017. Instagram Stories has already gained more than 200 million users a day and they are not in the inventory calculation these days, according to Wehner himself in an official statement yesterday. Another one that is not in the calculation are the ads on Facebook Messenger, which has been carrying out its first tests in recent weeks.
For some time now, the company has been warning advertisers that Messenger is moving towards a platform designed also for business. After opening the bot season for companies to automate customer relations in 2016, this year Facebook launched a shop with them for users to discover new services themselves.
Various outbreaks of attack
Facebook has designed several scenarios and is attacking on many fronts so that today’s seeds will germinate in the coming years. Here’s what Mark Zuckerberg said at the shareholders’ meeting this past Wednesday:
“Our top priority now is to build a foundation of organic interactions between people and businesses that users want to interact (on Messenger). And since we have a great base, I think we will have a lot of opportunities to build businesses”
This statement of the Messenger platform is also valid for other new products. With the launch of the New Facebook Camera , various effects, filters and animated masks can be applied to photos. Like Snapchat, Facebook plans to create paid actions with advertisers for people to share this type of content. In fact, this is Snapchat’s main monetization model these days.
Not to mention that WhatsApp is testing purchases and payments between users in India, the only market where instant messenger has more users than in Brazil. Therefore, even if the News Feed’s dairy cow shows signs of maximum capacity, the company is prepared to extract even more milk in the coming years.
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Source: Facebook Q1 2017 Earnings