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📺Facebook - more than just an advertising platform?

This week, Facebook's advertising business and future revenue opportunities building on last week's l
📺Facebook - more than just an advertising platform?
By Connected Paths (Riaz Kanani) • Issue #75 • View online
This week, Facebook’s advertising business and future revenue opportunities building on last week’s look at its results and its strength (and weakness) in the market.
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Cheers,

Quick recap
Facebook’s results showed strong growth in revenue, weakening user growth in key markets and increasing future operational costs thanks to investment in dealing with fake news and regulation. Read last week’s edition for more detail.
Facebook’s results generally focus only on the main Facebook platform but Instagram is likely to be increasingly important to Facebook’s overall numbers.
Advertising expansion
The big worry for investors is that if user numbers are stalling then revenues will also stop growing.
Clearly increasing the number of opportunities for advertisers to reach people has been a major driver for Facebook. In the past, the reduced number of advertising spots on mobile was a major drag on Facebook’s shares, which they overcame successfully several years ago. Today mobile advertising makes up 91% of its advertising revenue.
Apple was in similar position several years ago with stalling growth in smartphones and has succeeded not by releasing a massively successful new category but by persuading people to spend more and more on its devices.
Facebook has a similar requirement today.
Either it needs to persuade people to spend more time on its platforms, increasing the number of opportunities for an advertiser to buy or it needs to persuade advertisers to spend more on each ad.
Facebook does not need to do this on only the Facebook platform. It has two other major platforms with 1+ billion users and has also given itself a major advantage with its advertising platform.
Whilst Facebook and Instagram are separate apps, the advertising engine is one platform making it extremely simple for advertisers to target across both apps. This has without doubt helped to accelerate Instagram’s revenue and also make it easy for advertisers to take advantage of Instagram’s continuing growth, driving further revenue for Facebook.
The increasing adoption of Stories in Instagram is also providing for a new advertising revenue stream not available previously.
Monopolising advertising online
Today the ease with which both individuals and corporate giants can advertise to Facebook’s userbase makes for an opportunity that only Google can compete with today.
Both also have different nuances to them meaning they will not directly replace each other as they deliver different types of marketing requirements.
Facebook delivers a much larger visual opportunity than Google’s text ads leading to both brand-led and click-led advertising, whilst Google delivers a much higher purchase intent, which is in the main focused on clicks.
Amazon is rumoured to be well on its way to offering its own advertising platform though what form this takes and whether it will appeal to as large a cross section of advertisers remains to be seen.
Today, competition for Facebook’s ads continues to increase with the cost per ad up on average by 17% this past quarter. The real question is how much higher this will go before advertisers look elsewhere…
Future revenue streams
The other major Facebook platform, WhatsApp has been loss making but has been alluding to its path to profitability since the beginning of the year when it announced a trial of business profiles. Since then 3m people have used the service to contact companies according to Sheryl Sandberg, COO Facebook.
They are now expanding the trial to give 90 companies the ability to provide basic chat-bot type automated messaging for customer service requests as well as standard chat.
Further, any messages sent 24 hours after a user response will be charged higher rates than a typical SMS message. To me at least, this suggests that advertising messaging will be possible as well.
Typically SMS advertising has been low as people have (unsurprisingly) responded negatively towards them. I suspect WhatsApp will have the same type of reaction so advertising in the form of reminders and very specific sales notifications might be the early focus.
It is still early days with expectations being set low in the near term by Facebook themselves, but this is a major potential market opportunity as more people prefer to interact with companies via text instead of voice.
There are several companies vying for this space today including Facebook’s own Messenger platform, the smart assistants (Alexa, Google assistant etc) and many proprietary business messaging tools powering each company separately today.
I suspect the ease with which you can open a messaging app and reach a company will eventually commoditise the proprietary platforms leaving either the smart assistants or messaging platforms dominant.
Once in control of the medium through which companies communicate with their customers, in a similar way to how Facebook has monetised Facebook Pages, there will be opportunities for further monetisation.
Companies adopting these third party messaging platforms to communicate with their customers may well be shooting themselves in the foot.
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Connected Paths (Riaz Kanani)

A 3-5 minute read (or more if you click on the links to dig deeper) on #disruption #marketing #tech #business #innovation delivered every Sunday.

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