Facebook's (NASDAQ: FB ) advertising revenue -- accounting for 88% of total revenue -- soared 61% in the company's second quarter. As businesses increasingly shift a larger portion of their advertising budgets to Facebook, it's natural to wonder: Is it detracting from the experience?
Ads don't bother users
During the company's second-quarter earnings call, founder and CEO Mark Zuckerber addressed the concern.
"We haven't measured a meaningful drop in satisfaction when we asked people about their experience with Facebook," he said. "We're comparing that to the result we get when we asked the same question to people using a version of Facebook with no feed ads at all. ... Now, that said, in recent studies people have told us that they notice the ads more."
On average, about 5% of all stories in the news feed are advertisements, Zuckerberg said. Yet users remain satisfied, or at least Facebook hasn't "measured a meaningful drop in satisfaction."
An alternative measurement to satisfaction, though definitely not a perfect way to measure, is user engagement.
Are members (on average) using Facebook more often than they used to? Measured by daily active users as a percentage of monthly active users, yes. In Facebook's second-quarter results, the company's engagement rate reached 60.5%, up from 57.8% in the year-ago quarter.
Still, this metric has its limitations. As technology and the way we interact with the Internet continue to evolve, there are simply too many outer forces that could affect the metric, though it's helpful enough to keep an eye on for meaningful changes.
Another way to look at satisfaction is time spent per person on the social network. According to Facebook, it's continuing an upward trend.
Don't worry: Facebook won't spam you
I didn't expect Facebook to report any drop in member satisfaction because of ads. It wouldn't make sense for the social network to dissatisfy members with too many ads. Members and member engagement represent the company's value proposition to advertisers.
But if Facebook won't spam its members, how will it continue to boost average revenue per user, going forward?
Facebook plans to increase the number of marketers bidding for a spot on your news feed. Increasing the overall demand in Facebook's system will help Facebook improve the quality of ads by creating a more competitive auction. Zuckerberg says "this will create the best experience for people who use our products, the best returns for more marketers, and the best results for us."
What does all this mean for investors?
On average, members aren't bothered by Facebook's ads. Furthermore, Facebook doesn't plan on spamming members' news feeds. Facebook bears who dwell on this potential outcome are wasting their time. Facebook knows that its members are its first priority. And that's not just out of social responsibility -- it makes business sense, too. Furthermore, if you're a shareholder, I would rest assured that Facebook will remain a spam-free experience for years to come.
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