Facebook Catches the Advertising Wave of the Future

What a dilemma. On one hand, Facebook (NASDAQ: FB  ) has made it clear it doesn't want to ruin the user experience by overloading its pages with an endless stream of ads. On the other hand, Facebook needs to continue growing revenue to justify its skyrocketing stock price. What is a social-media giant to do?

The answer to Facebook's predicament was revealed today with its new video ad solution. Online video advertising isn't new by any means, but it's quickly becoming the avenue of choice to reach prospective customers. Video's equivalent to traditional advertising's click-through rates are through the roof. Which is why today's news should have Facebook investors feeling awfully good.

What's the big deal?
In July alone, there were about 48 billion video ad views in the U.S. Not surprisingly, video ads are dominated by Google (NASDAQ: GOOGL  ) sites: It accounted for almost 17.7 billion of those 48 billion views. Google's YouTube, the leader in all things video, is expected to generate as much as $5.6 billion in revenue next year.

The number of video ads U.S. users viewed on Facebook was a very, very distant third at 741 million, a mere pittance of the overall video ad market. And therein lies Facebook's opportunity.

Online advertising is expected to nearly double in the next few years, accounting for more than a third of all media revenue by 2016, and that explosive growth will be led by digital ads. Why the shift to video? The answer's simple: it works.

Here are a few tidbits that have video advertisers salivating: Online consumers are 27 times more likely to click on video ads than traditional banners, more than 70% of in-stream ads (those that run automatically, like Facebook's new vids) are viewed to the  end, and nearly 80% make it at least halfway through. The list goes on, but you get the point. Advertisers will pay handsomely to get the attention of users.

Facebook began testing the much-improved auto-start videos in September as an "easier way to watch video" sent from friends. The difference is soon Facebook will be able to generate revenue from video, and the potential is enormous.

The moneymaker
The announcement today that Facebook is beginning test runs of a new auto-play video-delivery service for advertisers, in both mobile and desktop formats, is where things really get interesting. Unlike old-school-video ads -- from just last year, for example -- that required users to click on a start button, Facebook's video advertisements will automatically run when they load on the screen.

Facebook's auto-play feature virtually ensures that a prospective advertiser's audience will view at least part of its message, making it a huge selling point that Facebook can, and most certainly will, use to maximize what it charges for video ads. Some industry pundits suggest Facebook will charge north of $2 million for a day-long run of 15-second in-stream video spots. If that turns out to be even close to reality, Facebook's advertising revenue will jump exponentially, without having to inundate users with ads.

Final Foolish thoughts
Catching the auto-play video ad wave has been a long time coming, but that will quickly become a moot point when revenue jumps, without negatively impacting the Facebook experience. That's a winning combination that should appease both investors and users alike. Stealing a few of the ever-growing ad dollars from the likes of Google wouldn't be a bad thing, either.

The cost of the new ad format is just conjecture at this point, and by extension the potential on top-line growth. But with the results advertisers can expect from videos auto-playing on the world's most popular social-media site, that $2 million-a-day estimate may not be far off.

A few more growth alternatives
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2768399, ~/Articles/ArticleHandler.aspx, 4/18/2014 2:30:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement