Will Video Significantly Boost Facebook’s Revenue?

Recently, news broke that Facebook is testing video advertisements that will show in its users’ news feeds. Will Google and Yahoo! allow Facebook to boost its revenue?

Jan 4, 2014 at 10:00AM

Recently, news broke that Facebook (NASDAQ:FB) is testing video advertisements that will show in its users' news feeds. Management has stated that the ads will be shown on both the desktop and mobile versions of its website. If Facebook can successfully navigate this sector, it will have a powerful catalyst to generate revenue in 2014. Online video is becoming the preferred means to gain the attention of users. Mobile and video are leading the way, and the potential of online ads is enormous. Facebook will certainly use its auto-play feature to maximize charges for video. Here are three key reasons why video can significantly boost Facebook's revenue: 

What's the big deal?
Online video advertising isn't new, but it is becoming the way to get the attention of users. Video is attractive because online consumers are 27 times more likely to click video ads than traditional media. Facebook's video would ensure that a prospective advertiser's audience will view at least some part of the message. Consequently, Facebook will be able to generate revenue from video and potentially begin to steal a significant advertising share from television.

The potential is enormous
In July alone, there were approximately 48 million video ad views in the U.S. Facebook accounted for just 741 million. Google (NASDAQ:GOOGL) had 17.7 billion views and will generate $5.6 billion in revenue in 2014. How will Facebook benefit from video? Online advertising is expected to double, and digital ads will lead this astronomic growth. Facebook's long-awaited video advertising solution should make revenue jump exponentially.

Possible impact on revenue
Facebook will certainly use its auto-play feature to maximize what it will charge for video ads. According to Bloomberg, Facebook will charge between $1 million-$2.5 million per day for 15-second video ads. This projection does not seem unrealistic, considering the fact that every night 88 million-100 million people in the U.S. actively use Facebook. 

The video ads market is dominated by Google's YouTube. The website is a pure video-sharing social platform with a huge content library. It began a partner program six years ago, with numerous creators from over 30 countries participating in the project. The company's Helpouts is a new video service that connects individuals seeking help with experts via real-time online video. Through targeting, Facebook hopes to challenge Google. Facebook's personal, demographic, and interest data regarding its user base make its targeted campaigns more accurate than the average online reach of its rivals.

Also, video is of great importance for Yahoo! (NASDAQ:YHOO). It is investing in a romance series for its video portal and owns video and photo-sharing sites. The company also recently acquired Evntlive and Ptch. Both companies cater to the expanding online video sector, but will be closed as their teams are assimilated into Yahoo!. Higher engagements through video content across Yahoo!'s platforms can lead to improvements in its performance metrics.

Final Foolish takeaway
Facebook made the right decision investing in video to grow its earnings in 2014. Online video is becoming the means to gain the attention of users. The potential in online ads is enormous, as it is expected to double shortly. Finally, Facebook will use its auto-play feature to maximize charges for video. Despite its recent entry into the video advertising sector, Facebook is worth a closer look. As always, Foolish investors should do their own research before making any investment decisions.

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Mark Girland has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and Yahoo!. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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