Investor excitement over CEO Mark Zuckerberg's decision to finally take the wraps off video advertising across Facebook's (META 2.76%) site earlier this year was palpable. And why not? In the earliest stages of its video ad testing phase over two years ago, Facebook was reportedly charging select marketing partners "lucky" enough to participate a whopping $1 million a day for the privilege.
It's no wonder investors were buoyed by the news earlier this year that video spots were going mainstream -- and according to COO Sheryl Sandberg, the lucrative ads have already begun making a significant impact on Facebook's rapidly growing top line. Turns out video testing across Facebook's site is ramping up again. But this time around, the select advertisers chosen will test spots that have the potential to make Facebook's existing video ads seem almost passé.
Welcome to the 21st century
Thanks in part to video ads and their impact on revenue, mentioning Facebook and Alphabet (GOOG 0.40%) (GOOGL 0.31%) in the same breath no longer seems a stretch. That said, as impressive as Facebook's record $4.5 billion in revenue was last quarter -- $4.3 billion of which came from advertising -- that's a drop in the bucket compared to Alphabets $18.7 billion in total sales, and $16.78 billion in digital ad revenue.
It is noteworthy that Facebook's digital ad sales jumped 45% in Q3, compared to the "mere" 13% year-over-year jump in ad revenue Alphabet enjoyed last quarter. In other words, the gap is closing as Facebook's widespread use of video spots helps to narrow the revenue gap with the search king. And Facebook just unveiled another version of video spots that could really give Alphabet a run for its money.
It was a couple of months ago that Facebook first introduced its "360 Video", which gave publishers the ability to post immersive, virtual reality-like (VR) video on Facebook's Newsfeed. As per a recent announcement from Facebook, there are already "thousands of unique and exciting 360 degree videos" posted. Perhaps the most intriguing aspect of Facebook's immersive video alternative is that it now has several big name brands testing the technology as a new advertising format.
Video is already recognized by advertisers as a step up from old-school banner ads, as evidenced by the higher fees Facebook, and Alphabet's fast-growing YouTube property, are able to command. With immersive, VR ads on the horizon, digital advertising could be on the cusp of a dramatic shift for the better -- and Facebook is leading the charge. If marketers are willing to pay $1 million a day for regular video spots, imagine the fees for ads that allow viewers to become part of the "story".
A few more specs
A key reason Facebook boasts an average of eight billion video views daily, up from four billion just seven months ago, is its compatibility with both iOS and Android mobile devices -- compatability the new 360 videos share. Facebook said it has also provided a site chock-full of resources for 360 video publishers in an effort to make the development, editing, and uploading as seamless as possible.
Facebook "friends" with a Samsung Gear VR mobile headset are able to take the immersive feel of the new 360 videos to an entirely different level. And you can bet the introduction of Facebook's own Oculus Rift VR solution, slated for early next year, will provide users with yet another means of enjoying the 360 video experience -- including ads.
How long will it be before Facebook's 2.5 million marketing partners, or at least those that can afford it, have access to the new video ad technology? If the past is any indication, investors shouldn't expect a mass rollout -- or the likely subsequent jump in revenue -- in the near-term. It was a couple of years before traditional video ads were "let loose," and the testing phase of monetizing Instagram also took a while.
But that's Zuckerberg's way: get it right before introducing even potentially game-changing technologies and advertising alternatives. As if WhatsApp, Messenger, the newly monetized Instagram, and Oculus Rift weren't enough arrows in Facebook's quiver, now add the potentially game-altering 360 video ads into the mix, and Facebook's growth potential really skyrockets.
