If digital publishers had to update their relationship status with Facebook (NASDAQ:FB), they would most likely select "it's complicated." For websites, Facebook -- and its approximate 1.7 billion worldwide monthly active users -- is, by far, the most important digital outlet. So understandably, it makes sense for websites to maintain a strong presence on the social-media network.
For example, last year, eMarketer estimated that Facebook accounted for 30% of all digital-advertising revenue, and a massive 38% of fast-growing mobile advertising revenue. Websites like BuzzFeed have grown to billion-dollar valuations, in part, by focusing on optimizing their content for Facebook's likes and shares.
The downside to this dominance, however, is extreme market power. Any small change Facebook makes has the potential to severely disrupt the business model of these publishers. In 2014, Facebook changed its News Feed algorithms to emphasize what it described as "more relevant news." As a result of Facebook's ranking change, liberal viral news site Upworthy endured a traffic drop of nearly 50% in two months.
In an article from Fast Company titled, "Did Facebook Just Deliver A Crushing Blow To Native Advertising?" Facebook appears to be modifying its algorithms again... and publishers are understandably nervous.
Native advertising: What is it and why is it now so popular?
The biggest trend in digital marketing is the rise of native advertising. It's a pretty simple concept: Instead of news organizations clearly separating advertising from editorial content, these would essentially be combined into one article.
Whether native advertising is ethical or not is heavily disputed (more on this later); but what isn't disputed is native advertising's effectiveness. A study from marketing company Dedicated Media found native advertising resulted in 53% more views, with 53% higher purchasing intent.
One reason for the shift away from traditional banner and pop-up ads to native advertising is that the latter is mostly excluded from ad-blocking technology. As digital traffic shifts to mobile, which is metered by the gigabyte, the number of users putting ad-blocking technology on their smartphones and tablets will increase while native advertising, especially the ads distributed on Facebook, are mostly immune from ad blocking.
Facebook's update increases transparency... an unfriendly move for many publishers
Any advertisement, native or traditional, is judged by effectiveness versus cost. And native advertising is expensive, costing three-to-four times more than a banner ad on account of its perceived effectiveness. Before Facebook's recent change in April, publishers were not allowed to share native advertising, or branded content, on their pages. In reality, there was an easy way around this rule: Create a second page specifically for sharing branded content.
Now, Facebook allows publishers to share native advertising on their home pages, but has the requirement that the publisher tag the advertiser in the post. While it sounds like a win for websites dependent upon marketing revenue, Fast Company points out two problems digital publishers have with this approach. The first is that tagging allows the brand paying for marketing direct access to the post's marketing metrics, like cost-per-click and total reach. In the event these numbers are lower than the numbers the publisher promises, it could result in lower ad rates.
The second is the outward-facing aspect of the tagging feature. The knock on native advertising is that it essentially tricks readers into ad engagement under the guise it's legitimate editorial content. Having to tag the brand in the post would most likely alert Facebook users to the fact that this is a native ad, and decrease its overall effectiveness.
Fast Company quoted several unnamed people in the marketing industry who hypothesized that Facebook is doing this to encourage advertisers to pay publishers only for content creation -- or possibly design their own content in-house -- and pay Facebook directly for clicks (distribution) rather than going through the publisher -- which is essentially nothing more than a middleman for distribution of native ads on Facebook.
Facebook has the upper hand
For publishers, it's clear that Facebook has the power in this relationship. Websites may have millions of followers on Facebook, but those are Facebook's users. In the event Facebook chooses to change the rules of access, or chooses to monetize its user base in a more-effective way, publishers will have to accept those changes. In the end, it's unlikely that Mark Zuckerberg wants to destroy digital publishers, but has a primary responsibility to his shareholders.
While digital and mobile advertising is increasing at a torrid pace, it's quickly becoming a consolidated market. As previously stated, Facebook was responsible for 30% of all digital ad revenue, and 38% of all mobile ad revenue. If anything, it appears these figures will only increase going forward.
Jamal Carnette owns Facebook. The Motley Fool owns shares of and recommends Facebook. 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.