Digital advertising is poised for continued growth in the coming years, and a good number of companies should benefit from that trend.
But a small few are likely to reap the biggest rewards. In the realm of social media, the big winner almost surely will be Facebook (NASDAQ:FB), and we can look at one key reason why it should leave Twitter (NYSE:TWTR) and smaller rivals in the dust.
According to recent industry research from eMarketer, the single biggest concern for companies that are spending ad money on social networks like these is their return on investment. They want to see, in some quantifiable way, that their ad dollars are converting into tangible results that benefit their businesses.
This is good news for Facebook investors. Why? Because Facebook stands tall over all of its social media rivals in this area. Some 96% of advertisers reported that the company delivers the best return on their ad spending.
No other social media company even comes close.
Facebook's success in this area comes down to a few things:
- The company continues to look for new ways to measure advertising success.
- It executes well in getting those tools into place and getting companies using them.
- It takes every opportunity to share stories of advertising success.
Facebook likes to talk about its winning ad campaigns
Facebook executives don't miss a chance to highlight examples of their advertisers' ROI. In the last quarterly conference call, COO Sheryl Sandberg told analysts about an interactive video ad campaign that Lowe's built on the Facebook platform appealing to millennial do-it-yourselfers. "The ads were so engaging that people spent an average of 28 seconds interacting with them, and Lowe's saw a 6.7 times return on ad spend," Sandberg said.
She also noted how Chase used one of Facebook's ad products to piggyback on TV ads for the Super Bowl, driving "1.5 times more conversions than TV ads alone."
Stories like these have become a regular part of the company's prepared quarterly remarks.
Putting those stories into context
Those are anecdotal, of course, and just about every digital ad platform could boast of a few success stories advertisers have had.
But Facebook's overall performance backs up these stories of success. Year-over-year growth in advertising revenue rang in at 57% last quarter. Mobile advertising, the single biggest driver of revenue for the company now and in the near future, came in at an even more impressive 76%.
The important takeaway for investors is that Facebook, while already far in front of its competition in terms of providing ROI, is continuing to invest in technology that helps its advertisers measure their results and achieve a continually better return on their advertising efforts.
"We remain focused on driving our clients' businesses -- moving their products off shelves both in stores and online," Sandberg said. "A big focus for us in 2016 is helping our clients understand the true business impact of their ads, especially on digital."
That's the work that has the potential to not only maintain but strengthen Facebook's commanding position in the social and mobile arenas.
It also provides a lesson to Facebook's smaller competitors. To survive in this hypercompetitive ad market, you need to be able to deliver results -- not just have an audience.
"We're pleased with the value we're driving for our partners," Sandberg said. "We have a lot of hard work ahead, and we'll continue to invest."
Others can learn -- and they need to, fast
Although Twitter ranks second in eMarketer's ROI survey, the company has had its struggles in this department. Complaints about ROI on Twitter's platforms have been common in recent reports about the company's struggles to win over and retain advertisers.
Again, those complaints are largely anecdotal in nature, but they seem to be backed up by Twitter's declining ad revenue growth, which dipped to 37% last quarter -- it is now half what it was a year earlier.
While digital-ad heavyweights Facebook and Alphabet are working to deliver next-generation ROI measurement -- tying ad views to metrics like store traffic and product sales -- Twitter is still touting increasing click-through rates. It's a familiar measurement for companies familiar with digital advertising, but it's an old technology that is giving way to more tangible metrics.
Facebook is winning advertisers' trust, and as long as it continues to do so, it will win an increasingly larger share of their ad dollars. Success for competitors like Twitter might hinge on their ability to better mimic social media's leader.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John-Erik Koslosky owns shares of Alphabet (A shares), Facebook, and Twitter. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. 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.