Considering that Facebook (FB 1.18%) served over 557 million videos to its U.S. users in February, it's only a matter of time until the social network starts monetizing this untapped revenue stream. According to AdAge, Facebook is currently finalizing video ad formats, and is on track to go live with embedded video advertisements by June or July. Although Facebook has gained the reputation that its advertising platform is "cheap," these video slots are expected to fetch top dollar. Facebook is hoping to bring in close to $1 million for a daily run of a 15-second slot. In other words, Facebook is hoping its massive scale can tap into fat-cat TV advertising budgets.
Outcries to follow
Whenever Facebook makes a sweeping change to the user experience, the company runs the risk of damaging its reputation with users. Facebook has to find that difficult to define balance between high user engagement and monetization levels. AdAge believes Facebook will limit video ad frequency per user to no more than three per day, which would show the world (and investors) that Facebook isn't willing to structurally damage the user experience.
Google's (GOOGL -1.34%) YouTube is living proof that video advertising can be done effectively without detracting from the user experience. In February alone, YouTube served over 2.2 billion ads to 150.7 million U.S. viewers. Yes, you read that right -- YouTube served 2.2 billion video ads out of a possible 11.3 billion videos streamed by U.S. viewers. With these kinds of numbers, it's hard to argue against Facebook wanting to monetize the videos to its one billion-plus worldwide user base.
Where it matters most
To be a long-term investor in Facebook, you must have a high degree of confidence that the company is on the right track in mobile, because more than 60% of its users access the site on a mobile device. Video ads could prove to be a tremendously effective way to drive cross-platform monetization, regardless of whether the user engages on the desktop or mobile version of the site.
Now, the bigger question is whether those deep-pocketed TV advertisers will get behind Facebook's vision. With General Motors back on the Facebook wagon, the timing couldn't be any better for Facebook to catch a few whales.