In today's world of rapid-fire Internet access, "buffering" is a word many under the age of 30 have never heard. Slow downloads of images or video? Not a problem, be it a mobile device or PC. Faster connectivity speeds has opened the Internet floodgates to gaming, streaming movies, and TV shows, and paved the way for digital advertising giants like Google (NASDAQ:GOOG)(NASDAQ:GOOGL) to generate significant revenue using video ads.
If the advent of video ads sounds familiar to Facebook (NASDAQ:FB) fans, it's because CEO Mark Zuckerberg and team have discussed the notion of including video as part of its advertising arsenal for some time now. Recent acquisitions and successful test runs have fueled the Facebook video ad discussion, as well it should. According to the latest data, video ads are in a league of their own in terms of results, meaning every day Facebook delays rolling out video to its legions of advertisers, is a day competitors like Google pull further ahead.
Video ads work, it's that simple
Google's wildly popular YouTube property is expected to generate about $5.9 billion in revenue this year alone, and could jump as high as nearly $9 billion by next year, according to one analyst. Not a bad return on Google's $1.65 billion investment all those years ago. The reason YouTube has been so successful for advertisers is video spots provide marketers with the means to not only tell more of their product's story, it gives prospective customers the chance to "see" it in action. Video is also an excellent medium for marketer's branding campaigns, an area of growing interest for online advertisers.
As per a recent report from eMarketer, video ads result in nearly twice the number of first-time purchases by customers than traditional ads, like the kind currently found on Facebook. Zuckerberg's done a great job of collecting and analyzing user data to better target traditional, image-based ads, as Facebook's outstanding quarterly earnings reports indicate. But regardless of how much data is garnered, and how specific Facebook's targeting has become, video spots simply can't be touched in terms of results.
What's Facebook waiting for?
When Facebook announced its 2014, Q1 earnings report, the numbers were off the charts. Revenues shot up over 70% compared to the the first quarter of 2013, user numbers were up, mobile accounted for 59% of sales, and the list of accolades goes on. But as positive as Q1 was financially, and Q2 was every bit as impressive, Zuckerberg and Facebook COO Sheryl Sandberg put a damper on the good tidings when asked about video ads.
Video, along with monetizing Instagram, which will likely include video spots in addition to Facebook's traditional ads, "won't add meaningful revenue anytime soon," Sandberg said during Q1's earnings call. News of the delay in rolling out video wasn't enough to keep Facebook's stock price down, nor should it have after posting such positive results. But what's Facebook waiting for? According to Sandberg, Facebook's "moving slowly" on its video ad initiatives to ensure it gets it right. It makes sense; throwing video ads onto Facebook before they're fully operational would be a mistake.
But how much longer are we talking about here, Facebook? As YouTube nearly doubles its revenues annually, not to mention growing at a pace over twice that of Google, Facebook is still on the sidelines trying to get its video ads just right.
Final Foolish thoughts
To its credit, Facebook hasn't sat idle trying to get video ads ready for prime time; as its acquisition of video tech specialist LiveRail in July for a reported $500 million indicates. LiveRail offers marketers a quick, easy means of matching videos with the appropriate web publishers, including mobile spots. And Facebook continues to test video ads with some its largest customers, which is all well and good.
It's been suggested that Facebook is able to charge as much as $1 million a day for the few video ad customers it has currently; an amazing figure considering it's still in a beta stage. But the per-spot fees Facebook is able to garner for video also reinforces just how much revenue isn't being generated -- yet. If Zuckerberg needs to throw another team of tech-geeks on the video task force to jump-start a mass rollout, he should do it, because every day without video ads is another lost opportunity.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). 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.