It's no secret that Facebook (FB 1.18%) CEO Mark Zuckerberg determined long ago that simply throwing more ads onto its platform to grow revenues, while appeasing investors in the near term, would eventually erode its user base. Let's face it, no one wants to log onto their social media site of choice and be inundated with ads. Sure, revenues would grow for a while, but users would quickly tire of the advertising overload and find other places to play online, and investors would likely join them on their way out the door.
Facebook's upstart wannabe, Twitter (TWTR +0.00%), knows all too well that increasing its active user base is only part of the revenue growth equation -- user engagement is another. So, how does a social media platform continue to grow ad revenues to placate investors, without ruining the user experience? Facebook thinks it may have a solution, and it needs your help to make it work.
Give Facebook a hand
Facebook's internal algorithms are what drive its extremely adept ad targeting efforts. With a whopping 1.32 billion monthly average users, or MAUs, Facebook's technology infrastructure is able to capture and collate massive amounts of user data. Combining all that information with its algorithms results in Facebook being able to target specific ads, to specific users, to show them ads they're more likely to be interested in.
Of course, targeting the right ad to the right user doesn't always work, which isn't surprising considering the sheer volume of Facebook MAUs. Not to mention Facebook's legion of 1.5 million active advertisers and literally millions upon millions of possible ads to select from on any given day. How does Facebook improve their targeting of ads even further, thereby improving results, enhancing the user experience, and appeasing investors with continually growing revenues? The answer is you.
Facebook issued a statement on Thursday stating they've taken two important steps to help improve its ad targeting and user experience. Facebook users have been able to "hide" ads and posts in Newsfeed for some time now, that's nothing new. In fact, Facebook already uses that data, who hid what ads and when, for future targeting efforts.
What's new as of Thursday is that Facebook will begin asking you why you chose to hide an ad. In its announcement, Facebook also said it's going to pay special attention to feedback from users that rarely opt out of an ad, recognizing if it's a rarity, there's likely something really wrong with that particular ad choice.
Going forward, if a user opts out of an ad, a dialogue box will pop-up asking, "Why don't you want to see this?" Facebook said its soliciting feedback because, "We've learned that the reason why someone hides an ad can be just as important as the hide itself." There's also a chance a user may find an ad offensive, which Facebook would like to know about and remove, if appropriate.
What's the big deal?
Facebook is nearing its first-ever quarter of $3 billion in revenues, jumping 61% in 2014's Q2 to $2.91 billion. If you're a Facebook user, you probably haven't felt like you've been inundated with ads, even as Facebook grows by leaps and bounds. By continuously finding ways to better target its ads, Facebook is able to keep its users happy and engaged, which in turn equates to better results for its advertising partners. That's why Facebook is able to charge some of the industry's highest ad rates and continue announcing blow-out quarters. One of the biggest knocks on Twitter, in addition to slowing user growth, is the level of user activity is under pressure. That's what happens when users aren't engaged. For shareholders and fans of Facebook, that's not likely to be a problem.
Final Foolish thoughts
With so many users around the globe, Facebook's new initiative to elicit specific feedback will add to its already impressive collection of data -- in-depth, actionable data. The notion that Facebook will soon be in a position to target its ads even better than today, increase revenues by generating improved results for its 1.5 million advertising partners, and all without ruining the user experience, is a winning combination if ever there was one.
As if Facebook's 42% jump in share price year to date wasn't enough to leave shareholders feeling giddy, now investors can personally help Facebook continue its ascent to the top of the digital advertising mountain.
