This summer, Facebook (NASDAQ:FB) surpassed Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube as the No. 1 platform for streaming videos on desktop computers. Facebook edged out YouTube by autoplaying videos in users' Newsfeeds, which is great for numbers and headlines, but lacks the engagement necessary to actually compete with YouTube for ad dollars.
Facebook's desktop video traffic reached 12.3 billion views in August, a billion more than YouTube. But YouTube still dominates the revenue share of video ads, accounting for nearly 20% of the market. eMarketer expects YouTube to generate $1.13 billion in video ad revenue this year.
If Facebook wants to start taking share from YouTube, there are three main things it must do first.
Implement a serious search function
One of YouTube's greatest strengths is its ability to know what you're looking for even if your search terms don't quite hit the mark. Of course, its search engine is powered by Google, which has arguably the best search technology in the world.
But Facebook has a few things at its disposal that can help. Most videos are shared through Facebook and by word of mouth from friends (most of whom are friends on Facebook, too). Facebook can use its users' social graphs to help determine videos users are actually looking for.
Graph Search has been a disappointing product thus far with limited capabilities. Twitter's search function is far superior, and is a key feature for content producers. Searching for a web address on Twitter allows publishers to find conversations about their content and engage with the audience. Facebook lacks even this simple functionality, which prevents a lot of publishers from engaging with their audiences.
Implementing a search function would help increase the number of engaged viewers while encouraging publishers to interact with their audience.
Facebook has a problem with copyrights. Currently, there's nothing stopping a user from ripping a video from YouTube or Facebook, and uploading it to Facebook as his own. Users do this as a way to easily build an audience off of someone else's hard work. It's a problem that video producers say is growing more common every day.
YouTube implements a software system called Content ID, which helps identify copyrighted material and alerts the copyright owner. Copyright owners are then able to request the video be removed, left alone, or they can run advertisements behind it. Essentially, copyright owners can fully capitalize on the viral-ness of the videos they make with the help of Content ID.
Implementing Content ID isn't difficult or costly. If Facebook wants to gain the support of content producers, it must police copyright infringement more effectively.
The only incentive for publishers to upload videos directly to Facebook is to increase their reach. While that's a good enough incentive for some, offering video makers a chance to make some money is a much better incentive. That's how YouTube has been able to draw high-quality content producers to its platform.
Earlier this year, Facebook acquired LiveRail, which helps publishers monetize their video inventory. The acquisition indicates Facebook intends to make a bigger push into video advertising beyond stand-alone video ads.
Last year, YouTube changed its revenue split policy, doling out 55% of ad revenue to content producers. Once a video reaches a certain number of views, however, 100% of the incremental ad revenue goes to the creator. This model incentivizes high-quality content.
If any company can compete with Google on advertising, it's Facebook. The company's newly acquired LiveRail fits perfectly into monetizing short-form videos and Facebook's ad targeting is on par with (if not better than) Google's.
A "very big priority"
On Facebook's third-quarter earnings call, CEO Mark Zuckerberg told analysts video is "a very big priority." To make video a priority Facebook needs to work to increase engagement with videos, decrease the amount of stolen content on the platform, and incentivize high-quality content through revenue sharing. Facebook is more than capable of executing on all of these tasks.
Not only will monetizing videos allow Facebook to generate incremental revenue from video ads, but more video content will increase engagement on the website. In that way, Facebook will be able to benefit from the additional time spent on its website through its typical display ads as well.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), 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.