You might soon be getting your news from Facebook (NASDAQ:FB), if you aren't already. The New York Times reported the social network is in talks with news and content publishers including the newspaper itself, BuzzFeed, and National Geographic to host content on Facebook's site. Ostensibly, the move will help articles load faster, but it also presents some risks for publishers and serious benefits for Facebook.
Hosting professional content will keep Facebook users on its site longer and increase its opportunity to display advertisements. In the long run, it could even threaten Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) display ad business, which partners with content publishers to place ads on their sites.
Why would publishers give up control?
On the face of it, it seems foolish (with a lowercase f) for publishers to give up control of their content to Facebook. They gather data, often sell their own advertisements, and some sell subscriptions. If Facebook hosts their content, their ability to do those things is greatly diminished.
Facebook could be open to sharing data with publishers, but it's certainly going to keep it for itself as well. It might be open to revenue sharing as well, and has reportedly acquiesced somewhat by allowing publishers to place a single ad within their content, according to The New York Times. It will be tricky to sell subscriptions to content hosted on Facebook, but the social media giant might work with publishers on this if it convinces them to come on board.
Still, there seems like very little reason for publishers to take the risk.
Except that Facebook sends a ton of traffic to publishers every day. With 1.4 billion active users, Facebook accounts for as much as 60% of traffic for some major Web publishers. And Facebook has shown a willingness to change up its News Feed algorithm for the benefit of "user experience." It did so last year when publishers noticed that video content uploaded directly to Facebook performed significantly better than videos embedded from YouTube.
In a world where publishers are competing against one another for eyeballs and placement on the Facebook News Feed, it makes perfect sense for them to give up control of their content to Facebook in exchange for more traffic.
How does Facebook benefit?
The benefits for Facebook are many. First and foremost, it can claim a better user experience as pages load faster if they're hosted on Facebook. Content could be easier to read on mobile devices as well if the publisher's mobile presence is lacking.
More than that, however, Facebook benefits from additional time on site. If users aren't being ushered to a new site, Facebook has a better opportunity to get them to return to its page after they're done reading whatever it is that drew them away. That means more opportunities to show them ads.
Hosting content also enables Facebook to collect more data on its users' interests. That allows the company to target its ads better, and thus charge a higher rate to advertisers and increase its average ad revenue per user.
While Facebook doesn't seem to plan to host its own advertising within partners' content, it could opt to do so down the road. In fact, offering a revenue-sharing option for advertisements could open the door for Facebook to become a broader publishing platform akin to Blogger, Tumblr, WordPress, or Medium. That could pressure Google's display advertising business and generate significant revenue for Facebook.
Google should be afraid
If more publishers host content on Facebook, it means Google will likely see a decline in its partners' page views. It could be an even bigger issue on mobile devices. Google's share of the mobile ad market continues to dwindle at the hands of Facebook and its share of display advertising already lags well behind desktop. If Facebook eventually courts smaller publishers, it could strike a huge blow to one of Google's biggest money makers.
But Google's loss, in this case, correlates directly with Facebook's gain.
Adam Levy 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.
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