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Why YouTube and Facebook Inc. Face an Uphill Fight for Video Ad Dollars

By John-Erik Koslosky - Sep 23, 2015 at 12:18PM

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Delivering an audience is only half the battle for the big players in online video. Winning ad dollars is going to demand more.

Source: www.facebookbrand.com

Video is becoming a bigger part of your Facebook (FB -5.12%) news feed every day, but it still remains a largely untapped source of revenue for the world's biggest social network.

That's sure to change over the coming months and years, as Facebook sinks more research-and-development money into monetizing its growing number of clips, and it encourages users to upload their video directly to Facebook, rather than link to other platforms.

The social network's stepped-up efforts in video are setting up a showdown with Google's (GOOG -3.69%) (GOOGL -3.93%) YouTube, the long-standing king of online video.

But as video continues to become a bigger part of our everyday use of the Web, the two heavyweight contenders share an uphill battle: proving to businesses that digital video ads work better than other options.

Recent research cited by eMarketer makes it clear that many companies remain skeptical of the format as an effective advertising tool.

Some 40% of businesses surveyed by Strata said they were skeptical as to whether they were getting a good return on their investment in online video ads, while another 5% were confident that they were getting a bad return on their ad dollars. 

Source:www.youtube.com

That's 45% of businesses that are spending their marketing money on online video ads that really aren't sure online video is a good place to invest their money.

Big growth on the way
Digital video is the fastest-growing area of advertising today. Overall digital video advertising grew by 52% between 2013 and 2014, according to eMarketer. It's set to nearly triple from there -- to a $14.4 billion market -- by 2019, according to eMarketer projections.

And although there will be a host of other players vying for digital video ad dollars – from Apple to Snapchat to Twitter's Periscope -- Facebook and Google, both of whom reach an audience of more than 1 billion people, will likely take the lion's share of revenue moving forward.

But that also means those companies have the biggest stake in convincing marketers to spend their ad dollars on video.

Facebook video growth is surging
As of June, more than 4 billion videos were being seen on Facebook every day, Fortune reported. That was up four-fold from a year earlier. That growth is a product of the social network's efforts to make video easier to upload and share. What's more, while just a little more than a year ago, three-quarters of the videos shared on Facebook were links from YouTube or other sites, nearly 70% are posted directly to Facebook today, the magazine reported.

But Facebook has also been working on developing better ad measurement, and executives have stressed that doing so is key to winning ad spending.

Sharing success stories
COO Sheryl Sandberg had anecdotes ready to share for the July 29 conference call to highlight Facebook's efforts on this front. Here are two:

When Acura launched the TLX ... they used Facebook video to show the TLX in scenarios that quickly captured people's attention, like imitating a roller coaster. They then used our retargeting technology to show more detailed ads only to the people who watched the videos. Using conversion lift, they proved that Facebook ads directly drove vehicle sales.

Live Nation knew that people browsed for concert tickets on mobile devices, but they were never able to measure whether they converted into sales. Using Atlas, Live Nation was able to link their mobile ads to 66% more ticket purchases for one of their largest artists.

A more transparent picture
Both Facebook and YouTube have also recently agreed to become much more transparent in terms of letting advertisers verify how many of the ads they place are actually being seen.

YouTube has boasted that its platform has far better viewability of video ads than the web at large. But companies have been skeptical of in-house metrics and have wanted a better look at the data.

That led to YouTube's recent announcement that by the end of this year, it will provide access to third-party verification groups so companies can independently track performance. That should help allay advertisers' concerns.

In Thursday, Sept. 17, Facebook followed suit. The twist there is that Facebook has chosen an independent third-party to work with, Moat, the same company that provides viewability stats for Twitter.

Just the start
The fight for digital video is just beginning to heat up. But the real battle may be decided not by which platform does the best job getting people and businesses to upload their videos -- or which company can boast bigger views -- but rather which company can demonstrate to advertisers that it can provide the best bang for the buck.

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