Streaming video is now an expected piece of the mobile experience. But in countries with poor Internet infrastructure, streaming video is far less common, as load times on 2G cellular connections can be painfully slow.
Meanwhile, video advertisements have been a boon for digital advertising companies such as Facebook (NASDAQ:FB). However, as Facebook saturates the developed ad market, it needs to find ways to grow advertising in emerging markets with slow Internet speeds.
That's why Facebook recently released Slideshow, a new ad format that helps advertisers easily create "video ads" from still images. As the name suggests, the ad units are really just slideshows and contain no audio. Still, they represent a way for advertisers to reach a wider audience and Facebook to increase the average ad price in emerging markets.
Reach the whole world
For global brand advertisers, Slideshow represents an opportunity for them to reach everyone in the world on Facebook without concern for users who have slow Internet speeds. Facebook says Slideshows ads can be up to five times smaller compared with video ads of the same length. That means videos will start playing more quickly, and more users will see the ad.
The simplicity of Slideshow could bring on more advertisers for Facebook. Small businesses in countries such as India or Nigeria might not have the budget to produce a video ad, but they could take a few pictures and turn them into a Slideshow. Doing so increases the value those businesses can get out of advertising on Facebook, increasing their willingness to spend.
Meanwhile, Facebook continues to expand its Internet.org initiatives, bringing free Internet access to more and more people around the world. Along with free Internet, Facebook is hoping to sign up more users to its social network.
While many have complained that Internet.org violates net neutrality by acting as a gatekeeper, it has converted about 40% of users into cellular data subscribers. Those users are key to growing Facebook and its ad business -- which, like most businesses, relies on customers willing to pay for things.
As the emerging markets grow, Facebook needs to figure out how to monetize those markets to keep growing.
U.S. versus the world
Facebook's user growth in the U.S. continues to slow down. In the second quarter, Facebook added just 3 million users in the U.S. and Canada sequentially, growing just 4% year over year. Meanwhile, Facebook's global user growth is driven by the Asia-Pacific and Rest of World geographies, growing 21% and 15%, respectively.
However, the regions closer to home continue to grow total revenue faster despite slower user growth. While part of that is due to the fluctuations in currency exchange rates, Facebook is simply capable of monetizing its U.S. audience better because of better ad options and more advertisers. With slower user growth, Facebook's attention can be turned to how to best monetize that audience.
While user growth has remained strong in emerging markets, monetization has lagged well behind. Average revenue per user in Facebook's Rest of World geography grew a dismal 5% in the second quarter; Asia-Pacific grew just 19%. That dragged ARPU down to 23% growth, despite robust results from Facebook's home market.
For Facebook to continue growing revenue at a high rate, it needs to make more efforts to monetize its audience in emerging markets such as countries in Africa, South Asia, and South America. Slideshow ads can help accomplish that goal on two fronts: by opening more markets to a single ad campaign from big brands, and by opening up video ads to more small businesses in emerging markets.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. 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.