Spending on Facebook Inc Video Ads Is Exploding -- but Will Customers Stick Around?

Image source: Facebook.com/business.

Facebook's (META 0.43%) push into digital video -- and the advertising that accompanies those clips -- has been showing early signs of success. The company boasted last quarter that it now averages 8 billion video views on its properties every day. Now, we're starting to learn how all of those views are starting to translate into cash.

Ad management agency SocialCode reported last month that video ad spending in 2015 at Facebook more than tripled over the corresponding nine months a year ago, and had, for the first time last quarter, eclipsed what advertisers were spending on photo ads on the social network.

SocialCode chalked it up to Facebook's decision to start selling video ads much the same way that TV networks have been selling their available airtime to advertisers for decades. But while Facebook is finding early success in video advertising by taking a step back into the past, its long-term success will require it to march forward with innovation -- and convince advertisers to follow along.

There's a lot at stake for the social network, which believes digital video will become a larger part of its users' content consumption as time goes on. The U.S. digital video ad market is expected to grow from less than $6 billion last year to nearly $15 billion in 2019, according to Statista.

Stepping back to move forward
Before we go further, let's take a look back at the changes Facebook has made and why they matter.

The company announced in September that it was shifting its digital video ad buying to a system based on something called "target rating points." This is similar to what's been used by television networks since the 1950s.

It's old, and it's antiquated when compared to the data-driven analytical tools used across the digital world today. Consider this description from AdAge:

Advertisers and agencies will need to call or email a Facebook sales rep with the details of the video ad campaign they want to run. The brand or agency will tell Facebook the age and gender of the audience they're looking to target and what share of that audience on Facebook they want to buy ads against. The rep will then quote them prices for maximum reach, minimum cost per ratings point or a combination of the two, and the brand or agency will have up to seven days to complete the deal.

It's a throwback, all right.

"Resonating ... in a big way"
Advertisers nevertheless like it for a number of reasons: It's familiar, and it allows them to use Nielsen's measurement tools to see if the advertisements they are spending their money on are reaching the target audience, and to compare their results against their Nielsen-measured ads on TV.

SocialCode's study offered evidence that advertisers were pleased with the changes. It analyzed more than $500 million spent by SocialCode clients on Facebook ads in the quarter. Those companies, it says, make up more than a quarter of the Fortune 500.

It found that spending was up 206% in 2015 over the prior year, and that most of those gains came late in the year -- a result of the target rating point system. SocialCode's conclusion: "[T]he platform's video ad products are resonating with marketers in a big way."

Spending on video ads accounted for 29% of all the money spent on Facebook ads in the third quarter of this year, up significantly from the 23% spent on video ads in the second quarter. Even more impressive, video as a share of overall spending by Facebook advertisers more than doubled, year over year, from the 14% share it made up in the third quarter of 2014, SocialCode reported.

Innovation is still the key
There's no guarantee this early success in selling video advertising will hold up. Although advertisers are shifting their dollars in that direction now, keeping their dollars flowing into Facebook video is another matter.

In an Internet Advertising Bureau study from April 2015, advertisers noted the need for developing metrics comparable to what is used in TV advertising as a way to increasing interest in digital video advertising.

Facebook has gotten out in front in that regard.

But under the "perceived obstacles" area of the IAB study was a matter involving return on investment. The first recommendation of those surveyed called for research demonstrating digital video's "effectiveness at increasing sales and impacting branding."

With video ad buying surging more than 200% over last year, it's clear that the target rating point system is drawing advertisers in. But keeping them there for the long term many be the tougher challenge. With an ever-expanding number of ad platforms emerging in digital, Facebook's work in developing better and more customized measurement systems is crucial to its ongoing success in this arena.