Facebook advertising popping up in new corners
Facebook keeps finding new and potentially annoying places to sell advertisements in its digital hangouts.
That’s good news for the company’s bottom line, but it also may signal weakness.
Along with Facebook’s controversies of late has been a steady drip of disclosures about fresh spots for Facebook’s paid commercial messages.
The company recently started testing different types of ads in Marketplace and in Facebook Stories, its Snapchat-like video diaries.
One of its executives told Recode the company was experimenting with video commercials that play automatically in its Messenger chat app. Any time now, expect WhatsApp to start carrying advertisements for the first time after its CEO quit over disagreements that included selling ads in the private chat app.
The lesson of Facebook’s six years as a public company is that it’s incredibly adept at making money, largely by finding new places to stick ads and by tailoring them to the specific needs of hotels, e-commerce businesses or other companies trying to reach potential customers.
It’s only logical for Facebook to keep extending the reach of its ad placements into hangouts where people are spending more time — and right now those include Facebookowned Instagram, its video diaries, the surface of what’s possible with better access to space, but we know it will play an enormous role in helping to solve some of the biggest challenges facing us as a species.
By 2050, the world’s population is expected to reach around 10 billion people. The United Nations’ Food and Agriculture Organization (FAO) predicts the world will need to produce 50 per cent more food than we do today.
Farmers are now using photographs taken from constellations of Earth-imaging satellites, entering them into Geographic Information System (GIS) software and generating detailed crop maps. These can show two-metre square blocks of farmland overlaid with elevation and slope, as well as soil conditions such as acidity, clay content and waterretention ability for sections of crop. Infrared detection from space can also be used to accurately measure the amount of leaf area in each block. Over time, farmers get a detailed analysis of crop growth, allowing them to focus on struggling sections. The result is lower labour costs and higher productivity. Systems like this will enable us to see the highest possible food production per square metre, helping us feed a growing population.
Looking to the future, megaconstellations of small satellites will provide internet from space to every corner of the globe. To developing nations and people in far flung places, that’s a seismic shift.
Until recently, many of Messenger and WhatsApp, while the main social network fades somewhat in popularity. Among US teenagers, Instagram, YouTube and Snapchat are much more essential than Facebook.
Finding more spots in which to place ads is an effective strategy only because they get results. (Yes, that means you, guy who says he is immune to advertising.)
But Facebook’s recent mini flurry of new ad types, and occasional reports of ever-higher prices, feel like evidence that the company is running short of places to sell commercials on its main social network. It follows that Plan B is to find new places to put them.
The question is, why is Facebook running out of ad room? Is it because people are using Facebook less or differently, because there’s so much demand from advertisers, or both?
The answer is impossible to know for sure, but it’s important to Facebook’s future.
Facebook could be running out of room to sell ads because of continued deliberate choices to favour messages from friends, family and other people users know, over those from paying customers.
Facebook has been saying for a couple of years that it can no longer increase the ratio of ads to unpaid posts. Facebook also said changes the company has made in recent months to stress quality over quantity of time spent on Facebook might crimp the amount of time people spend there. (It’s also possible this policy change masked an existing trend of people using Facebook less avidly).
In any case, whether people are using Facebook less or the company is tilting the scales in favour of friends, the pool of available ad spots will grow more slowly. Or put a different way, demand from companies that want to buy Facebook ads is outstripping the potential ad slots. That pushes up prices. Some avid Facebook advertisers are complaining that social network ads are getting too expensive for them.
It’s been true for some time that Facebook’s balance of ad price and volume is changing. The number of ads showing up on Facebook’s digital hangouts increased 8 per cent in the first quarter from a year earlier, while average prices for those ads rose 39 per cent. It was the fourth consecutive quarter in which the prices of ads rose more quickly than the amount. Company executives have said that Facebook’s revenue growth will continue to be dependent on its ability to extract higher prices for the ads it sells.
There are risks, however, as Facebook’s ad-selling machine increasingly creeps outside the walls of the company’s original social network. Users might get annoyed at seeing ads in unfamiliar places. Ad prices still might continue to climb to the point where some companies can’t afford them anymore. And ads in newer places such as Messenger, Marketplace and WhatsApp may not prove as effective for advertisers as conventional Facebook ads.
As noted above, Facebook is proficient at keeping its perpetual revenue motion machine going no matter what. That means Facebook needs to continue to prove that its ads are worth buying for the millions of businesses that want them. Otherwise the engine will stall. And that means there is business logic to Facebook capitalising on the popularity of its other hangouts to ring up higher ad sales. — Bloomberg