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March Advisor: Syncing Product and User Needs – Facebook’s Q2 Growth Analyzed

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Publication date 8/2/2017

The leading social network’s strategy to provide a range of ad formats and multiple channels to marketers is what industry insiders cite as the reason for its phenomenal rise

Facebook announced an impressive Q2 revenue of $9.32 billion, despite slow user growth. Martech and other industry professionals analyzed the key factors that according to them have led to this rise.

Since its launch in 2004 as ‘The Facebook’, and the subsequent versions that led to its present-day multimedia form, with approximately 2 billion users, Facebook’s journey has been keenly assessed by tech mavens and professionals. Facebook’s growth story has inspired many and has become a benchmark because of their key strategies and careful planning and addition of features. It is a combination of this that has turned Facebook into the success story it is today and the preferred go-to social network for marketers and digital advertisers.

How new ad options maybe the most likely cause of Q2 profits and slow user growth

One common observation of industry insiders has been how the multiple ad avenues Facebook is exploring for itself on various channels – including their Instagram and WhatsApp offering – has been a huge factor for its revenue growth. Of course, it could be one of the factors impacting slow user growth.

Patrick McKenna, Co-founder, and Chairman of Strike Social says,

The earnings don’t surprise me due to the revenue Facebook has drawn in from advertising as of late. In the last month alone, Facebook has introduced several new ad options for brands. From household targeting to Messenger ads to Marketplace ads, Facebook has created an ad option for every brand. This wide range of options was a big contributing reason for its impressive Q2 results, and we’ll be curious to see how the next quarter goes once advertisers get a better grasp on these new features.

 

With mobile being the device of choice for most consumers, be it for content or purchases, B2B and B2C marketers have realized the ease and benefit of using interactive content or video formats to effectively convey brand messaging. This trend has just been the icing on the cake for Facebook, and its Q2 earnings clearly show the revenue surge has been attributed to increased overall sales of mobile video ads.

The most positive aspect of this Q2 outcome is while revenue has increased, Facebook’s expenses will not increase as expected.

That Facebook has its sights set on bettering their bottom line is evident from the fact that it has been able to match the growing demand for smart marketing and video or display ads by adding more video and display ad options to the mobile version of its app.

Features for the Future

Etching themselves as the preferred channel for digital advertisers, Facebook’s recent announcement that it will start testing a new subscription-based news product in October makes it even more marketer-friendly. However, it will be interesting to gauge whether this will positively add to their revenue streams, considering user growth being saturated. Speaking on subscriptions to news sites / outlets as a new revenue stream for Facebook’s traditional ad business, Aaron Goldman, CMO of 4C Insights feels,

 

Facebook has already disrupted many of the ways people communicate and consume so it should not be surprising to see a subscription-based offering gain traction.

 

 

The company has also given its Instagram platform a great makeover, and today, the popular image and video sharing social app has a growing base of 15 mn businesses marketing through it. This is in addition to the 70 mn user base that Facebook itself plays page-host to. Together, these numbers show just how enticing a platform Facebook is for marketers.

But even with this growing preference and the recent Q2 earning analysis, what do industry insiders think marketers should ascertain before making Facebook their marketing strategy. Jason Beckerman, Co-founder and CEO at Unified says,

Facebook continues to see exceptional growth from its digital advertising – contrary to what analysts and Facebook themselves predicted for 2017. To work around the reported capacity, they’ve reached within ads on their newsfeed, Facebook is now looking at their owned properties, like Messenger, to provide marketers with more opportunities to reach audiences and consumers.

 

“With so many channels to reach customers through Facebook, it’s going to be vital for marketers to demand more transparency in both social ad buying and placement. The sheer amount of data generated from Facebook’s digital advertising activity means that marketers need more centralized data ownership and control, as ad investment rises and becomes increasingly fragmented.”

Instagram, Snapchat rivalry rages on

The Q2 earnings and increased popularity of Instagram has also put the spotlight on the Instagram-Snapchat rivalry. Speaking on where Instagram can find its niche and the impact of Facebook’s new mission statement – ‘bringing the world closer together’, Aaron comments, “For Facebook to fend off Snapchat and other rivals it needs to remain sticky with consumers and with marketers. The Facebook-as-a-community narrative positions the platform as an indispensable part of people’s lives and brand’s budgets.”

Sean Cullen, EVP of Product & Technology at Fluent adds,

After Facebook’s strong Q2 earnings last Wednesday, it is apparent that Instagram is positively impacting Facebook’s revenue and profit. Instagram Stories are taking precedent over Snapchat and even more so internationally – as of now, Instagram is the main growth area for Facebook and is supporting millions of advertisers. It’s also interesting that Facebook is moving toward utilizing Messenger to its full advantage. Facebook’s ad load reached its saturation point on the core product, but Messenger has 1.2 billion users, which prompts an enormous window of opportunity and another big revenue opening.

So, how soon before Instagram, WhatsApp become independent revenue streams
Q2 earnings seem to have indicated one fact for sure. Facebook is looking at Instagram, WhatsApp and Facebook Messenger to soon function as their own independent revenue-earners.

About the shift in revenue to Instagram, WhatsApp & Messenger focus, Aaron opines, “If there’s any concern over ad load on Facebook’s core app it’s more than offset by the optimism presented by Instagram, Messenger, and WhatsApp. There’s still plenty of incremental inventory and monetization available for Facebook (and brand marketers) through those platforms.”

Contrary to this, John Donahue, Chief Product & Marketing Officer at Sonobi states,

Instagram provides a fabulous but limiting set of ad products. It allows for addressability, but hasn’t cracked the nut on offer or translating exposure to CTA. For reach-based advertisers, this isn’t too much of an issue – but for advertisers in the “fat middle” (most of their MAUs) they require a response and not reach-based. While with their current product, Instagram has an opportunity to scale based on addressability – it will require new ad products to really become a substantive revenue opportunity for Facebook to combat the slowdown of the newsfeed growth.

Some key points from Facebook’s Q2 earnings

  • Mobile ad sales is where the major chunk of Facebook’s Q2 revenue came from
  • Facebook’s revenue growth rate is twice that of archrival Google’s Alphabet

Facebook versus Google: Who will be the online ads sales czar?

Google and Facebook have been competing for online ad revenue dollars, and in this quarter, for the first-time ever, Facebook made more profit than Google. Some would attribute this win to an antitrust fine imposed by the EU on Google. However, speaking on the ongoing war between Google and Facebook for ad revenue dollars, Aaron asserts, “The war between Google and Facebook comes down to audience attention. Whoever can hold it the longest across screens will win. As the premier format for long-form attention, the battle lines are drawn around video. Historically, YouTube has given Google a leg up, but Facebook is gaining ground with the adoption of live video and push into original content and connected television. From an advertising standpoint, both Google and Facebook provide reach extensions for TV advertisers, but Facebook’s walled garden anchored in real identity provides more brand safety.”

Some takeaways from Facebook’s Q2 results

  • A deeper understanding of changing industry trends is the factor that gives your brand an envious market position.
  • Consistently studying user consumption patterns and trying to keep up with evolving preferences can help stay in the race, and sometimes even take the lead.
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