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Facebook is now the second most important player in online advertising in the world, albeit still far behind Google, the market leader. The company from Menlo Park has pursued a winning strategy that has worked in numerous cases: first you need to attract your audience – in this case en masse –, ensure their loyalty, convert your product into a habit, a need. Once you have achieved this, you look for the best ways to monetize it. Facebook is a space that brings together over 1.5 billion users from all over the world, and that means great business opportunities. The third and last step: you need to generate subproducts based on a user experience that ties them into constant consumption.
27.6 billion dollars. That’s the sum invoiced for advertising by the social network in 2016. Together with Google, which invoiced 90.2 million dollars – most for online advertising –, they accounted for 60% of the income from ad placement in their ecosystems. A total of 117 billion dollars. The general market for digital advertising was 194 billion all over the planet, up 35% over the previous year of 2015. This graph shows the evolution of Facebook’s revenues since 2008.
The huge surge in Facebook’s income, fundamentally driven by online advertising, is thanks to two main elements: on the one hand, the social network’s clear dominance of the whole range of mobile consumption, not only via the social network itself, but in other projects such as Instagram or the instant messaging app WhatsApp; and on the other, its precise segmentation of its advertising exposure thanks to the data users provide when they join Facebook, or gleaned from their natural browsing while on the service. It’s hard to compete with a player with this degree of penetration in the mobile channel, and one with such a capacity to show the users at all times what they want to see. This effectiveness is at the service of the advertisers.
A glance at Facebook’s revenues over the years reveals that the percentage of the advertising pie from mobile devices has skyrocketed compared to other companies worldwide. In the third quarter of 2012, Mark Zuckerberg’s company generated 1.09 billion dollars in advertising, of which only 14% came from the mobile channel. In the last quarter of 2016 alone, Facebook invoiced 8.81 billion, of which 8.63 billion came from advertising. Approximately 84% of its advertising revenues in 2016 were from mobile channels, up more than 80% over 2015. The company went from 14% in 2012 to 84% in 2016. A masterclass in understanding market trends.
This graph shows the performance of advertising revenues compared to advertising from mobile devices. Revealing:
If Facebook intends to continue maintaining its levels of advertising revenues, it must continue to dominate the mobile channel. This is the motivation driving its acquisitions policy since 2012, first with Instagram in April that year, then with WhatsApp in February 2014, and finally with LiveRail, a technology company dedicated to advertising, in July that same year. Ant this is the reason why back in 2013 they bid 3 billion dollars for Snapchat, with no success. The mobile channel is the key that opens all doors.
In addition to acquiring companies with a good positioning in the market and complementary to Facebook’s own products, the company is working to improve the reading experience with the launch of its Instant Articles project for rapid content rendering, in order to avoid long waiting times when consuming information outside the social network. The aim is to monopolize the consumption of information within its ecosystem as far as possible, by making creators and editors simple content providers for the social network.
To ensure the success of the project, Facebook has been working for some time on incorporating dozens of media who are offered a share of advertising. In this same line, at the end of 2016 the company from Menlo Park launched new native advertising formats for editors, including video and advertisements in carousel form, which were previously present in other products on the social network but which have now been applied to Instant Articles. Facebook is incorporating ads in the sizes 2:1, 1:1 and 2:3, which are the usual formats sold by editors in the most traditional display.
To improve its monetization, Facebook has also been incorporating features to increase the recirculation of users to other content from the editors – among other reasons, to increase their exposure to advertising. Facebook’s Instant Articles now allows users to swipe between content, shown with dots at the top to indicate interlinked positions, and include new recirculation modules located at the end of the article, spaces intended for the editor’s own content.
Are you interested in financial APIs? Discover all the APIs we can offer you at BBVA
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