Facebook’s Next Big Opportunity

Jan Dawson / February 2nd, 2017

Facebook once again reported very good earnings on Wednesday afternoon, with massive growth in both user numbers and ARPU driving both significant revenue and profit growth. But Facebook also warned of increasing saturation in ad load, which it says will lead to much slower overall ad revenue growth later this year. In that context, it’s worth thinking a little about what other opportunities for revenue growth still lie ahead. Mark Zuckerberg provided something of a hint on the earnings call.

As it currently stands, Facebook is still primarily a social network, albeit one that’s at least as much about content as it is about communication with friends and family. The experience is dominated by a variety of content, from “organic” text posts, photos, and videos shared by its users to a plethora of other content which originates elsewhere and is merely forwarded on by users of the service. That provides plenty of content for users to consume, to the extent Facebook has long since filtered the total universe of content that could be shown to users according to algorithms which prioritize those things likely to drive interest and engagement and therefore keep users on the service to be shown more ads.

However, the fundamental rule on Facebook is still you only really see things your friends have engaged with in some way, whether by actively sharing them or merely liking or commenting on them. Facebook still uses engagement by your friends as an important signal about whether you’re likely to be interested in something too. Your friends are the filters here, along with your own established preferences, both explicit and implicit, about what you’re interested in.

But what if your friends were no longer a filter or limiting factor on what you could be shown? What if other factors could teach Facebook both what you’re interested in and which other pieces of content shared elsewhere on Facebook might be interesting to you? Mark Zuckerberg talked on the earnings call about some of Facebook’s AI efforts aimed at recognizing and understanding the content of not just text posts but photos and videos too. Once Facebook understands the content, it can make a judgment about whether it might be of interest to a given user who has previously engaged with similar content and show it to them, regardless of whether it’s been shared by a friend.

The big advantage for Facebook is it would no longer be limited to the things friends have shared or engaged with – it can show you anything from among a much wider universe of possible content, much of which might actually drive higher engagement because of the subject matter than the things shared by friends. Perhaps you have hobbies distinct from those of your real life friends which are nonetheless shared by many others on Facebook. Perhaps your political views are different from many of those you’re connected to on Facebook. Your personal interests could connect you to a lot more content on Facebook if your friends are no longer a primary filter.

Where this gets particularly interesting is video, which is a key focus for Facebook and one with potential to drive significant additional ad revenue. YouTube has never been limited to showing you content which has only been shared or engaged with by your Gmail contacts. Opening up in this way would allow Facebook to act a lot more like YouTube in showing you recommended videos from outside your personal social graph. Better targeted content, especially content with lucrative ads attached, could drive even higher revenue without necessarily increasing ad load significantly.

But new video-centric experiences could also provide entirely new places for Facebook to place ads and therefore, raise the ceiling on ad load. Facebook is apparently working on an app for Apple TV and similar boxes which would be video-centric – a video service, free of friend-based filtering, could be a great fit for such a service, surfacing the best videos Facebook has to offer based on your interests, combining user-generated and professional content.

Though Facebook has repeatedly warned about saturating ad load, it’s clear it hasn’t given up on finding new places to put ads – mid-roll video ads, ads in Instagram Stories, ad experiments in Messenger and more over recent months demonstrate its commitment to finding new slots to load with ads. This video push seems another obvious way to raise the ceiling. As such, even with ad load slowing growth in 2017, I think there’s still plenty of room for longer term growth, especially around video.

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw, a technology research and consulting firm focused on the confluence of consumer devices, software, services and connectivity. During his thirteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.
  • obarthelemy

    I’m a bit doubtful generating better/more diverse content is that big a deal. Aren’t most FB users already time-constrained in their use of the service ? I’m sure better content will have some impact, but won’t it be mostly internal time transfer, not extra time spent on FB ?
    Adding video had impact because users stayed on FB instead of switching to YouTube. Changing around which articles they see…

  • Ken Telona

    We really don’t need any more ads.

  • Vadim Dumin

    If Facebook will compete with YouTube the question on how to acquire a valuable video content becomes important. So far the competitive advantage of Facebook was that the users generated the content. Is it gonna change with a proposed scheme? I wish the article addressed this question.

  • Josef Holy

    This is probably the longest article I’ve ever read about content vs. social recommendations.

  • obarthelemy

    One thing I’ve been wondering about: is the News + Social binomial missing a third leg ? Reference. A very non-negligible part of what I’m reading ( 20-40%, I don’t do Social) falls in that category, and to get to it I’ve got to a) be aware it exists and b) specifically search for it, sometimes with a few contortions (as a non-native speaker, I fumble the precise wording, especially on topics I’m unfamiliar with).
    I feel we’re missing a truly holistic approach to “stuff you want to read/watch today”. Google and FB know what my interests are, even my devices, timetable , travels… Why don’t they ever inject tutorials/background pieces, even years old, that I could find interesting ?
    Actually, I could do with media recos too, for a 4th leg.
    And a 5th: sales. The only thing I’m really ready to pull the trigger on right now is a threesome of Qualcomm 650/652 tablets, which seems to mean Lenovo Yoga Tab 3 Plus. Why can’t I input that somewhere and be told when there’s a sale ?

    Couldn’t one of those be a way for FB, or Google, to get more sticky ?

    • Vadim Dumin

      “I feel we’re missing a truly holistic approach to “stuff you want to read/watch today”. ”
      Love it. We have something like that in Apple and Google ecosystems:
      both Apple and Google has Apple/Google News, Apple has a weekly personalized new music mix in Apple Music and “For You” daily music channels, YouTube has “recommended videos”. The quality of these recommendations is not 100%, but it is getting there. Another thing I find useful is “places you want to go today”.

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