Facebook’s Next Big Opportunity

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.