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‘TV style’ ads: Firm challenges ahead as FB makes its ‘world’s largest ad platform’ play

The digital advertising arena has been abuzz with discussions on Facebook’s decision to finally introduce video ads, a development that has been in the making for some time now. With video ads, Facebook is not only looking to augment its advertising revenue further but it is doing so ‘TV style’. Facebook’s video ads would be up to 15 seconds duration and the social network would charge up to USD 2.5 million for a video ad depending on its position.

Some industry observers view this as a bold step because digital media users are not the best consumers of advertising and are also not necessarily forgiving of platforms that thrust any advertising on them. But Facebook’s decision is coming on the back of a newfound confidence. If it’s recent earnings numbers are anything to go by, Facebook appears to be one of the few players that understands how advertising in a social network works. Facebook’s results this quarter exceeded Wall Street expectations, more specifically because of its mobile advertising performance of the last three months.

Mobile ad revenues accounted for 41 per cent of total advertising income for the social giant. Overall revenues reported for Q2 2013 stood at USD 1.81 billion, which is an increase of 53 per cent, compared with USD 1.18 billion in the second quarter of 2012. Advertising revenue, now at USD 1.60 billion, represents 88 per cent of total revenue for the social network. This is a 61 per cent increase from the same quarter last year.

Step in the right direction?
“The Facebook video ad unit, when it launches, will definitely provide an option to large advertisers to reach a mass audience through the online media. If it is sold on a per day basis with frequency caps, it will come closer to the way TV is sold. The potential to reach large audience base like TV with the added advantage of targeting and social amplification will definitely make it an option worth considering,” said Gautam Dutt, Managing Director, Digital Services, Havas Media voicing opinion of the section of people that believe that Facebook’s effort is a step in the right direction.

Bringing another view to the table, Arnab Mitra, Co-Founder and Managing Director, LIQVD Asia pointed out, “Mark Zuckerberg (CEO, Facebook) said last week that he’s sensitive to how users react to advertising in general. All that however sounds empty and hollow with the new ad format copying television style. Though Facebook plans to limit the amount of ads people see to about one for every 20 updates that would still comprise about five percent of a user’s news feed.”

By copying television style, Facebook has sent a clear signal that it is now eyeing television advertising dollars. And why not? Television still comprises lion’s share of ad spends and it not showing any signs of slowing down in various markets. Facebook has a long way to go not only in overall ad revenues but even in digital ad revenues. Industry estimates indicate that Facebook has only 6 per cent of the pie, where a player like Google is cornering nearly 33 per cent of the digital advertising revenues on the back of its search offer.

A tough target demands a bold stand, and Facebook has now taken that stand. Needless to say, there are challenges along the way.

Lack of Measurement or Currency
“The critical element that is still missing is the ability to provide advertisers with a common currency to compare video ads to TV ads. This has been one of the key barriers in adoption of online videos,” observed Mr Dutt.

“Twitter has been planning similar partnerships with the likes of Disney etc. Silicon Valley companies have had difficulty luring away ad dollars from television networks because of a lack of a single measurement system that compares TV audiences directly to Internet audiences,” added Mr Mitra. He however believes that Facebook may just find a solution to this problem because of its approach to advertising.

Despite this, the initial reaction from advertisers is expected to be positive not only for the simple reason that the platform gives them one more avenue to reach Facebook’s billion plus users but also because over the years, Facebook has developed a relationship with marketers and an expertise in advertising sales.

Mr Dutt is of the opinion that the platform may even serve as a tactical or impact buy. He explained, “It would especially make sense to advertisers who need to quickly reach out a large audience base. Think big Hollywood movie releases. Large FMCG advertisers might also find it useful as it could potentially reach a large base of audiences in a more targeted manner than TV. It can also be a good platform to support the launch phase of big campaigns like new product launches.”

The other big challenge would be to take the user experience into account. The ad should not be disruptive like a TVC. “The video ad unit should take advantage of the inherent strength of the media,” commented Mr Dutt and added, “For Facebook, it is demographic and interest-based targeting, the social amplification potential and the potential to have a two way communication with the audience. It will be interesting to see how Facebook leverages its key strengths.”

Facebook’s push to now get video ads will most likely impact its advertising revenue. TV still gets the majority of ad dollars because of the reach of the media and the possibilities and impact of the creative messaging. Online media has found it hard to divert TV budgets through display ads. Video ad units address some of the issues with display ads. Advertisers are also looking at content as a major tool in their marketing approach. Both factors will make online video a very important area of growth for online revenues. Google’s YouTube has already shown the potential of this form.