Facebook's Advertising Revenue Improves, but Users May 'Unlike' Newsfeed Changes

By Carol Kopp,

Shutterstock photo

The big news in the latest numbers on US digital advertising revenues is that Facebook ( FB ) has climbed to the number two spot, and is expected to end the year with a 7.4% share of the total, according to research firm eMarketer.

Nice work. But though the juggling for the number two spot is important, Google ( GOOG ) is still so far ahead that the rest of the contenders look like Lilliputians who will never be able to bring down the big guy.

Google will reach the end of this year with 39.9% of the $42.6 billion digital ad market, according to eMarketer's projections. Google is projected to grow, if slowly, to 40.8% in 2014, and 42.3% in 2015.

As for Facebook, it grew from 5.9% in 2012 to a projected 7.4% this year, and is expected to grow to 8.2% in 2014 and 9.0% in 2015.

Its nearest competitors are Microsoft ( MSFT ), running at 5.9%, and Yahoo ( YHOO ), which fell to fourth place with 5.5%.

That leaves Yahoo, which long held the second slot, looking like a loser in a year during which all of the major advertiser-supported sites are being scrutinized for their ability to transition successfully to mobile advertising.

Facebook proved its ability to sell mobile advertising to Wall Street's satisfaction this year, with two successive quarters of strong sales that took its mobile ad share from zero to 49% of its total ad revenues, which came to more than $2 billion in the third quarter.

Those mobile growth numbers have been a big factor in the steady climb of the company's stock price from a 52-week low of under $23 to its current price of about $55.

The question is how much more advertising Facebook can throw at its audience without seriously alienating them.

Facebook now enables marketers to target advertising to users based on their real-world purchases, their visits to other websites, and their demographics.

It is positioning advertising in the center "news feed" column as well as along the right column. Almost any visit to another website results in an ad for that site popping up in your Facebook feed, whether you "like" it or not.

And now, it's experimenting with adding video advertising to the mix. This week, it started a limited test run, presenting a movie trailer to some of its users.

The company seems to be wary of users' reactions. The ads are "auto-play" but silent, unless the user taps on the video, and the length of the videos is capped at 15 seconds.

There's a lot of revenue at stake. According to Forbes.com , advertisers will be charged up to $2 million a day for a video ad that reaches the 18- to 54-year-old demographic.

Oddly, Facebook may be in a nearly unique position to annoy its users with advertising. On Google, ads are directly related to a specific search, and therefore are not as much of an intrusion as they are a valid response to a query. On Yahoo's news pages, they may be perceived as a reasonable trade-off for free media. On Facebook, they risk being an interruption and a nuisance. Below is a typical Newsfeed ad, or "suggested post."

Twitter ( TWTR ) also has its work cut out for it, as it tries to build an advertising platform from scratch. For 2013, eMarketer estimates that it will reach a 1% share, or about $420 million in ad revenue, up from 0.6% a year ago.

See Also:

Android Phone Blatantly Rips Off Apple

Can't Afford Apple's iPad? The $38 Tablet Is Coming Soon

Amazon's Three Big Ideas for 2014

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Technology
Referenced Stocks: FB , GOOG , MSFT , YHOO

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