Why Facebook's News Feed Change Is a Big Deal
Facebook (FB) unveiled its new News Feed, as it seeks to keep its more than 1 billion users on the site more, sharing more, and staying engaged. It's not just because Facebook wants you to waste time; it wants to generate more advertising revenue. A lot more.
One of the major complaints with Facebook in recent months, is that the News Feed had gotten cluttered. People are moving away from Facebook to other social networks, including Instagram, which Facebook owns. In its most recent 10-K, Facebook addressed this issue. "We believe that some of our users, particularly our younger users, are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook. For example, we believe that some of our users have reduced their engagement with Facebook in favor of increased engagement with other products and services such as Instagram," the company wrote in the filing.
By revamping the News Feed into several new tabs (All Friends, Following, Groups, Music, Photos, and more), Facebook is trying to make the experience more engaging. During the presentation, CEO Mark Zuckerberg said Facebook is "trying to give everyone the best personalized newspaper." The social networking giant wants people as active as they are on other social networks, including Twitter. Facebook wants to be the destination where you get news, which is what Twitter has become. Right now, Facebook is the place where you go to check in and see how your friends are doing and kill a few minutes.
The old News Feed was primarily links, but the company said News Feed is now approximately 50% photos and videos. By making it more visually appealing, it can have better ad formats, and show richer, more visually appealing Sponsored Stories, which is becoming a primary revenue driver for the company. Facebook also wants to make the desktop and mobile experiences the same. By doing that, it could potentially charge the same for ads on both desktop and mobile, delivering a better experience to users, and return on investment (ROI) to advertisers.
Wells Fargo analyst Jason Maynard agrees. In a research note after the event, Maynard said it will be easier for advertisers to deliver customized solutions. "We believe that social marketing ad spend is only going to continue to increase as a percentage of online ad spending, as users spend more and more time on social sites," Maynard wrote. "In our view, Facebook is the best positioned company to benefit from this ongoing trend."
This is important, especially as Facebook becomes a mobile company. During the fourth-quarter, 23% of Facebook's $1.585 billion advertising revenue came from mobile. That was up from the third-quarter, when Facebook generated 14% of its revenue from mobile. Making the site a better experience for both users and advertisers should increase mobile revenues, something that's been a big concern for Wall Street.
Facebook announced that the new News Feed would start Thursday, with a limited roll-out on desktop. As someone who was part of the limited roll-out, I can say it's already much more appealing to spend time on the site. You can see the benefits almost instantly. In the past, when Facebook had changed the News Feed, people would initially become angry over the changes. I don't see that happening this time around. If anything, I think it's going to be a welcome change, and lead to more time spent on the site.
While initially this may not seem like a big deal, it's worth noting that Facebook shares finished near the highs of the day, after ticking lower when the presentation started. Perhaps Wall Street has started to recognize just how powerful a change this will be. I already have.