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Facebook (FB) Tests Video Tab, Should YouTube Take Note?

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For the past few quarters, there has been much ado about the increasing rivalry between Facebook, Inc.FB and Alphabet Inc'.s GOOGL YouTube. This is because while YouTube has conventionally been the leader in the video-viewing segment, Facebook is also gaining popularity as a video advertising platform.

Facebook has been strategically taking initiatives to enhance the video-watching experience of its users. The tech giant recently declared its upcoming features that are expected to attract more viewers and add to the company's coffers in the form of ad revenues.

What are the New Additions?

The new features that Facebook is now testing are founded on the basis that users require more flexibility, greater options and the need to fit the experience in their busy schedules.

Facebook has already rolled-out its 'Suggested video' feature for iPhone users worldwide, which allows them to get a number of related videos once they open any video from their News Feed. In addition, it has also been working on a feature that allows users to save videos or even multitask on the platform while watching.

Furthermore, the company is set to start testing ads on its Suggested videos for iPhone and web users as it works to bring this feature to Android.

However, the most important of the new additions is a dedicated section for watching videos on Facebook, which is presently being tested. A "Videos" icon has been placed at the bottom (for users on App) or under the 'Favorites' (for web users). This novel section will allow people to get updates about the videos shared by Friends or other content creators or even from the Pages they follow, allowing them to view, save and share the stuff that appeals to them.

How Can it Impact YouTube?

Of late, the popularity of Facebook videos have increased as the company added interesting features to engage users. Last month, it enabled users to watch 360-degree videos in its News Feed. This allows users to view a video from their preferred angle. Prior to this, the company added the autoplay video feature, which led to a significant improvement in engagement levels and video views. As per latest data, on an average 4 billion videos are viewed on Facebook per day.

Per a Jun 2015 report, the number of monthly active users for Facebook was 1.4 billion in 2014 while that for YouTube was slightly lower at 1.3 billion. However, YouTube remained ahead of Facebook in terms of video views in 2014 but it's noteworthy that the platform is still not profitable for Google unlike Facebook.

This is because of the difference in ad revenues charged by the two companies. YouTube charges advertisers once the whole advertisement has been viewed. Facebook, on the other hand, starts charging once the video has been viewed for 10 seconds. Additionally, the average revenue per user for Facebook (73 cents in 2014) is significantly higher than YouTube (28 cents), allowing the former to make sizable investments.

Despite this, Facebook it seems has been gaining traction, attracting more and more ad dollars to its platform. The company is not only expanding its user base but also making the platform more attractive to marketers.

A key reason for this is the difference in the nature of these two platforms. Facebook being a social media company allows users to like or share video, which in turn creates more views. Even users find the videos to be more relevant as they are coming from their contacts or through their preferred pages. YouTube on the other hand requires users to search for specific videos which require social platforms like Facebook or Twitter TWTR to be shared and build more views.

In addition, Facebook's 'awareness building' image, which it has created over the years, does give it an edge over YouTube, in our view.

Bottom Line

The recent trends indicate that the video advertising market is expected to grow by leaps and bounds over the years. Per research firm ZenithOptimedia, the online video market is expected to increase about 23.3% and 19.8% in 2015 and 2016, respectively. This also means that the online advertising market is likely to grow in sync. According to the firm, online video Internet advertising is expected to grow at a rate of 28.9%, 22.5% and 19.7% in 2015, 2016 and 2017 respectively.

There is no doubt that competition among both big and small players is likely to mount over the years. However, marketers are likely to benefit as it would result in more innovative and targeted ads for consumers.

In the end, the most important consideration for advertisers will be the return per view generated from each platform.

Zacks Rank

Facebook has a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology space is Synacor, Inc. SYNC , having a Zacks Rank 2 (Buy).

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FACEBOOK INC-A (FB): Free Stock Analysis Report

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


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

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