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Facebook Will Try to Fix Its Reputation With Advertisements

Facebook (NASDAQ: FB) is usually on the receiving end of advertising dollars, but it could see a big increase in its advertising outflows over the next few years. The company is overhauling its consumer-facing advertising strategy, and its ad spending will more than double in two to three years, according to a report from The Wall Street Journal.

Facebook has had a rough few years since news broke about Cambridge Analytica, fake news, and charges of Russian election interference through its platform. The company launched an ad campaign last year promising users a greater focus on meaningful interactions after revamping its news feed algorithm at the start of the year. It's now redoubling those efforts, focusing on creating brand stories for its family of apps that stand the test of time.

An address sign for 1 Hacker Way with the Facebook like symbol.

Image source: Facebook.

A big increase in ad expenses

Facebook's early efforts to repair its reputation haven't been cheap. Facebook's ad spend in the U.S. ballooned to $382 million last year, up from $50 million in 2017, according to data from Kantar that the Journal cited. Facebook's 10-K tells a similar story, with global advertising expense climbing to $1.1 billion last year from $324 million the year before.

Ad spend has probably climbed further this year after the company launched Portal last fall ahead of the holidays and continued marketing for Oculus products. So another doubling on ad expenses could start to add up for Facebook, which has historically kept its ad spending low relative to other big tech platforms, such as Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google.

The search company spent an estimated $660 million on advertising in the U.S. last year, according to Kantar. Google notably increased its investment in hardware over the past few years -- including Google Home and Pixel phones -- which requires more consumer marketing spend.

"We have not been able to build our brands directly to the consumer since the company started its journey, contrary to Google that's been having direct-to-consumer communication for the last 10 years," Facebook marketing chief Antonio Lucio told The Wall Street Journal. Facebook has a lot of catching up to do to tell its brands' stories the way it wants them to be heard.

It's not enough just to ask for trust

It's one thing to ask for trust, but unless Facebook gives consumers a reason to trust it with their data, a marketing campaign focused on trust or privacy will fall flat. Facebook needs to reconfigure its products to put privacy first if that's the message it wants to share with investors. Not only that, but management also needs to establish business practices that prioritize data protection.

"The future is private," Mark Zuckerberg proclaimed at the F8 developers conference in April. The company is shifting its product to focus more on private sharing in Groups and events. It started an ad campaign focused on Groups a few months ago as well. Zuckerberg also wants to unify the company's messaging back end and include end-to-end encryption like that featured in WhatsApp.

In March, Zuckerberg penned a blog post outlining his vision for protecting user data. Planned efforts include:

  • Providing clear delineations for consumers to tell when they're sharing something privately, where only select users can access shared information, versus publicly, where practically anyone could access shared information.
  • Reducing the time frame Facebook stores data to the minimum length necessary to deliver a service. (Think Stories.)
  • Not storing data in countries with a poor track record of privacy and human rights protections.

That said, it's one thing for Zuckerberg to say these things are a priority and another for Facebook to execute. It's had missteps on privacy enhancement products in the past, such as the "anonymous login" product it never launched or the "Clear History" tool that Facebook announced over a year ago and is just starting to roll out.

If Facebook wants to get its money's worth for its increased advertising budget, it'll need to spend a lot more developing its products with increased consumer protections.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has a disclosure policy.

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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