Facebook’s Pricey Ad Spend May Not Impress

Earlier this month, in an effort to secure its user base for the long-term, Facebook told The Wall Street Journal it could more than double its advertising spending over the next two to three years with a new focus on direct-to-consumer ads. Facebook has already spent billions to win back the trust of its advertisers and users alike following last year’s privacy and data flubs, with more bills coming. Despite investments, analysts estimate Facebook’s legacy platform will continue to lose its allure. At this point, trust may not be something Facebook can buy.

With nearly $56 billion in annual revenue, Facebook certainly has the luxury of a bountiful advertising budget. Still, deep pockets don’t guarantee big returns. Launched more than 15 years ago, Facebook has already racked up 2.4 billion monthly active users across its platforms. With a free product and a relatively low barrier to entry—one needs only a smartphone and the internet—it is hard to imagine a large population of users not aware of Facebook’s applications. As such, Facebook says its new ads will be heavily focused on increasing the value its platforms can provide to existing users.

It makes sense in the context of Facebook’s coming cryptocurrency launch that the company would be pushing to increase user engagement. For one thing, data show engagement across its core platform has declined of late; also, the more time users spend on Facebook’s platforms, the more money they might spend.
Based on an analysis of SimilarWeb Android data, Jefferies analyst Brent Thill found daily average users for core Facebook have declined in the U.S., U.K., Germany and France over the last 12 months—although he notes sequential user growth across geographies in April and May. In the U.S., time spent on core Facebook and its photo-and-video-sharing platform Instagram also has declined over the last 12 months, with users spending sequentially less time on both apps most recently.

Facebook says its own ramp-up in ads reflects a significant change for its business model: For the first time the company is placing a major focus on direct-to-consumer marketing across all of its brands. Still, ad tracking firm Kantar estimates Facebook spent nearly $382 million on all ads in the U.S. alone last year. While Facebook’s ad spend is still significantly less than that of other internet giants like Google and Amazon, it dwarfs spending by the social media giant’s peers. Kantar estimates Twitter spent just under $16 million on U.S. ads last year, while Snap Inc. spent $6.5 million and Pinterest only $4.4 million.

The question for Facebook, then, is whether more of its own dollars can entice jaded users to spend even more of their own time and money on the site.

Source: https://on.wsj.com/2Ycw5aN