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Recently, Snapchat CEO Evan Spiegel made headlines when the Sony hack dug up his emailed assertion (from over a year ago) that Facebook advertising revenues will shrivel up and die if start-up funding wanes.
We asked a few Facebook advertising experts what they thought of this theory. You can guess that they all disagreed, and you’d be right…but here’s exactly why they disagreed.
I think Spiegel’s claim that Facebook’s advertising growth are analogous to the dot-com boom (with the subsequent bust) is way overblown. While it’s probably true that VC-backed start-ups are significant contributors to the influx of Facebook advertising revenue as it may have been for Yahoo back then, the nature of the advertising buys then vs. now are inherently different. During the boom, you had companies vying for premium real estate without much, if any, performance component to it. This led to gross inflation of CPMs that Yahoo was reaping.
Simply because Facebook’s advertising platform is rooted in CPC (as is Google’s), there is a performance component inherently baked in. It could turn out that lifetime value of users acquired on Facebook may not be up to snuff for some advertisers, but it’s been over a year since Facebook advertising really took off and there are so many leading indicators to user quality with modern-day tracking and analytics that I can’t see this causing any sort of significant nor sudden retraction in spend. – Dave Yoo, COO, 3Q Digital
Evan Spiegel makes a number of great points under the assumption that Facebook stays static, but as we’ve all seen since the beginning of this platform, Facebook has been incredibly adaptive to new revenue models and positioning for their advertising. Putting Yahoo and Facebook on the same page isn’t a fair assessment since Facebook has an exponentially greater social pull that makes it incredibly difficult for users to turn against the platform; this isn’t even considering the data that’s being collected on users opting for the Facebook-owned Instagram. I think Facebook has played their cards right so far, and with their ad server partnerships hardly even scratching the surface yet, the outlook is promising for offsite exposure capitalizing on the mountains of data they have collected from their users. – Franco Puetz, co-founder, Magnifyre
It’s ironic coming from Snapchat, a company that is extremely overvalued and does what for revenue exactly? Facebook is way ahead of Snapchat with advertising sophistication, so if Facebook crashes, so would Snapchat. – Robert Brady, Clix Marketing
The only way Facebook is going to implode is if it loses its user base the way Yahoo did, and the difference between the two companies is best described by Newton’s first law of motion. Facebook has inertia on its side, making it inherently difficult to abandon. Everyone is already on it, and it’s the housing place for the interconnected documentation of our lives. Plus it’s constantly being changed to improve the user experience. To abandon Yahoo was far, far easier for users, and their ad revenue left with them.
Then, not only is Facebook great at collecting personal data, it’s also incredibly accessible to advertisers. The assumption Spiegel makes is that when tech spending on Facebook declines, so will Facebook’s revenue. While Facebook will see rises and falls, it will still remain the most targeted platform for advertising for the foreseeable future, and the money will keep finding its way into Facebook until its users leave and someone can supplant them as the kings of personal data.
The next big rise will be in trackable, local advertising. The company that bridges the gap between online engagement and offline purchases will win. Once that happens, brick-and-mortar businesses can step whole-heartedly into online advertising. The company currently leading the charge is Facebook. Lastly, it’s not surprising that Snapchat’s CEO would predict the demise of Facebook in a private email to his investor. – Alex Broderick-Forster
The article makes a lot of incorrect assumptions and gets some facts wrong. First, Yahoo’s market cap shrank after the dot-com bubble burst not for a lack of advertising revenue. In fact, Yahoo’s first full year monetizing search was in 2002, when revenues reached $953. By 2004, revenues had grown to $3.5 billion.
Yahoo lost because it failed to keep pace with the growth of competitors like Google, Amazon, and even Facebook. Yahoo tried to be the one-stop shop for the web, in a world where its competitors were building best-in-class solutions. Yahoo lost out to eBay in auctions, Google in search, and Craigslist in classifieds.Finally, Facebook became the de facto homepage of over a billion users.
There are currently only 3 ways to make money online: become an ecommerce marketplace (e.g. Amazon), sell hardware (e.g. Apple), or sell advertising space (e.g. Facebook and Google). Google has built a sustained business model around this and it doesn’t show any signs of dying. Why then would Spiegel assume that Facebook’s source of ad revenue would dry up? In fact, Facebook’s main threat are competitors like Snapchat, who threaten to take away eyeballs from Facebook.com. – Abhiroop Basu