pointing up

Today’s post is by Heather Way of Parks Associates.

Those who follow social media are fully aware that Facebook underwent major changes in 2012, particularly the second half of the year. As Facebook prepped to go public, the company strategically positioned itself to strengthen its business model: advertising.

2012’s big moves

In order to solidify its value proposition for advertisers and shareholders, and grow company revenues in line with increased time spent using the social network online and via mobile devices, Facebook officially launched the Facebook Exchange (FBX) and mobile monetization service in September 2012.

Facebook’s move to open its online display ad business to the real-time bidding (RTB) ad market will undoubtedly increase advertiser and shareholder value. Parks Associates expects this foray into real-time bidding to have a significant impact on company revenues and overall RTB ad expenditures.

According to comScore, the social network served approximately one-third of U.S. display ad impressions in 2011, which opens up a large source of display ad inventory to the RTB market. As a result, we predict FBX  will be a driving force of online display ad spend in real-time bidded markets moving forward (not least because of a Facebook user study we’ll introduce at the end of this post).

RTB’s benefits include cost efficiencies, reduced ad waste, scalable reach, transparency, and control, and as ad buyers realize these benefits, their ad spend will quickly transfer from traditional display advertising to RTB platforms. We estimate the North American RTB online display ad market will reach $1.6 billion in 2012, rising to $6.9 billion in 2017. Of total online display advertising, RTB revenues account for 12% in 2012, but this share will increase to 34% by 2017.

While Facebook’s financials do not include data to assess the impact of the FBX on 2012 ad revenues, FBX partners are touting positive results from early trials. Triggit, MediaMath, and The Trade Desk have publicly released insight revealing high performance rates of ad campaigns running through FBX compared to competing ad exchanges. Given this early success, FBX is on track to positively influence the growth rate of the emerging RTB ad marketplace and to strengthen company revenues and, ultimately, shareholder value.

To date, over one-half of Facebook’s 1 billion monthly active users worldwide access the social network via a mobile device, such as smartphones and tablets. A growing percentage of users access Facebook exclusively through a mobile app or mobile browser. The company reports a usage increase of 23% comparing March 2012 to June 2012. While Facebook is late to the game to monetize its mobile offering, they are seemingly on a successful path to increase revenues via mobile use. In the third quarter of 2012, Facebook posted $153 million in mobile ad revenue, which represents 14% of total advertising revenues. These gains are impressive considering the social network began testing their mobile ad solution in March 2012.

The end result of fully optimizing online ad inventory (e.g., increased audience targeting, higher return of advertising spend, and greater transparency and control) via its ad exchange and monetizing ever-increasing social networking on mobile devices is all for naught if users react negatively to these new ad techniques.

What’s to come

A few simple, yet important, questions beg to be answered on an ongoing basis. Will Facebook users welcome ads regularly appearing inside a news feed online or via a mobile device? Will users find these ads relevant and engage with those ads? Alternatively, will highly targeted online display ads and more mobile ad placements annoy consumers and further exasperate privacy concerns?

User data points are gathered via digital devices, and RTB and mobile advertising practices can leverage this information to deliver targeted ad messages. Industry executives agree the misuse of data could bring negative outcomes, but that exact line separating appropriate from inappropriate use is not always clear.  Advocates and consumer privacy groups warn about fallout from ad overexposure, but consumers are not seemingly concerned with such ad practices on social networks, provided they get something of value in return.

Parks Associates reveals consumers overwhelmingly prefer free, ad-supported social media services to ad-free, paid versions. They are also open to ad personalization. And consumer acceptance of relevant ad messaging is highest among users under 35 years old and acceptance dramatically decreases with age.

social ad preferences

The upshot? These results will favor Facebook’s bottom line in the upcoming years as young social networkers mature and become a more important audience segment for brand advertisers.

heather way parks associates– Heather Way is an advanced advertising and connected device app ecosystem research specialist at Parks Associates, an internationally recognized market research and consulting company specializing in emerging consumer technology products and services.  Heather’s focus includes evaluating and providing strategic assessments of advanced advertising technology, platforms, management systems, buying/selling services, and analytics. She also covers the connected device application ecosystem. Follow her on Twitter @hcway.

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