Facebook reported a strong third quarter with a healthy 33% YoY growth in revenue. This was driven by regional ad growth in APAC (+38%) followed by Europe (+34%) and North America (+33%).
For the first time in Q2 2018, Facebook released the numbers of users using at least one of its apps (Facebook, WhatsApp, Instagram or Messenger) each month. The number is a staggering 2.6 billion in the third quarter up from 2.5 billion a quarter ago. Facebook reached a milestone of over one billion active users during second quarter of the year. With over 1 billion Stories shared on the platform every day, Facebook is well-positioned to leverage the growth of Stories and Instagram. This is the best bet for the company to realize better monetization opportunities. A few key points highlighting growth opportunities for Facebook over the next couple of years:
- While passive consumption of videos has displaced interaction on Facebook lately, Instagram which is more interest based, has become increasingly popular within its users enabling them to share, explore and connect with people having common interests in a better and controlled way.
- Stories on Instagram is one of the key activities driving users to the platform. There are over 400 million people who create Stories daily on Instagram. The engagement is far higher than it is on Facebook or WhatsApp Stories. Hence, it makes sense for Facebook to divert resources towards making immersive ad experiences around Instagram Stories which is already doing well.
- Ads in Stories are likely to perform better over ads in feeds as the former appears less intrusive and consumption of Stories is an activity initiated by the consumer. Additionally, shopping within Stories is another bigger opportunity for both the company and its advertisers. As per Facebook, 90 million people tap to reveal product tags and posts every month to learn more about them. There are more than 25 million Instagram business profiles and two million advertisers, which presents a great opportunity for Facebook in this space.
- As per Facebook, it is leading in Stories in basically every country. This says a lot about momentum and opportunity ahead.
- During the quarter, ads in Instagram Stories contributed impressive growth for Facebook although these ads were monetized at lower rates compared to Feed Ads. It is early times for Facebook to develop its ad products which are better optimized for Stories. This is an important space where Facebook needs to put more resources.
- Facebook has started rolling out ads in Facebook Stories from third quarter onwards, but we are not sure if that will be as effective as the feed advertisement on the platform. One of the assumptions behind the statement is users will be unwilling to create multiple Stories on multiple platforms. The Stories on Instagram already gives an option to publish on Facebook. This might restrict the need for creating a separate story on a different platform. The future of Stories might demand seamless flow between these three platforms and not mutually exclusive of each other.
- Another potential opportunity within Instagram is its “Explore” section in Instagram which is growing fast and responsible for 20% of the time that people spend on Instagram. As per Facebook, it has not built any ad experience around it yet, but that can be a good opportunity for advertisers.
- While Stories and Explore can be a good revenue opportunity for Facebook on Instagram, the revenue opportunities for Messenger, Facebook or WhatsApp can demand a different course of action. Passive consumption on Facebook is a challenge and private messaging is more aligned in favor of WhatsApp. Hence, Feed ads are likely to be popular. Going forward, there is the opportunity for the platform pivoting to new use cases for users.
- Market Place is one such example which has seen good traction recently. As per Facebook, 800 million people use market place. The nearby shopping experience is likely to emerge as an important category. Another area which Facebook mentioned in its earnings is room for rolling out services like Dating, Job, Fund raising and other opportunities for small medium businesses on Facebook. This is a good idea. Imagine a scenario where a candidate is swiping left or right as a match for its dream job and similar activity is happening on other side from employer side. We are not sure if a job applicant would like to use their Facebook profile for such activity, but it is a potential new model.
- For WhatsApp and Messenger, Facebook is likely to explore paid messaging by enabling businesses to pay to send messages to users. There are more than three million accounts on WhatsApp Business—great opportunity.
- The only challenge here is Facebook rightly assumes that paid messaging will make businesses think twice and be more selective. There will be millions of businesses exploring this option. There remain challenges for ad positioning and profiling of users for Facebook. WhatsApp has an image amongst its users as being non-intrusive and a secure platform. So, Facebook should be very careful in monetizing paid messaging or ads on status. A potential use case may be a premium model where only selected activities can be allowed for certain businesses like Travel or Hospitality where a customer is getting the useful confirmation or registration notifications directly on WhatsApp.
- Payments is another revenue opportunity for Facebook.
- Payments is one segment which also helps the company to achieve beyond its core mission of connecting people to greater financial inclusion.
- Facebook has already started rolling out payments within WhatsApp. Even its beta mode generated lot of excitement within users–especially in emerging markets like India. A lot of small and medium business’ depend only on WhatsApp and Facebook pages as their primary identity for their business. Additionally, strong traction for Facebook Market place also presents an opportunity in payments the space. We will explore this opportunity in a separate blog post.
To conclude, we believe that Facebook has achieved something truly remarkable in connecting almost a third of the population of the planet. And, it can add more users as 30% of the world’s population is still not connected. However, the growth of the company will not depend on how many more people it can connect, but how relevant it can be for its existing users. The privacy and security of users’ data will be of utmost importance. The Cambridge Analytica scandal was a salutary lesson. It has started investing more in this, as a result. Facebook now needs to create more monetization opportunities from its platforms to offset the investment in implementing security and privacy. Instagram along with payments can be its big bet in the advertisement space.