Like Teflon, Scandals Don’t Stick To Facebook As 2018 Delivers User And Ad Growth
Facebook’s tumultuous year made approaching the social giant’s Q4 2018 earnings call complicated, to say the least. Days before the call, news hit that Facebook is consolidating the back-end tech of its family of messenger apps. Why? Then, a story breaks that Apple is pulling a Facebook app that invites users to share their phone and web activity data for a fee. Oh, some of those users were teens. Yikes. So much to discuss.
Well, not too much of all that was discussed on the call in the end. Multiple scandals deterred neither user nor advertising growth. Facebook increased daily active users (DAUs) to 1.523 billion, up from Q3’s 1.495 billion, even in Europe, and up 8.6% year-over-year (YOY). Q4 total ad revenue was $16.6 billion, up 30% YOY and growing across all geographies. As Facebook repeated on the call: “We’ll let the numbers speak for themselves.”
The takeaways that we think marketers need to care about are:
- Marketers are getting smarter at using Facebook. Facebook’s Q4 2018 jump in ad revenue of almost $4 billion from Q4 2017 reveals marketers’ comfort with moving plush holiday budgets to the social platform. Facebook’s revelation that direct response efforts drove this increase shows that marketers are getting better at figuring out how to use social to drive value. Historically, marketers struggled to prove social’s value in their mix (and really, still do). CMOs got wise to the fact that likes and shares don’t pay the bills. But with greater adoption of sophisticated measurement methods (marketers already spend $1B on it, and that will double by 2023), marketers gain visibility into which channels are working and for which objectives. This is great — on the surface. The downside that Facebook will have to manage: Short-term sales are addictive to marketers. The platform can’t aggressively hawk goods, even though Wall Street pressure, mounting expenses, and leadership switches compel brands to focus on quarterly sales. Worse, a focus on short-term sales sacrifices long-term goals such as brand health and growth. Facebook would be best served to deliver opportunities for both short-term and long-term marketing objectives if it wants more of marketers’ dollars. Stay tuned for Tina Moffett’s 2019 report on balancing short-term/long-term goals.
WIM (what it means): Use Facebook to drive sales, but don’t lose sight of long-term goals.
- Ad innovation took a back seat to privacy and security. Facebook admitted that it has been distracted in 2018 by making Facebook a safe space — and that this was expensive. Operating margin in Q4 was 46% vs. Q4 2017’s 57%. Facebook has hired 30K people in 2018 to focus on safety and security on the platform (so, roughly the number of folks working at Salesforce). The reality is that Facebook obviously underinvested in privacy and security for years and is now playing catch-up. 2019 is apparently the year that Facebook’s protective processes go into “road map mode” (whatever that means), and it can focus on building new experiences that improve people’s lives today and in the future. The challenge: The safety issues don’t go away. Mark Zuckerberg has referred to this commitment in the past as an “arms race.” Privacy and data protection are needed to create an environment where both users and brands want to be. Marketers need to press for both — a safe space with innovative ad formats that don’t disrupt the user experience.
WIM: Growth can’t mask the ongoing privacy challenges; as the revenue source, brands need to hold Facebook accountable to always improving privacy and data protection.
- Expect more innovation — because it’s needed. Facebook admitted that it’s still working on making Stories deliver the same ad opportunities as the core News Feed product. Apparently, it’s been distracted by fixing its privacy problem. With 7 million advertisers overall but only 2 million using Stories, clearly there is room to grow. Reducing friction in the ad buying process helps. For example, advertisers don’t want to create specific assets for News Feed and Stories, so helping advertisers translate News Feed assets for Stories is wise. By advertising Stories’ early-bird pricing on the call, Sheryl Sandberg sure tried to initiate momentum. The challenge for marketers is finding creative ideas that jive with the Stories experience. And that is still a work in progress.
WIM: Work Facebook’s News Feed and trial Stories but only if it makes sense for your audience and goals.
- Social eCommerce is an attractive yet still far-off reality. Speaking of proving social’s value to marketers, nothing would drive ad dollars to Facebook faster than if the platform could prove itself to be a viable sales platform — which, let’s be clear, is not happening today. But seeing performance marketing deliver in Q4 certainly inspires Facebook to figure it out. Not only will advertisers love to be able to connect a Facebook ad more directly to a sale through in-app shoppable moments, it also gives them another sales option vs. Amazon. The problem: consumers. They just don’t go to social to buy as our Social Technographics® data shows. But they do go to discover and explore on their journey to purchase, so there’s the place to start.
WIM: Don’t sever retailer relationships anytime soon; social commerce remains experimental.
Two things not discussed on the call that we would have liked to hear more about for marketers:
- Who is the DAU? Not revealed on the call was how the composition and behaviors of Facebook’s DAUs are changing. Are they engaging fewer times in a day, affecting ad inventory? Do new users have less discretionary income? Are they passionate users or ambivalent? Our own data shows that users find less value from the platform — as recently as December 2018, nearly half of the Facebook users we surveyed said they would rely on the social network less. Knowing your own audience’s perspective on Facebook and its family of apps should be your main guide for how to use the platform in 2019.
- What regulation can we expect, and when? Facebook is wise enough to anticipate coming regulation, taking a “Sure, and we’ll help you craft it” stance. (Why shouldn’t it think that’s alright? It already grades their own homework when it comes to reporting out on campaign performance). What we don’t know is what kind of regulation will stick. Facebook acts like a media company and a communication company, both of which are regulated. Talk abounds about breaking Facebook up. Marketers with dollars tied up with Facebook’s family of apps need to understand how such regulation may impact how they work with Facebook and how it protects their end consumers better — because that would be a win.
Thanks to Arleen Chien and Caitlin Wall for their assistance with this blog post.