Improved Ad Quality Will Drive Facebook’s Future Growth
Facebook Announces Mixed 1Q15 Earnings (Part 2 of 5)
Providing relevant ads benefits users, advertisers, and Facebook
In the last part of this series, we discussed how mobile is driving Facebook’s (FB) current revenue growth. During the earnings conference call for 1Q15, Facebook mentioned that its future growth will be driven by improving ad quality. It will provide relevant ads to users. This provides users with a better user experience. It also gives advertisers a higher return on investment because users are more likely to click on the ads.
Providing relevant ads also helps Facebook monetize the ads better. Facebook will gain if more users are clicking on the ads that they see. This will increase the metric for the number of “paid clicks.” Until now, Facebook’s advertising business experienced healthy growth, as the above chart shows. The growth rates slowed down a bit, but that’s understandable. As the revenue base becomes larger, the YoY (year-over-year) comparisons become difficult.
Adoption of the “Custom Audiences” tool
Facebook’s management mentioned that it’s pleased with the increased adoption of targeted tools like “Custom Audiences.” This program enables marketers or advertisers to use basic user data, like email addresses, to segment current and prospective customers on Facebook and target them with ads. For example, online retailers like Amazon (AMZN) and eBay (EBAY) would take users’ email addresses, identify them on Facebook, and then target them with relevant ads.
However, it isn’t just Facebook. Google (GOOG) (GOOGL) is also reportedly in talks with advertisers to provide customer information—like email addresses—according to an April 14 report from the Wall Street Journal citing people familiar with the matter. Google would identify these users through email addresses and show relevant ads based on the users’ purchase history.
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