Facebook has to adapt advertising business to user behavior
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Facebook's advertising business seemed unstoppable, but now founder and CEO Mark Zuckerberg is preparing investors for slower growth. And that has deeper causes than the problems in Europe or the recent data scandals.
Menlo Park (AP) – Facebook is facing a change in its advertising business, which will slow down for years running at full speed money machine of the online network.
The members shared their contributions more in the smaller circle of friends instead of the Newsfeed, which was previously the heart of the Facebook use, as founder and boss Mark Zuckerberg explained on Tuesday. That's why Facebook has to rebuild its business – and feels its way through to a solution.
For currently the billions in profits of the online network come almost exclusively from the newsfeed, which offers plenty of space for ads. But when it comes to earning money in its WhatsApp and Messenger chat services, as well as the new formats on the Facebook platform, the company is just getting started and, for example, does not yet know how ad prices will develop. "This is a journey that will take years and not quarters," said CFO Dave Wehner.
The new formats include, for example, the so-called "stories" in which users publish their photos and videos for one day for selected friends. "In the not-too-distant future, people will share more in stories than in feeds," predicted Zuckerberg.
There is a certain irony that Facebook copied the "stories" format unrestrained at the challenger Snapchat. Although this enabled Facebook to stop the rise of Snapchat, the photo app has been battling with user shrinkage ever since. But now Facebook itself must bear the economic consequences of the changed user behavior. The change is less smooth than he had hoped, conceded Zuckerberg. But for Facebook alone speak, that every day more than two billion people use at least one product of the company. The online network also includes the successful photo platform Instagram.
Facebook has already undergone a similar change when users switched from their PCs to smartphones. At that time, the online network had initially no business model for the mobile phone and investors doubted the future prospects of the company. But the newsfeed ads as a solution to the problem proved a goldmine. Zuckerberg and Managing Director Sheryl Sandberg now recalled this in order to reassure worried investors. This worked very well in after-hours trading: The share, which lost almost four percent after Zuckerberg's warnings, recovered to a plus of more than three percent.
Already the figures for the past quarter revealed some problems. For example, the online network lost one million users in Europe for the second quarter in a row and still has 375 million active members at least once a month. Facebook had already warned that the regulations of the General Data Protection Regulation, which has been in force since the end of May, will make business in Europe more difficult.
Worldwide, the growth of the online network continues. The number of monthly active Facebook users increased within two months from 2.23 billion to 2.27 billion. And the advertising revenue also grew significantly: Quarterly revenue rose by about a third year-on-year to $ 13.7 billion. The profit climbed by nine percent to just under $ 1.34 billion.
But a closer look at the Facebook figures shows that user growth comes primarily from regions that are less lucrative for the online network so far. In the US and Canada, Facebook now has 242 million monthly active users – just over a million more than three months ago. However, it is by far the most profitable market for the online network, where Facebook made $ 27.61 per user revenue last quarter. In Europe it is $ 8.82 per user and $ 6.09 on average worldwide.
At the same time, spending is likely to rise by more than 50 percent this year and another 40 to 50 percent by 2019. Among other things, this is necessary for the security and the fight against hatred and hate, said Zuckerberg. For example, Facebook is hiring more staff for its extinguishing centers to remove banned content. Above all, the number of employees rose by 45 percent to just over 33,600 within one year.
Zuckerberg, who otherwise rarely mentions competitors, acknowledged that Facebook lied behind video on Google's YouTube platform. However, the online network has so far deliberately reduced the amount of time users can spend watching videos. Facebook is in a dilemma: "People want to watch videos," said Zuckerberg. At the same time they expected from Facebook but also social contacts with friends and family. That's why Facebook slowed down the spread of so-called "viral" entertainment videos.
Facebook was plunged into a crisis this year by the Cambridge Analytica data scandal. Recently, a hacker attack that affected around 30 million users caused new negative headlines. However, this turbulence seems to have hardly affected the online network's business so far.
Facebook to business in the past quarter