Mobile advertising, Wall Street, and the Facebook fallacy

Written by on April 29, 2016 in Opinion with 0 Comments

The CriticsCome, celebrate with us – and pretty much the whole of Wall Street – as Facebook announces much better than expected results. Their first quarter brought in over $5 billion in revenue, and profit forecasts are 15 cents per share higher than expected.

With over 1.5 billion monthly users and Mark Zuckerberg turning on the ‘monetisation spigot’ that he sees as video advertising, it is no wonder that the Street loves him. They think that once he has exhausted Facebook’s advertising potential, there is still Instagram and Messenger to plunder. They actually do not care that he wants to create a new class of non-voting share so that he retains complete control of the company.

As Wedbush Securities analyst Michael Pachter said, “I honestly don’t think anyone cares if he has more power, since he’s done everything right since they went public”. Scary.

We tend to look at Facebook and Google as similar beasts when we view them from our communications perspective. But they are not. As one very respected investor, Jim Mellon, said last summer, “of course invest in Google, it is the same as putting money into an investment trust”. It is, he thinks, a portfolio in its own right. They have a balance of safe bets and moon shots – their own and others. They are investing in a huge range of disruptive technologies and you don’t need many to completely change the way we do things to reap huge profits.

The runaway Facebook success, thus far, is based on advertising. And, of course, the place to be in mobile is Facebook and the thing to be is video. But this is based on the premise that people quite like advertising, normally irrelevant advertising, appearing in their timelines.

And that premise is flawed.

During a seminar in Scotland last week we asked some 20 Somethings about their likes and dislikes online, particularly mobile. We wanted to test the assumption that they do not mind, or at least will live with, mobile advertising.

Wrong.

They hate it. If they could afford it, they would buy ad blocking software. Teenagers will even spend their meagre pocket money to block adverts on Spotify and other sites.

The problem will get worse. As more and more advertisers get more and more desperate to place adverts where they will be watched, they will, by default, head to Facebook, where there will quickly become a traffic jam of advertisers. So our timelines will get more clogged up with irrelevant adverts. So we will then reach the point of frustration where we go from inertia to action, do something about it, and switch off the adverts. And at that point, the opportunity will be ripe for a Facebook Slayer to make an appearance.

Unless Facebook’s ultimate dream of getting everyone to do everything via Messenger – from buy a book to buy a holiday home – then their current success, purely on the back of advertising looks very much like a bubble.

And as we know, if we are over 35, the bigger the bubble, the bigger the mess when it bursts.

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About the Author

About the Author: Alex was Founder and CEO of the Global Billing Association (GBA), a trade body focused on the communications sector. He is a sought after speaker and chairman at leading industry conferences, and is widely published in communications magazines around the world. Until it closed, he was Contributing Editor, OSS/BSS for Connected Planet. He is publisher of DisruptiveViews and previously BillingViews. .

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