Display's New Kingpin: Facebook's No. 1
Facebook doesn't really have to try to become the biggest player in digital media; it simply is .
The social network is estimated to book $2.19 billion in ad revenue in the U.S. this year, all of it classified as display, according to the latest eMarketer research. That sum takes on new significance now that Yahoo and Google are estimated to make less in display than predicted. The firm projects Google will make $1.15 billion in display ads for 2011, down 10% from an earlier estimate, while Yahoo is expected to bring in $1.62 billion from banner ads, down less than 2% from an earlier analysis.
While mighty TV still commands the biggest slice of the ad business at 16%, compared to the internet's 7%, according to ZenithOptimedia, more advertisers are making big branding bets online, an arena that has long been dominated by Google search and the direct-marketing companies that that kind of advertising attracts. In 2010, display advertising, which includes video, grew 23% -- faster than search -- according to the IAB.
Recognizing that challenge, Google has made aggressive moves into this area, bolstering its advertising offerings on YouTube and recently paying $390 million for Admeld, a startup that helps publishers sell premium advertising. Yahoo and AOL have been offering bigger ad units that mimic the distracting nature of TV ads with videos that command the entire screen.
But Facebook isn't simply benefiting from that trend -- it appears to be winning the front to claim higher-value ad dollars online. "More marketers are putting money into Facebook, as opposed to general display," eMarketer principal analyst David Hallerman said. Simply put: as more companies continue to build out their Facebook pages, they're also paying to advertise on the site to drive users to those pages.
Facebook's revenue dominance has become a closely watched milestone by the investor community, many of whom are eager to see the company go on the public market, with recent reports claiming it could make an offering as early as next year. An important aspect to understanding Facebook's revenue has to do with how much its ad-buying system is like Google's. Much the way that Google came to dominate search advertising with its open-bidding platform, Facebook has done the same with display advertising through a self-serve system that allows anyone to bid to place an ad along its right banner. But that system tends to appeal to the so-called "long tail" of medium- and small-sized businesses.
Facebook has been looking to attract larger companies into its mix of advertisers, according to eMarketer analyst Debra Aho Williamson. "They're definitely making a more concerted effort to go after TV budgets," she said. "But the challenge for bigger brands and agencies is that Facebook display advertising doesn't look like other display advertising." Unlike sites such as Yahoo or AOL, advertisers can't at the moment publish video or large units that take over a big part of the page on Facebook. "They have to show that the viral nature of advertising on the site is worth it," Ms. Williamson added.
The Palo Alto, Calif.-based company, which is closing in on 700 million registered users, has recently reached a point of maturity in its advertising ecosystem, which has largely been fueled by a host of third-party companies plugging into its advertising software. It has certified 22 companies, such as Kenshoo, Adparlor and Blinq, to sell Facebook advertising to agencies and marketers, and while there are definite exceptions, most of the advertisers fall into the smaller-business range.
Advertising on Facebook "serves a different purpose than advertising on a place like Yahoo where you can buy a takeover of the home page or a channel sponsorship," said Joanna O' Connell, a senior analyst at Forrester Research. Ms. O' Connell further pointed out that advertisers aren't necessarily buying one in place of the other.
The latest numbers on Facebook contrast a recent study from IDC saying that Google made the most money in display advertising for the first quarter of this year with $396 million, compared with Yahoo's $330 million and Facebook's $238 million.