Can Facebook Turn Its Users' Videos Into A Revenue Driver? Should It?

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facebook videoSpeculation on how Facebook will expand its revenue streams will only become more intense once the social network issues its first public stock offering on May 18th. Although Facebook is the top display advertising seller, according to eMarketer, an SEC filing last month revealed that ad dollars had slipped 7.5 percent, dragging down total revenues 6 percent.

That is not to say that Facebook's power as an advertising venue is fading by any means. But some, like WPP CEO Sir Martin Sorrell have continued to voice doubts (see this Q&A in the Business Standard and Telegraph UK) that Facebook – not to mention Twitter, Google+ and other social networks in general – can be serve as a platform for advertising like any other media company.

Facebook has tried a number of high profile attempts to attract major brand advertising and it has undeniably succeeded in many ways. But one area remains largely untried: video.

At the moment, video advertising seems like an unlikely prospect for Facebook. For one thing, most of the videos on the site tend to be shared from its primary competitor Google, via YouTube. And Facebook's 900 million users have so far shown wariness about Facebook's plans to insert advertising into their status feeds or target ads too closely. As a result, Facebook has relied on static banners, casual game ads and affiliate marketing to bring in money.

With YouTube trying to raise its profile as the online equivalent of a professional, cable TV-like program channels, Facebook may become the main site for sharing user-generated content. Considering that brand advertisers have never gotten too comfortable with YouTube's "dog on a skateboard" model of user-gen. But Facebook, by dint of its requirement that users accurately identify themselves in order to get an account, is different.

Or is it? Ad tech executives and agencies we spoke with remain uncertain, but intrigued, since Facebook has always looked to push the envelope of what its users will accept.

"Facebook is most certainly evaluating all options when it comes to revenue generation, though it's important to recognize that Facebook and YouTube are quite different when it comes to how content is shared," said Mike Lazerow, CEO of Facebook ad specialist Buddy Media. "Also, the consumption model on a site like YouTube isn't at all like Facebook, so the user tolerance for pre- or post-roll in that venue alone is reason enough for the development of a new way of delivering marketing messages. Video content is already very successful when distributed via Facebook's sponsored story ad units. I'm interested to see what Facebook's team intends to do with the monstrous opportunity that its users' appetite for video content represents."

To be sure, with 48 hours of video uploaded every minute and three billion views per day, YouTube hasn't ceded its ground as king, noted Steve Smith, partner, planning, Dallas-based ad agency Firehouse. According to comScore Video Metrix, in March, the 15 billion non-ad videos hosted by Google properties garnered 146 million unique viewers versus Facebook's 46 million unique viewers. In other words, Smith said, Facebook's problem is achieving comparable scale.

The difficulties of driving greater scale is attached to the issue of privacy. In 2011, the number of "public" videos on Facebook was pegged at less than 100,000, Smith said. "The bigger opportunity for Facebook may be as a platform for video from marketing partners seeking a more controlled environment," he said. "To them, Facebook offers more regular and personal engagement, and the important ability to target based on the robust data we have all so readily supplied."

But there is a chance that things could evolve quickly, if Facebook can convince its users that privacy is sacrosanct. Perhaps the prospects of video ads on user videos would be raised if Facebook could create revenue sharing program similar to what YouTube has long offered.

Andy Chapman, leader, Digital Trading for WPP's Mindshare, monetizing users' video is an interesting proposition given Facebook's unique platform and user base behavior, "which is different than the YouTube platform model."

The difference rests on the sense that there is some additional value or attention generated through content that is shared by a trusted source, which could drive greater receptivity among the Facebook audience.

"However, monetizing video content in something like a pre-roll model would be challenging to implement across its user base, given the long-standing problem in defining the actual content of [user-generated content] video [which is ] of high interest to advertisers," Chapman told us. "Additionally there may be potential issues around receptivity to a more intrusive addition to personal content among the Facebook community, which is quite different than the current ad models they have deployed to date."

To explore those potentials will require Facebook to expand its commercial arm into users' space, something that the social net has tried to tread carefully around ever since the contretemps over Beacon, the quickly abandoned 2007 marketing program where Facebook posted users' activity on outside websites to their Facebook wall.

"I think the lesson Facebook learned (from their Beacon platform and position) was to be careful how to monetize users' actions such that they do not completely disenchant their base," Steve Goldner, Senior Director, Social Media, Hyper Marketing's digital shop MediaWhiz. "Thus, I would be surprised if Facebook creates a video ad network from user-generated content. I think it is more likely that it incorporates UGC, with user permission, into news outlet and marketing deals and distribution to partners."

Goldner pointed to Coca-Cola as an example of a marketer doing a great job employing UGC in their marketing and ad efforts. "I remember seeing a presentation from Wendy Clark, one of their marketing executive leaders, where she showed some great brand-related UGC and commented, 'I had to get their permission to show this to you today.' I think this respect for your audience provokes a greater desire for advocates to be part of the brand message and movement," Goldner said.

So is the idea of Facebook using its members' videos as a part of a Facebook ad platform really that far-fetched? Not everyone thinks so. Steve Knapp, director of brand activation for ad agency Carmichael Lynch, thinks it's only a matter of time before video will become more prominent and monetized on Facebook, whether through an advertising or branded content model or both.

"Look no further than Facebook's purchase of Instagram for $1 billion and the explosion of social video apps like Viddy and Cinemagram now reaching millions," Knapp said. "Images are the new words in social networking. Couple this trend with the interest-based targeting and social graph of Facebook. Video is the obvious evolution in their advertising model, which will send even more marketing dollars their way.

"Ultimately, Facebook is about connection, Knapp added. "YouTube is about consumption. I'll listen to a song on Spotify or read an article on Washington Post Social Reader because I saw that one of my friends did. This could be through the newsfeed or an ad. If Facebook applies the same relevance to video as they've done before, success will only follow."

By David Kaplan

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