- Facebook has announced that it will start using data from Like and Share buttons on third-party websites for targeting purposes on Instagram.
- The new move will help Facebook mitigate the damage that Apple's new ad-extensions will do to its ad revenue.
- Instagram is set to overtake Google and Twitter as the largest display ad platform in just two years.
Less than a week after Apple (NASDAQ:AAPL) unveiled iOS 9 and along with it announced that users of its popular Safari browser will now be able to integrate ad-blocking extensions on the browser, social media giant Facebook (NASDAQ:FB) has made a radical announcement regarding its ad-targeting methods. FB has announced that starting October, it will start to use Like and Share buttons on third party sites to send browsing data to Facebook which the company will then use to deliver targeted ads via Instagram and its mobile ad network i.e. Facebook Ad Network. Facebook’s Like and Share buttons are almost ubiquitous on the Web, and are some of the notable casualties of Apple’s ad-blocking move.
Several ad-blocking software, including 1blocker, give users the option to hide FB widgets such as Like and Share buttons. One of the most intriguing developments about Facebook’s new ad targeting method is that users won’t have to click on a Like or Share button for data to be sent to FB; data will be sent automatically whenever users visit a page that contains the buttons. To mitigate privacy concerns, Facebook allow users to opt out of viewing ads that are based on non-Facebook activity.
Mobile Ad Company
Facebook relies very heavily on mobile devices to drive revenue--about 76% of Facebook’s revenue is derived from mobile activity. This places it squarely in the cross-hairs of Safari ad-blockers since Safari is the second most popular mobile browser after Google Chrome, with a 23% market share.
Just how much revenue does Facebook receive from Apple devices? There are no concrete figures available for this though we can make some estimates. Goldman Sach estimates that $4.4 billion, or about 75% of Google’s (NASDAQ:GOOG) mobile revenue, comes from Apple devices. FB and Google serve pretty much similar demographics, so it’s quite likely that Facebook’s proportion of mobile revenue that is directly attributable to Apple devices is in the ballpark of Google’s--or roughly 57% of Facebook’s overall revenue. The figure could be lower or higher than that, but it’s quite clear that the threat is real.
Facebook’s biggest mitigating factor is the fact that most of its traffic comes from its apps rather than its core site. In-app ads will not be affected by Apple’s ad-blocking software. This minimizes the impact on Facebook.
Instagram as a Growth Driver for Facebook
While Facebook’s latest move will not completely inure it from Apple’s new ad-blockers, it bears some important ramifications for Facebook’s top line. Although Facebook does not display ads on Instagram directly, it makes money from the platform by displaying Instagram videos as paid ads on Facebook. Facebook usually reserves high quality ads on its site and lower quality ads on Instagram. This allows the social media company to avoid cluttering its site with too many ads and diminishing the user experience.
Although Facebook does not break out Instagram revenue numbers, eMarketer estimates that Instagram will bring in about $595 million in revenue for Facebook in the current year, or about 5% of the company’s revenue. The organization, however, projects that the platform will grow at a blistering 117% CAGR over the next two years to hit $2.81 billion in revenue in 2017, or 14% of Facebook’s revenue, and in the process overtake Google and Twitter (NYSE: TWTR) in display ad revenue.
Facebook no doubts recognizes the immense potential of Instagram, and is moving to make it an even more attractive video and display ad destination for marketers. By widening the net of cache of data it uses to target users with ads, Instagram will increase its ROI for marketers and allow the platform to command better CPM rates.
Facebook has done a lot to improve its ad targeting techniques over the last couple of years, and there is evidence that this is working. Nanigans, one of Facebook’s ad exchange partners, recently reported that its clients saw a healthy 142% increase in video ad CPM rates when they used ads designed using Facebook data. As a result, Facebook’s overall CPM rates have been steadily growing, in stark contrast to Google’s which have been in free fall for many quarters.
Facebook will no doubt feel some heat from Apple’s new ad-blocking tools. But the company will be more than able to mitigate the damage by bolstering Instagram’s attractiveness to marketers as a video ad platform. Long Facebook Stock.