How Messenger Ads Will Help Facebook

by Trefis Team
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Advertising on its core platform accounts for nearly 70% of Facebook‘s (NASDAQ:FB) valuation, according to our estimates, and brings in around 80% of its revenues. With a user base of 2 billion globally, the social media giant has a market share of nearly 40% in the U.S. digital display ad market, according to eMarketer. However, Google still dominates the digital advertising market overall, given its share of nearly 80% in the U.S. search ad market. While Facebook has been working on several initiatives to engage its users better – including videos and other interesting content on its platform – the company is reaching a saturation point with respect to display ads on its News Feed. As the company looks to optimize the ad load on its core platform, it expects a meaningful slowdown in advertising revenue growth going forward. However, Facebook is also looking at other areas related to its core platform where it can introduce advertisements to offset this issue.

Recently, Facebook announced that it is rolling out ads on its Messenger app globally. After a promising test run in Australia and Thailand, the company is confident that its 1.2 billion strong Messenger user base can attract advertisers without adversely impacting the user experience. Facebook is promoting its Messenger app as a key tool for businesses to communicate with their customers, and advertisements can help foster these conversations and allow businesses to reach out to prospective customers. Small businesses (who have their pages on Facebook) are likely to drive growth for Facebook going forward, and many interactions between these businesses and their customers already happen on the Messenger app. By giving businesses the ability to also advertise on this platform, Facebook can further monetize its massive user base.

Facebook is actively working on making Messenger a “go to” app for many of its users’ online needs. The company is also testing “M,” an AI-powered personal assistant for Messenger which will likely help users with tasks such as booking tickets. With ambitious goals for the Messenger app, and an aim to build a competitive edge against Google, monetizing the app can help Facebook in myriad ways.

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