Once again there was rejoicing to what was repeated as a “stellar” earnings report of top line, bottom line, user growth, user activity and more. It would appear at first glance there was something for everyone. Of course, that is if all you do is glance (which is all most do.) However, the closer you looked, then parsed it alongside of other reports, those “stellar” numbers painted a picture far less rosy than at first glance.
The picture painted by all is that Facebook™ (FB) is showing how it’s done when it comes to mobile. Words like “dominant,” “juggernaut,” and alike are used to describe both its user growth, as well as ad dominance in the mobile space. All fair points and the numbers back those claims. However, if FB was so “dominant” in sales – why aren’t the major retailers or dominant global brands the major source of ad buyers? It would appear the buyers that should be lining up to buy those mobile ads aren’t as impressed. Why?
I’ve stated ad nauseam if FB was delivering an ROI (return on investment) to advertisers that matched the “dominant” scale implied when we hear their metrics reported – the dominant advertisers for FB wouldn’t be ads for app installs. It would be major brands, and that’s not the case.
Here’s why this matters: App install ads are basically all those ads you hate getting even worse than what you think of as traditional retailer targeted ads. In other words, more ads to load an app that’s “free” so that app in-turn can supply you with more ads on their app. Welcome to “eyeballs for ads” 2.0
Now some will scorn my assertions, as well as opinion. And in fairness one should always be skeptical as I myself always assert “don’t just take my word for it.” However, with that said the reason for my opinion is not borne out of unfounded assumptions.
Earlier in my career I had a stint in advertising and needed to convince one of the major global food companies of a new way to reach possible consumers. (I’m not being coy with the name it’s just not needed, but for those wondering if I’m trying to scale some irrelevant “Mom & Pop” example I’ll just say this: they’re a Fortune 100™ company.)
The customer, campaign, as well as the vehicle format had never been tried or tested. I had to convince not only the company, but also their national media buyer as well not only to try it, but also to allow me to put our own touches to their already multi-million dollar, focus group tested, successfully implemented with clear calculable, tried and true ROI campaign metrics.
I used the words “put our own touches” they used the words “you want to tamper.” It wasn’t an easy “sell.” But in the end “sell” it did. So successful it has been introduced globally and the “idea” is still in use, and is a mainstay of their advertising budget to this day some 30 years later. So it’s not as if I don’t understand “new ways of advertising” and what it takes to both sell and keep those advertisers at the highest of levels. (I only state this to quell the Twit-storms that usually result by the so-called “smart crowd.”)
So now you may be wondering “OK, so what does that have to do with FB?” Fair point, and it’s this…
If there was an ROI for major brands or advertisers with FB, at this point, and this far into the game with all their so-called “dominance” and “they get mobile” homilies we hear from every next in rotation fund manager or Silicon Valley aficionado: Why aren’t the major brands lined up so deep showing a pipe line of future ad campaigns so long it would, at the least, warrant a mention on an earnings call? Yes, advertisers do cut back in lean times, but what they don’t cut back on is ads that work. Especially in lean times. Period.
But that must not be happening, because not only do you not hear such musings on the call – you’re not seeing their subsequent ad buys on the platform either.
What you do see is Silicon Valley type startups throwing the kitchen sink full of their VC’s wallets at what they consider the place of last resort before the fire from their cash burn peters out.
If this wasn’t the case then why are “App install ads” the predominant ad revenue generator? And just to add some more “food” for thought: who’s more likely to throw the biggest “sink” (as in ad spend) in this climate? Someone spending their VC’s wallet? Or a company that lives or dies via ROI’s that generate net profits?
Again: If major brand advertisers were getting an ROI, at the least, not only would they be continuing campaigns, there would also be a litany of their competitors falling right in line. No major brand concern (as well as any prudent business regardless of size) would sit back and allow their competitor ad dominance whether for sales or brand awareness without also being there – unless – they’ve concluded from earlier tries themselves, or it’s becoming well-known: it’s a waste of time and money.
What you also find today is the growing anger many are expressing when it comes their communities, followers, or whatever it is they’ve built on FB as it pertains to their brand. Many are coming away with outright hostility for what they feel are complete strong-arm tactics along the lines of “nice community and fan base you built here – pay us or never reach them again.” If you think that’s off base – ask any publisher of late how they feel. You also have accusations of suppression, where the suppressed, was actually paying and FB accepting those payments for ever more reach! (e.g. the ongoing Steven Crowder litigation)
In a nut shell the way I view those “hitting the ball out of the park” results just released was not “Wow – do they get mobile!” as I heard repeated more times than I wish to remember. No, the way I viewed this latest release is FB is just the current recipient of what ever little is left to share migrating from the ongoing slow motion train-wrecks happening at the likes of Twitter™, Yahoo™, and Linkedin™ just to name a few. (all 3 by the way I was told by the so-called “smart crowd I hadn’t a clue. How’s that all working out today is all I’ll say.)
Remember WhatsApp™? $20 Billion spent and what has it returned via the juggernaut of mobile that is FB? (insert lousy T-shirt joke here.) Or how about Instagram™? To the best of my recollection I remember the metric as reported by Emily Chang of Bloomberg West, “200,000 active advertisers” Sounds great till it was followed up with “75% of that are outside the U.S.”
Why is that not a “home run” metric in my mind? Well, if FB and Instagram are considered by their own viewpoint as “the 2 most important mobile ad platforms.” Only 25% of your ad sales (e.g. Instagram) come from the #1 consumer economy on the planet? Don’t let that point be lost on you, think it through a few times. I personally couldn’t get it out of my mind as the interview went on.
What struck me as a defining point in my thesis was the latest GDP release. Not only was it abysmal, one of the most glaring metrics which jumped out at me was the absolute collapse in inventories. Businesses chose not only to work down, but rather – to clean out.
It’s one thing to work off inventory, it’s quite another to clean it out. Or said differently: There’s a dramatic difference in mindset between: We’d rather miss or lose the order as a result of an “out of stock” rather, than build a product and let it sit indefinitely for an order that may never arrive. The former is ever-present in bad times – the latter is prevalent in good. And if the inventory report is in any way close to true – things are as bad as many of us have argued. And what bolstered this opinion in my view was FB’s latest earnings report.
Again: where are the major brands if FB is so “dominant” of an ad platform? Hint: they’re not on Facebook. And that’s another tell-tale sign in my opinion that things might be closer to coming off the rails than stabilizing. Need proof? Again, fair point. I’ll just point to FB’s stock price and movement for your consideration.
After its initial jump what happened? Hint: rhymes with deflation.
All the stock could muster was a “pop” as to crush any crazies who dared put on a short position. And once they were cleaned out? It’s right back to where it began. All that “hitting it out of the ball park” styled reporting and the best it could do was migrate back to where it was before the report? That, in my humble opinion, in itself, once again, puts more weight as to show just how anemic this economy, as well as “markets” are. Nobody’s buying anything (unless you’re a central bank) – literally, as well as figuratively.
Well, I let me rephrase that. Someone is buying. The only problem is one of the “buyers” is AOL™. (e.g., Verizon™ buying Yahoo™)
Why do I bring that up one might ask? Well, if I remember correctly, right before everything went south. They also had “great ad sales” reports because no one got “digital ads” like AOL. Till the facts emerged that major advertisers themselves were no longer buying.
© 2016 Mark St.Cyr