Social media ad growth halved over the year to end-March 2019, according to WARC’s latest Global Ad Trends. Facebook is looking to diversify its revenue model to guard against a rising tide of consumer distrust and poor monetisation of its international users, says WARC Data's managing editor James McDonald.
Last year, six social media companies – Facebook, Tencent (WeChat/Weixin and QQ), Twitter, Weibo, Snap and Pinterest – made $67.1bn from advertising. This is equivalent to a quarter of all online advertising expenditure, 11 cents in every ad dollar worldwide, and the economic output of Luxembourg.
The 2018 haul represented a huge 39.3% annual rise from a total of $48.2bn in 2017 (itself a 47.1% rise from 2016). Some 82% of this money was paid to Facebook alone, including for ads across its Instagram and WhatsApp services.
But then something remarkable happened. At the start of 2019, ad growth, which had gradually slowed over the preceding months, halved when compared to a year earlier. All six companies recorded a cooling.
This easing in ad revenue growth can, in part, be explained by the law of large numbers. But a rudimentary forward projection shows that, on the current trajectory, social media ad growth will grind to a halt during 2021. Here, then, are some of the nuances that a statistical model can’t tell you.
Two in five dollars spent on social media ads are from North American brands across Facebook’s platforms, so a slowdown here has implications for the wider sector. The North American market is in the later stages of maturity: daily user growth has stalled, and daily time has flatlined at around two hours per day. Further, the number of people using the internet in the region – via any device – has almost reached its critical mass.
The challenge here is to better monetise existing users in the region. And Facebook appears to be doing this rather well: average ad revenue per user (ARPU) in North America was $29.69 during the first three months of the year, up by around six and a half dollars from a year earlier.
But the devil’s in the detail. Facebook calculates ARPU using company-wide ad income (including ad business generated across Instagram and WhatsApp), then dividing this by the number of monthly users of its core Facebook platform only. Consequently, it is fair to assume that the figure is being inflated to a degree by the number of users migrating to Instagram and WhatsApp, as well as those that are leaving Facebook’s properties altogether. It is also unclear whether the calculation includes the 380 million profiles that are worthless to advertisers.
What is clear is that, as its user mix evolves, Facebook will need to generate more ad money from Instagram and WhatsApp in North America (the company does not disclose how much of its ad revenue comes from these services, but it is likely to be a small share in relation to its core business). But this will take time and, arguably, it may not even be attainable at the level seen during the social network’s halcyon days.
It is important to note that the North American slowdown is also impacting other social platforms: daily users of Snapchat fell by between 500,000 and one million over the year to end-March, while Twitter’s monthly users in the US also dipped in the same range. The number of daily Twitter users whom the company deems to be monetisable (i.e. capable of seeing ads) rose to 28 million however.
Consumer confidence is waning
Data from GlobalWebIndex show that daily social media consumption has flatlined in most regions. This comes at a time when consumer perception of social media companies is becoming more hostile: 58% of American users believe social and tech companies have too much power and influence, while just under half (47%) believe they should be better-regulated. The global averages are 50% and 51% respectively.
Ancillary research from Dentsu suggests that the primary cause of distrust is the industry’s misuse of personal data, and that this has commonly led users to limit their online footprint, mostly by sharing less data. But 14% have gone so far as to deactivate a social media account.
Aside from a rising distrust in the platforms themselves, confidence in those which adorn them is also starting to wane. Universal McCann reports that less than half of consumers trust influencers online or are even influenced by their opinions, a rate which has tracked downwards from a peak in 2014. The number of influencer posts on Instagram rose 40% to 2.1m in 2018, according to Klear.
The next billion users
With numbers largely flat or falling across North America and Europe, the focus on monetising users outside of these regions is heightened. Asia in particular is a growth area for Facebook’s ad business – users here currently monetise at a rate which is almost 11 times lower than in North America (though the previous caveat around how Facebook calculates ARPU still applies). This is despite the fact that 38.4% (600 million) of Facebook’s daily active users are Asian, compared to the 11.9% which reside in North America.
Facebook made $2.6bn from serving ads in the region during the first three months of this year. Despite being blocked in China, there is evidence to suggest that the country is still a core advertising market for Facebook. But India is where Facebook’s future ad growth lies: recent estimates from Hootsuite and We Are Social suggest it is already the largest country for daily users (241 million vs. 240 million in the US).
Successful monetisation of its largest user base, which continues to grow due in part to cheaper mobile handsets and data plans, would give Facebook’s advertising business its second wave.
All roads lead to Libra
As advertising revenue growth cools, social media companies are increasingly looking to diversify. Facebook has already announced its intention to launch a new cryptocurrency, Libra, by 2020, with emerging markets being its prime focus, alongside Calibra, a digital wallet which will be integrated into Messenger and WhatsApp.
Facebook has said that Libra will not be used directly to enrich the consumer data it has harvested for ad selling purposes. However, the cost of advertising on Facebook’s social platforms could feasibly rise if the company proves a relationship between the ads it serves and an increase in Libra-facilitated sales.
While still nascent on Western platforms, in China, the ease of mobile payment has made social shopping a norm. Tencent made RMB21.8bn ($3.2bn) from fintech in the first three months of this year. But in the US, security and privacy are cited as major concerns for the development of social commerce, and this is a core challenge Facebook will need to confront.
You can read a free sample of this month’s Global Ad Trends by following this link.