The Agency View: is Facebook Too Big to Fail?


Facebook

Facebook once again beat analyst expectations for earnings and revenues in its Q4 financial results yesterday, generating quarterly revenues of $16.9 billion, and a profit of $6.88 billion, 61 percent growth year-on-year.

But the results come after in year in which barely a week has gone by without a new Facebook scandal emerging, often with multiple stories breaking in the same week. There were fresh revelations about user data being leaked to Cambridge Analytica, new allegations of video ad metric inflation, and recently a British father saying Instagram is partly to blame for his young daughter’s suicide.

These scandals have seen founder and CEO Mark Zuckerberg hauled before the US Congress, and resulted in calls for him to step down from his role, including from investors and civil rights activists. Yet while Zuckerberg’s personal brand might have taken a hit, judging by revenues it seems his company has come out relatively unscathed.

Ultimately, it’s brands and advertisers who are still funnelling money into Facebook. Some, including Initiative CEO Mat Baxter and GroupM global head of global brand safety John Montgomery have publicly spoken out against Facebook; either some of those speaking out aren’t backing it up with action, or they’re too few to really dent Facebook’s profits.

Is Facebook immune to bad press?

VAN spoke to two verified and senior agency sources, both of whom preferred to remain anonymous, to find out why Facebook seems to be too big to fail.

“It’s not that clients like Facebook, but it’s simply too big and nowhere near pernicious enough to contemplate excluding,” said one of the sources. “Clearly everything that’s been exposed about Facebook’s algorithm pushing dreadful content to kids is shocking, but it won’t stop advertisers spending money on it.”

Another senior agency executive said smaller advertisers in particular are just too reliant on the social right now. “Facebook are getting small amounts of money from a huge base of advertisers, and they’re really key to those businesses as well,” they said. “For them to switch off Facebook advertising because of privacy concerns might mean they have to increase their marketing budget massively, which isn’t feasible for these small businesses.”

But for larger advertisers too, Facebook still offers capabilities that can’t be offered elsewhere. “Is Facebook as important to big advertisers as it is to smaller businesses? Probably not, but obviously the reward for Facebook is still huge even if they’re only taking a small slice of a big advertisers’ budget.”

The casual nature of content on Facebook also makes it an effective driver of sales, since it’s relatively easy for brands to get users to navigate away from Facebook, onto their own sites. “They’re a very effective driver of sales,” they said. “Even though their service levels are poor, their self service tools and the legion of social activation experts you can hire mean that you can live without effective sales support.”

But ultimately, it’s the scale of both the audience and the data available which keeps advertiser coming back. “It’s unfortunate they operate a close data ecosystem, but it’s tolerable given their absolute scale,” said the agency.

Is There Trouble Ahead?

However, while Facebook’s reach seems to continue to drive huge ad revenues despite all the bad press, this may change in the future.

“If you look at users, numbers aren’t growing as quickly as they used to,” said one of the agency sources.

“They clearly have trust and privacy issues that they need to get a handle on, because it will start to impact their userbase, which will ultimately affect their ad revenue,” they added. “So whilst they had a successful year last year, it may be that the trickle-down effects of everything that’s happened don’t come through until next year, or maybe the year after.”

The agency insider also saw potential trouble ahead for Facebook in its recent moves to consolidate its products. “The danger is that if they start to homogenise their products, it will hit the user growth of those products which do still have credibility with younger audiences, like Instagram,” they said.


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