Facebook came out with its Q2 2015 earnings yesterday, and response was generally positive, beating estimates on revenue, though with slightly slower growth. (When your user base is more than one percent of all homo sapiens who have ever lived, in the long tale of human existence, growth naturally tends to slow. Dead men download no apps.)
But I did want to highlight one piece of the earnings call, in which Mark Zuckerberg was asked about his “long-term philosophy around monetization” and, in response, outlined Facebook’s approach to digital advertising. (Ben Thompson also highlighted this in his morning newsletter today; emphasis mine.)
…if you go back to 2006 and 2007, there were a lot of people who were kind of encouraging us to just put banner ads [in Facebook's News Feed] and kind of inorganic content into the experience. And what we decided was that over the long term, the ads and monetization would perform better if there was an organic interaction between people using the product and businesses.
So instead of focusing on ads first, what we did was we built pages, and we made that free, that way as many businesses as possible could get into the network. And we built Insights to make it so that businesses knew how they were driving business when they used pages for free and could post them to News Feed. And then on top of that whole ecosystem, we then had the opportunity to build what has turned into a News Feed business that we’re really proud of, right. That we think is driving a lot of value and good content for people who are using the platform and helping a lot of businesses find customers and sell their products and grow overall.
It’s obviously worked, since Facebook now earns somewhere between a fifth and a quarter of all mobile advertising revenue in the world, the vast majority of that from News Feed ads.
Potential lessons in there for media companies:
— Go for scale first before you jump into monetization. (See The New York Times’ rollback on NYT Now, turning a paid app into a free one. “We did that in part because we realized that perhaps we went too fast toward monetizing NYT Now and NYT Opinion. Maybe in the future, a better path is to first do audience development and then do monetization.”)
— Build tools that make your value known to your customers — your readers and your advertisers. (That could be analytics packages for those who buy your ads or high-value editorial products for those who look at them.)
— Make your advertising content as organic a part of the user experience as you can. (This is the case, whether you like it or not, for native advertising.)