Ad Viewability – An agency perspective

Ad viewability is a topic we’ve had to deal with great sensitivity when discussing with clients. As an industry we’re very comfortable revealing a problem when we have an antidote up our sleeve ready to solve it. With viewability however we have a challenge that’s been well documented by the trade press but unfortunately it’s a can of worms without a viable solution yet, and that makes advertisers feel very uncomfortable.

The burning question is why has such a significant breakthrough in ad tech provoked so much discomfort, anger and mistrust? You only have to read the provocative headlines in the trade press to see who’s portrayed as the villain. Bold headlines such as ‘Trouble brewing’ ‘Wasted money’ ‘Publishers wary of increased scrutiny’ really paint the picture of the industry screwing over media buyers, and those buyers letting it happen.

Panic has escalated with inflammatory news headines
Industry panic has escalated with inflammatory news headlines

Publishers are being carved out as the villain exploiting advertisers, and as a media agency it’s our job to protect our clients from the tricks of the trade. No marketer wants to know half of their money is being wasted so I can completely understand the frustration. What would the knee jerk solution be to quash that discomfort? Stamping our foot down and saying loud and proud “I will only pay for ads that have been seen!”. Bravo Mr agency, thank you for protecting me against the nasty publisher.

 Buying guaranteed viewability – Who wins?

Who wins? Why you of course! How could you not? Ads seen are better than ads not seen, correct? Yes absolutely, but the question is how much is it worth to be 100% viewable? Would you be happy to pay more than double your CPM for it?

Insisting on only buying inventory from publishers that’s 100% viewable puts the power firmly back into the publisher’s hands, it’s another premium layer that can drive up their ad yield and your CPMs.

As a media buyer the easy option is to say you’ll only buy 100% viewable inventory and you may even get a low cost inflation due to first mover advantage ahead of the pack. Although that’s a really shortsighted answer to the solution, what happens over time when everyone’s buying 100% viewable? The market takes a shift for the worst, suddenly publishers are charging extortionate rates for their viewable impressions, and selling their ‘low viewability ratio’ inventory at knock down rates.

It’s not our job to react to client demands and give them what they want, our job is to understand the landscape, communicate clearly to clients and take leadership in states of confusion. Media is probably about 10% – 20% of our client’s day to day focus, so we can’t expect them to know the answer, they rely on us to support them with our expertise.

There’s gold below the fold

Have you ever noticed that you sometime get hooked by websites, reading content piece after content piece? Do you ever wonder how you get caught up in their web of Kim Kardashian stories? Well it’s likely you don’t scroll back to the top of the page, just like with video tapes and cassettes, we don’t take kindly to rewinding! Instead you’ll often see content links at the bottom of the page, craftily aligned to dovetail with the content you’re reading. No need to trawl back to the top of the page, you’re ready to keep on rolling.

These are valued readers by any publisher, they’ve managed to make it to the end of an article, and in today’s age of narrowing attention span that takes some discipline.

The Guardian know the value of below the fold
The Guardian know the value of below the fold

Perhaps only 20% – 30% of people make it down to the depths of below the fold, but for the Guardian it’s those resolute folk who are worth fighting for. We can learn a lot from publishers in their tactics to keep their site sticky, why else would we have such a thirst for native ad formats? If it’s good enough for them then as an advertiser we should think twice about ignoring low view ratio inventory.

Take Car Advice for example, a site rich in detail with really lengthy engrossing content. When I’ve used this site in the past it’s their below the fold ad formats which deliver the most efficient conversions (that’s post click conversions i’m comparing, but more on that later).

Engaged Car Advice readers are found below the fold
Engaged Car Advice readers are found below the fold

To the knee jerker, that’s implausible. “I’m on the same site with an 80% viewable ratio leaderboard, how can you get better performance with a 20% viewable ad? Surely mine should be four times as effective?”.

My theory is that users who don’t make it to the bottom of the page (aptly i’ll call them ‘tire kickers’ for my Car Advice example) are not engrossed in the content enough to make it down there, and therefore that one person out of five who does is worth so much more than the other four tire kickers. They’re keen, they are engaged and focused enough to keep reading. All I need to do is offer the navigational solution to match their desires, and if I’m targeted enough, and have relevant messaging then it will likely be money well spent. If I was buying on a viewability ratio these gold nuggets would be overlooked.

Embrace measurement to stay in control

In many ways the call for guaranteed viewability is history repeating itself from the days of buying on a guaranteed Cost Per Acquisition (CPA). The ad technology evolved enough for accountability over the acquisitions generated and our instant reaction is to hand accountability back to the publishers to guarantee our returns. Similar to a fixed rate mortgage the security of a guarantee is more often than not stacked in the seller’s favor, exploiting the market knowledge gap between buyer and seller.

Over time media buyers took the CPA responsibility back into their own hands, choosing to buy on a CPM and work this back into the effective CPA value (saving the guaranteed cost margin). What we can learn from CPA buying is that to maintain a competitive edge no one should know more than you about how your media is performing.

By embracing measurement we utilise the tools we have to get a comprehensive view of our media against a clear objective, avoiding jumping through endless hoops of vanity proxies. The more robust our measurement is the better decisions we’ll make as media buyers and this is how you gain a competitive edge. Programmatic is removing the friction between campaign insights and media buying, making a robust measurement framework absolutely vital to remain competitive.

We need to look past viewability and focus on what this technology can do for our measurement. I want to be able to see value in placements that others can’t and I especially want to expose flawed placements which everyone else perceives of value.

Here’s three enhancements I’m looking forward to:

Genuinely viewed post view conversions 

Behind all the scaremongering about non-viewed inventory there is a very real flaw in the current measurement of media – the unseen post viewed conversion. This is ultimately an ad that you haven’t clicked but you’ve gone through to the site since to buy the product. Unseen ads can be counted as post view conversions which is unfair and unjustified recognition. If you haven’t seen the ad on the page, yet it’s been counted as a post view conversion then I don’t think anyone could argue it’s had zero effect on that sale.

To make matters worse, if three ads are loaded down a page only the last one loaded is going to get the post view conversion; and as a page loads from top to bottom which of the three ads do you think is loaded last and claims the post view?! Post view conversions are the scourge of performance activity for this reason, but I believe viewability technology is going to be the answer.

At the moment Google’s Doubleclick adserver have viewability measurement in silo to the rest of the interface, but as soon as this is integrated we will be able to remove post view conversions that were in fact not seen. This will be a revelation for advertisers and help remove those publishers making a living off unfair recognition. For anyone using an attribution model the potential to remove unseen ads from the path to conversion will significantly enhance campaign analysis. We’ll be able to see which ads were pivotal in the path to conversion and which just limped along in the background taking a slice of the credit.

Visible reach and frequency

For brand campaigns viewability is a great way to measure audience reach across our audience. If half of my ads are not seen then it’s really hard for me to put a figure on the amount of people I’ve exposed my message to, and control the frequency of my delivery. If viewability can discount the impressions unseen then we should be able to layer this into our reporting very soon.

Do the savviest shoppers always buy the best quality? Absolutely not. Growing up my mum would evaluate everything she bought against the value she got in return. She’d take hours in the supermarket. Media is no different, we need to have a clear focus on value against our objectives and remain true to that, balancing price against quality.

Rather than buy on 100% viewable impressions we have the tools to work our media back to a cost per user reached. Once you factor the cost implications of media into your viewability comparisons it might be more cost efficient to take a lower viewability ratio with one publisher over a higher priced alternative.

Sometimes price can compensate for a low visibility ratio
Sometimes price can compensate for a low visibility ratio (example data)

Visible brand uplift studies

When running brand uplift studies of my campaigns against both a control and exposed pool of users I’ve always been bemused over the results I’ve seen. In most cases they indicate one thing – Buy takeovers to drive efficient impact. Whilst this might be true it may also have something to do with takeovers being 100% viewable which skew the results against placements that aren’t so visible.

I want to prove the impact digital can have on brand perception and purchase intent, but given half my ads are unseen then these supposedly ‘exposed’ users are blunting the impact of the results when their brand survey results show no impact of the ad served. If we are able to detect these unseen impressions we should be able to move these people back into the ‘control’ group and focus our brand uplift results from people who’ve genuinely been exposed to our messaging.

Media agencies should be excited about Viewability

There’s been little in the trade press from media agencies about viewability but that doesn’t mean we’re not ready to embrace it. Publications such as AdWeek are advising that a ‘good’ viewability rate you should be looking for is 60%. We need to avoid tying ourselves up with industry benchmarks, we still haven’t managed to throw the devilish CTR% benchmark out of the window!

We need to stop looking at various industry benchmarks as a proxy for performance and focus on the job in hand – meeting our defined objectives. We need to set our own benchmarks and try to improve on them as we progress. Reporting tools like viewability help us get there, but are best used to refine the measurement we already have rather than being seen as the silver bullet.



It’s time cinema grew up


It’s amazing where time goes as you get older, I’m within a few days of turning thirty and can’t help but feel like I’m starting to really evolve in ways I’d never have imagined. All of a sudden the thoughts and opinions people have of me don’t feel such a pressing concern, I’m having to work a tad harder to shed the Christmas cheese board, and I’m starting to really feel like the latest pop bands are singing over me rather than towards me. In short I’m becoming the middle-aged man I’ve always dreaded, and the scary thing is I’m absolutely loving it.

I’ve spent the best part of my life feeling like my interests haven’t changed one bit. During my late teens/early twenties I’d rattle down pasta as pure fuel, save all my cash for going to nightclubs as much as I could, laugh hysterically through the whole night with my friends and wake up the next day not remembering a thing. Life couldn’t get better than this, I had it all, and things would stay like this forever.

Nowadays though food is a major hobby of mine, I can’t think of anything better than sitting with a nice bottle of wine and a good meal with a small group of close friends. The thought of queuing all night at a busy bar like a pack of pigeons hustling for breadcrumbs makes me wince.

Not the best company on a Saturday night
Not the best company on a Saturday night

So what do I do for fun? Well I can’t eat ALL the time, those Christmas cheeseboards are hard work enough! I’ve actually rediscovered the Cinema as a perfect way to spend an evening, my girlfriend and I regularly have a lovely meal, visit the cinema and top it off with a cocktail.

Sounds nice doesn’t it? Well the reality is despite the comfy chairs there’s a growing issue (which grows every year I get older), your typical multiplex cinema is designed for people who frighteningly could be my own kids already.

Here’s my problem with cinemas:

  • Shocking food – popcorn is nostalgic, but I want some choice. More than a hot dog
  • Soft drinks –  Sugar laced water or a choice of plain water? Why can’t I have a wine? You can check my ID if you like
  • Brats – Everywhere! I didn’t mention, but growing older has also made me less patient with idiots
  • Rubbish films – Cinema seems to be highly catered for the same garbage to hit demand, whilst I like the cinema we often run out of films remotely worth watching

From my time working on Warner Brothers I know that there’s only so many Dark Knights, and Harry Potters, the rest of the schedule is filled with safe film fodder. And how do you build film fodder? You know your audience, what’s worked before and you play it safe; build revenue gradually and take minimal risks. This is why Pretty woman led the way for hundreds of imitations, one guy, one girl and a white background, the perfect blend for a moderate box office win.

Girl + Guy + Whitebackground = Predicable box office revenue
Girl + Guy + White background = Predicable box office revenue

There’s surely a bigger opportunity than what we have at the moment, and the numbers aren’t looking good for cinema as it stands. Revenue may be growing year on year but that’s largely due to hikes in ticket prices, (as 3D briefly became the savior of cinema) the number of cinema tickets sold is actually decreasing over time. As with anything played safe over and over again, the effect gradually declines.

But what if the cinema industry had a whole refreshed audience? What if Art house filmmakers were given a bigger platform to entertain? What if Jennifer Anniston could remain in the 90’s where she belongs? I believe the time is now.

Underlying issues for the Movie industry

As we can see from the global revenue reports, the industry sees a very healthy year on year growth of 3% – 6%. On the surface everything looks great for cinema, Avatar boomed and created another premium in 3D to add to the revenue stream.

Revenue masks the long term issue
Revenue increase of 3.5% for 2013 (Source: Statista)

The revenue shows no signs of slowing down at the moment, great time to be in cinema it seems doesn’t it? Well actually when you scratch the surface there’s some big problems ahead, and I don’t think they’re too far away.

Whilst box office revenue is increasing year on year, the ticket sales is actually on the decline, meaning only one thing. The revenue is increasingly being supplemented by a hike in ticket prices, the figures are masking an unhealthy industry. The problem is by increasing the cost to go to the cinema ticket sales are likely to continue decreasing, and the industry will eat itself.

Source: MPAA
Source: MPAA

I can see a time where cinema multiplex revenue hits decline, more and more money conscious teens are pirating content and the rising costs of cinema viewing is only going to make piracy more compelling. Whilst having teenagers crunch popcorn in your ear is annoying it does supplement ticket sales revenue, but if fewer people visit that’s less popcorn crunchers.

Life doesn’t stop at 25

The movie studios need to stop focusing on preventing piracy (ask the music industry how that’s going…) and address the fact they’re all fighting over the same decline audience demographic! The 18-24 demo are only 10% of the population, and whilst they’re over indexing by 70% for tickets sold there’s surely a lot of scope to increase this net.

Source - mpaa, US stats
Source – mpaa, US stats

The 25-39 demographic is 20% of the population yet they’re only over-indexing in tickets sold by 15%. This demo is begging to be serviced appropriately with relevant films and more importantly a relevant experience. Cinema needs people with high disposable income who don’t mind paying for content, and they need to distribute to places where these people want to be.

Why can’t bars offer Theatrical content?

So going back to my usual evening out, I start off in a nice restaurant with like-minded people, then step back into my teens at the cinema, picking the least ill-fitting film I can find. I wrap my night up with a nice cocktail bar where I’m back with my thirty year old peers. What I want to know is why can’t I have my cocktail with my film? If there’s one thing that Starbucks has taught us it’s the value of creating a destination, the longer you keep people comfortable the more they’ll spend. If I spent as much time in the cocktail bar as I did at the cinema I estimate my bill would hit $45 instead of the usual $15. You can double that too if you include my girlfriend.

I can’t be alone in wondering if cinema needs to be liberated from the multiplex youth club so that we’re not all shoehorned into the same venue. We’re already seeing high calibre bars such as Sydney’s, ‘Beresford Hotel’ showing cult films on a Tuesday night, and art house cinema houses such as Darlinghurst’s Palace Cinema are also providing a good alternative and paving the way for change.

In a time where internet speeds are growing so fast we don’t know what to use it for, it’s not impossible to see how this could work. Surely paid content can be policed through an on demand steaming service, and catered for the size resolution required? Then bars could pay a varied fee based on the screen size, and audience size to go with it.

Bars could offer bar food, cocktails and end up making $60 -$80 per head, plus a potential entrance fee. This would be an amazing cinema experience and I’d pay good money to never have to share a cinema with thirteen year old kids again.


Digital Plumbing

Throughout my relatively short career in digital media I’ve had to battle through all sorts of challenges with convincing clients of the importance of digital. I have memories of the TV lads pretending we’re the IT help desk, asking for us to fix their computers; what hope do you have of persuading clients to take digital seriously when even internally you’re getting mixed up with the IT team?!

Thankfully we’re now at a stage where the majority of clients value digital. We’re somewhere between 25% – 30% of media investment allocation across the majority of clients. The challenge we’re taking on now as an industry is not just ticking digital off with some banner ads (no one gets a shiny star for that anymore), we need to ensure clients are using digital effectively by providing the very best advice we can based on their needs.

The most common mistake agencies make when client servicing is to assume their clients know and understand what their digital needs are. We often deliver what clients ask for when we should be the ones advising them on what they need. This often leads to fueling brand vanity, over-focusing on trying to make people fall in love with us, when we should really be focusing on being lovable.

Essential priorities

When renovating a house you wouldn’t just jump to the fun parts would you? Building a shiny conservatory and picking out a TV before fixing up the electric and installing a boiler, that would be incredibly naive.

Well that’s what far too many marketers are doing within digital, assuming the digital essentials are covered already and jumping to the glossy brand campaigns on the Sydney Morning Herald homepage.

Ironically after often being confused with the IT team, as years have gone by the role of a digital media professional increasingly integrates with our client’s IT infrastructure. As PWC noted in July this year, two out of three marketers are seeing a shift in investment from bought media into owned channels. The industry is maturing, and we’re increasing our focus on getting our house in order. Lay the groundwork to get the best business results out of great innovative campaigns.

What’s the essential plumbing I need to cover? 

Here’s five questions you need to ask of your client’s business before even thinking of investing big in media to attract incremental audience:

  1. Are we mobile optimised?

This year we’ll see mobile internet consumption overtake desktop for the first time, and it’s likely that those brands with a younger audience skew have already gone past that threshold.

Despite such large mobile consumption, it’s staggering that many businesses continue to force their users to put up with the scrunched up desktop version of the site on their small screen, and still expect to drive sales. See the Domino’s example below, which site do you think sells more Pizza? Cater the user experience to the device, make it as easy as possible for people to give you their money.

Dominos Pizza Mobile optimised vs Standard site
Domino’s Pizza Mobile optimised vs standard site

2.  Can we make it easier for our customers to buy?

Similar to mobile optimisation, make sure your site is as intuitive to use as possible, don’t assume that visitors love your product so much that they’ll tolerate a bad customer experience. Amazon invest bucket loads to improve their user experience, and how easy is it to spend money on Amazon? Just vising the site makes me want to read more.

amazon-435-cs013113If you make 10,000 sales a month with a cost per sale of $25 that’s a media cost of $250,000. If you wanted to double your sales per month you’re likely to find it a lot cheaper to improve your site’s visit/purchase rate through simplifying the user journey on the site, rather than just spending an extra $250,000 every month in media.

If a marketer were to assume the essentials were already covered they’re likely to think their site is as good as it’s always going to be, doubling their investment would then appear like the only option. This is why we need to work more collaboratively with clients to deliver relevant recommendations rather than just answering a media brief.

3.  Are we easily found by those who are looking?

If you’re going to invest in getting people through to your site through paid media then a good first option is to make sure you’re making the most of organic search. We spend far too much focus (and money!) on convincing people to come to us and tend to overlook servicing those who are already keen. It’s like walking into a restaurant and finding all the staff are stood outside handing out menus.

Ski jacket

Whatever goods or service your website offers, there will always be a base demand of people who just need their problem answering with a relevant solution. If you don’t have anyone who needs your service then you have bigger business problems! You need to grab this opportunity firmly as these people are not brand loyal. You haven’t eased them down the purchase funnel and they just want a quick fix to their need – if you’re not visible then they’ll simply pick your competitors for their product based requirement.

Make sure your site is visible for relevant searches by investing in SEO consultancy, then build useful, relevant site content to capture incremental search traffic from an interested audience.

4.  Are you finding and capturing people who show interest?

If in the real world you could hear every time someone mentioned they were interested in your products you’d jump at the chance to take advantage.

You want taxi boat?!
You want taxi boat?!

If you’ve ever been to the islands in Thailand imagine how much the annoying, noisy longboat drivers would love it if they had a way of detecting exactly who ACTUALLY wanted a ride as opposed to asking everyone who walked past on the off chance?

In digital we can do this, but it’s often overlooked as we prefer trying to convince the whole island that they want a boat ride.

People search for brands, tweet about brands and read about brands; all simple to reach through advanced targeting and you’re able to deliver a bespoke message when relevant. It might not deliver huge volumes of traffic but by leaving it running constantly you’ve always got your ear to the ground.

5.  Are you retargeting your site visitors?

Even if your site is highly visible and a dream to navigate, there’s lots of reasons why people might not purchase on the first visit. Maybe their bus has just arrived? Lunch break has finished? Waiting till payday? Too scared to buy without consulting the wife? Or maybe even for some reason people are not completely in love with your product and they want to shop around the competition before they decide.

A massive assumption often made is that people will remember to come back to you, and that they’ll even remember what they were looking for in the first place. With the right tagging on your site you’ll be able to cookie your visitors and find them again with either display media or search ads.

The first step would be to tag everyone and give them a one size fits all brand message to direct them back to the homepage; that’s just the tip of the iceberg though, you can get really specific with your targets and messaging. Why not target someone specifically with the products they viewed and bring them back to those specific products? Or even target based on the recency that they visited?

Companies such as AdRoll and Criteo specialise in offering this type of service; and if you wonder just how deep and precise retargeting can get, AdRoll even published a jaw dropping 192 page Retargeting Playbook!


Both improving your owned media and prioritising wannabe customers will deliver your most efficient sales, as these are your lowest hanging fruit. Everything you can do to enhance the user experience will make your paid media work harder for your client’s business. Create a superb brand experience that you can be proud of before you invite people in!


Facebook’s ad model is the ultimate smoke screen for taking on the telcos

Since May 2012, over two years ago when Facebook finally filed for IPO their business has had an incredible amount of scrutiny cast over its business model. The main reason for this being a whopping $104 Billion valuation for a business that only managed to record less than 1% of that value in 2011 profit.

Facebook CEO, Mark Zuckerberg signs IPO
Facebook CEO, Mark Zuckerberg signs IPO

Given Facebook were already showing signs of audience saturation in 2012 founder Mark Zuckerberg would surely have a hard time keeping investors happy, yet he’s always remained very confident in his mission, often alluding to long term and only last year asking for patience from his trigger happy shareholders.

Facebook have gone toe to toe with many rivals in the past, from Myspace, Twitter, a constant battle with Google for a variety of reasons, and a flirtation with eCommerce. In the midst of their feuds they even managed to make a friend in Apple, bonding over their mutual concern for Google’s potential. However it’s increasingly looking like their long term goal is setting their sights on the telcos, to turn their gravy train upside down and transform our communication ecosystem, and here’s why:

There’s no money in advertising

Well… not enough to satisfy Facebook’s shareholders anyway. In 2013 the company beat its chest over the great growth made within the space of two years to increase the revenue per user from approx $1.00 per quarter to $2.00.

Facebook revenue per user
Facebook revenue per user. Source: Fast Company, April 2014

That’s a pretty impressive increase but it’s still from a very low base. It shows that despite the groans of users having advertising clogging up their news feeds, Facebook actually make very little off a service that has become such a staple media diet in everyday life.

At $2.00 per person and with 1.3 Billion users it’s going to take ten years until they generate enough ad revenue to match the company valuation. Not to mention the fact they’re highly saturated in North America where their most profitable user base is located, so increasing their userbase may increase overall revenue, but they’ll likely become even less efficient per user.

You’d be right to wonder if it’s just Facebook making a mess of the ad model, and maybe they’re not charging enough for their ads; but as Forbes reports, other media owners are working to the same figures, so they’re staying competitive in market. LinkedIn and Yahoo! are roughly the same as Facebook, and whilst Google sit on a search goldmine, thrashing everyone in sight for profitability, they still only make 10 bucks a user.

Revenue per user. Source: Forbes
Quarterly revenue per user. Source: Forbes August 2013

Is selling goods and software the way forward?

So who does actually make money off their audience? Well it seems Amazon have hit the jackpot, they’ve reported that on average they generate an eye watering $968 per customer per year from an active user base of 244 Million. With comparatively only 19% of the user base (Amazon customers vs FB users), Amazon are clearly making the most of their audience. Apple are operating in a similar trend, building value from iOS users through app downloads and iTunes sales at an annual rate of $48.00 per user.

Amazon's new Fire TV and Apple TV
Amazon’s new Fire TV and Apple’s successful Apple TV product

Both are currently battling to increase their user value by supplying their audience’s living room content consumption, creating TV set top boxes Amazon Fire TV and Apple TV.

Rather than selling off your audience engagement as ad space, selling products and services to them directly would seem a more profitable way to make money – That would make sense wouldn’t it? Since that’s what the majority of advertisers are trying to do with their purchased ad space it would effectively cut out the middleman.

Both Apple and Amazon show that size of audience doesn’t necessarily equate to profitability; you can have all the traffic in the world but if you’re not harvesting revenue from it then surely it’s nothing but a vanity metric – Unless of course you have bigger ideas.

I’m sure at some point so far you’ve asked yourself why Facebook don’t just follow the model of recently purchased WhatsApp and charge a subscription fee? Surely the majority of Facebook users will be happy to pay $1 a month for access for Facebook and to avoid ads? When you consider how much people depend on the platform on a daily basis it would still be a bargain for its users and would deliver a 50% increase on the $8.00 annual revenue they’re currently getting from each user.

If you haven’t considered that then surely you’ve wondered why they haven’t gone hard on becoming a supplier of goods and content. Given Apple and Amazon’s success in making their audience work so hard for them.

The telco revenue potential is worth too much to get distracted by short term gains 

The truth is selling goods and content would slow Facebook down in their overall mission,  which I believe is to take on the telecommunication services. To do that they must keep growing connections as fast as they can as they’re absolutely fundamental to the telco business.

Telstra - It's How We Connect

Take Telstra for example, the leading telco here in Australia. They recently announced $25.5 Billion in profit for 2013, that’s more than triple the global revenue Facebook made whilst they announced huge growth! Not bad for an Australian company based in Melbourne; in a country which holds only 1.7% of the worlds GDP

Maximising users and therefore connections are vital to Facebook, whereas by putting up a paywall to access the platform they would almost be guaranteed to drop traffic no matter how low the cost is.

Whilst eCommerce revenue would be great in the short term it would serve as an unwelcome distraction to go down that route when the likes of Telstra and Vodafone are in their sights.

Connections monopoly

Facebook have a monopoly in connections, a currency which has so much potential yet so misunderstood by many. As stated in Metcalfe’s law the value of a network increases exponentially the bigger it grows; this is why in the 80’s mobile phones were seen as a yuppie luxury but in the 90’s as their popularity grew they became a necessity in everyday life.

Zuckerberg has repeatedly said his ‘mission’ is to connect the world, and whilst this sounds sentimental he’s deadly serious.

Metcalfe's Law
Metcalfe’s Law

As the graph shows the value of a network increases the more connected devices you have, which means whilst buying WhatsApp for $19 Billion may seem excessive, but it was highly worthwhile to Facebook’s mission. Adding those incremental connections to Facebook’s connected ecosystem was far more valuable to Facebook than it would be to anyone else due to the size of their pre-existing audience base; and I doubt they’ll stop there on buying connections.

Mark Zuckerberg -“We’ve made some long term bets on the future while staying focused on executing and improving our core products and business. We’re in great position to continue making progress towards our mission.”

As the diagram below shows, WhatsApp is very popular in Europe especially, far more common than Facebook Messenger. When it came to WhatsApp, Facebook had a choice: do they compete for connections using their messenger service or do they bite the bullet and just buy their connections?

Messenger service usage across the globe. Source: Techcrunch
Messenger service usage across the globe. Source: Techcrunch
Facebook's brand portfolio reach
Facebook’s brand portfolio reach Source: Fast Company

It seems Facebook are not looking to wait anymore, the outlay of $19 Billion to bring those connections in was deemed very worthwhile as they’re fully aware just how powerful a connections monopoly is.

Adding the acquisition of Instagram we can see Facebook don’t need to force everyone to use Facebook, they just need to build a portfolio of communities to maximise their connections’ reach.

What’s so important about connections?!

Let’s breakdown what a telecommunications company offers. It provides the ability to connect people and organisations with ease and importantly… at scale. Sounds pretty crucial, doesn’t it? Well, telcos know that already, and they know they can charge substantial fees for their services because of the lack of competition.

Telcos provide the ability to connect people and organisations. We can break this down into two attributes:

  1. Connections – A network, such as a social network
  2. Connectability – Infrastructure which facilitates communication

Connections – I hope by now we can tick off connections within Facebook’s plan, with their monopoly they’re probably the only business at the moment who have the potential to cover this. Google are a contender, but as personal email decays in usage their Gmail database is lagging the Facebook personal data source.

Google have incredible data on everyone, but they don’t hold personal connections since Google+ hasn’t worked out they way they wanted. Android penetration may open this up in the future.

Connectability – This is where the door has been blown wide open by the Internet, Mobile_phone_mastopen for businesses to infiltrate the profit margin of the telcos. Infrastructure has always been the telco’s ace card. They invested in telephone masts across the globe to carry data, and tapped into a universal phone number system shared between all the telcos to deliver the missing connection element.

As internet access becomes so important to society (again due to Metcalfe’s law) governments and tech developments will render internet access ubiquitous. Once internet access becomes a commodity, we will see connection costs drop rapidly.

The internet is eating away at the telco infrastructure with Skype providing a perfect example of their vulnerability. It comes as no surprise that WhatsApp announced Voice Over IP within weeks of being bought by Facebook, sharpening their teeth over the growing wireless revenue source highlighted by AT&T.

By leveraging the Internet, all it takes is for Facebook to grow their connections. Then their mission is underpinned by how fast the internet becomes a global commodity.

Surely it’s time they invested in growing the world’s access to the Internet? Oh wait…. Mark Zuckerberg has began spearheading! A joint venture between tech companies to deliver greater internet access across the globe. have plans to deliver internet access in a variety of ways dependant on environment, incuding flying wifi routers, hovering in the sky! They’re not alone on this, Google are currently working on the same, naming it ‘Project Loon’, giving the world internet access with hot air balloons.

What’s holding Facebook back from competing with the telcos? 

The challenge for Facebook is twofold, firstly they need to maximise connections in order to make clunky phone numbers irrelevant. A user intuitive, pre populated phonebook with robust security access settings without the need to associate phone numbers is clearly a more user friendly solution. Until Facebook’s limited reach is addressed there’s still going to be a need for a 100% compatible and far reaching connections service to streamline business and personal communications.

Secondly, they need to drive ubiquitous internet access to devices as fast as they can through an alternative source, once this is done the power of telcos will be potentially matched, leaving Facebook to monetise the greatest network of people in the world, competing against the telco’s connection technology.

Facebook will be able to restructure the whole industry of communication access, whilst making the required profits to keep investors happy.

I live in hope that Zuckerberg will have a positive effect on the world’s communication structure, and that he keeps to his mission of connecting the world rather than shackling it with extortionate fees.