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An Industry Facebook Is Poised to Revolutionize
Posted by: Scott Ryan Anderson (IP Logged)
Date: September 11, 2013 10:02AM
The best way for Facebook (FB) to continue to monetize is by expanding into areas that fit naturally with the company's strengths. Facebook has the opportunity to create a new revenue stream by aggressively attacking an enormous segment dominated by old-media.
Celebrities have already begun to endorse products on Facebook. The issue is that Facebook does not have a program in place that would assure the company capitalizes on this. Celebrities need eyeballs just as advertisers need eyeballs. Facebook delivers the audience, forum and is in a position to require a percentage of all endorsement revenue taking place on its site.
Such a requirement would need not to be combative between the two parties if properly implemented. The enormous revenue stream Facebook could create would not quell opportunities for the celebrities but rather create a new, more substantial revenue stream for them that could make the historic deals with old-media look paltry.
An "AdSense Type of Program" for Celebrity Endorsements
The endorsement program could in principle be similar to Google (GOOG)'s AdSense but specifically created for celebrities. A key difference would be that instead of just placing ads on the pages of celebrities in exchange for sharing revenue as Google does with AdSense partners, celebrities can earn ad dollars for personally sharing video or written endorsements with all of their fans who subscribe to their Fan Pages. Those updates would appear on the Home Page wall of all users who "like" each celebrity.
Facebook can aggregate the potential endorsers and present to advertising companies the opportunity to have a stable of athletes, actors, authors, musicians (and others) - personally endorsing products and services on a daily, monthly or annual basis depending on the needs of the client.
As an example of how this could work, NFL star Robert Griffin III (RG3) is popular with about 500,000 current followers on Facebook. Larger companies might find that audience small for a national ad campaign; however, Facebook can aggregate a larger group of popular athletes for companies such as Nike, Coca Cola or GM that add up to tens or even hundreds of millions of followers making the same endorsement across the board. Individual endorsers can be pre-selected by advertisers and/or agencies in every case. This can be done with all types of celebrities of various backgrounds. This endorsement service could be replicated on national, regional and even the local level depending on the budget and geographical reach of the advertiser.
Facebook is in a unique position to dominate endorsements because:
The Size of the Pie Presents Enormous Opportunity
Celebrity endorsements are currently estimated to be over $50 billion annually in the U.S., with Nike alone spending close to $1.5 billion to $2 billion of that number. Not only is Facebook organically in position to capture billions in ad dollars by tapping into this market, but by modernizing and revolutionizing the delivery of celebrity endorsements, they have the ability to significantly augment the entire market itself. Facebook's unique capabilities of isolating and grouping can make it possible for many more localized companies to begin to participate.
A Changing Life Cycle of Potential Earnings
When athletes and other celebs retire and fade from the public eye, they traditionally lose many of their endorsement opportunities. They do not, however, fade from the eyes of their Facebook followers who for the most part remain subscribed to them while they are no longer playing before millions on the television (or stage, big screen, etc.). One example who is not the best role model but who continues to enjoy public fascination is Mike Tyson, who has about 2 million subscribers at this time.
This could create longer-term earnings capabilities for celebrities and additional tiers of opportunity in advertising budgets for businesses of all sizes.
Anecdotally at least, we are already seeing Facebook siphoning part of Google's revenue into mobile ads where Facebook is strong. Endorsements can easily transcend the desktop and immediately be offered on the rapidly growing mobile ad segment as well. Despite Google's cache of products, they still derive over 90% of revenue from advertising.
Google's current market cap demonstrates that a company dependent heavily on advertising for revenue can command a market capitalization of nearly $300 billion dollars. Google is an exception because of its unique position of dominance. Facebook is also a dominant exception in the Internet world of companies. How many companies can claim to be utilized by over half of the nation and a third of the global population?
Facebook is obviously not limited to what it can siphon from Google as we are talking about a $557 billion a year global ad industry, according to Nielsen. Considering the enormous potential presented by Facebook's unique capabilities in mobile and endorsement revenue, I would not rule out a $200 billion market cap within the next couple of years (or less depending on how strong mobile turns out to be and how quickly Facebook responds to unique monetization opportunities).
I do not see Facebook threatening Google's Search because that is a unique area in which Google is strong. I do believe the AdSense portion of Google's revenue could be affected by Facebook because consumers exposed to AdSense ads are not searching to buy something. More effective opportunities could entice away those AdSense dollars to Facebook, and that amount makes up approximately 28% of Google's total revenue each year.
Although they compete for the same ad dollars, both companies have unique strengths that the other does not offer. Just as Facebook does not compete in Search, an endorsement program is one that is not conducive to Google's business model as it is not strong in social media. Most celebrities of the world are not daily and hourly followed on Google's properties in the way they are with Facebook.
The competition for ad revenue is not a zero sum game but Facebook is poised to capture the momentum.
Stocks Discussed: FB, GOOG,
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