Facebook is TV's ice bucket challenge

Facebook’s newsroom tells us that between June 1 and September 1 this year, 17 million videos of a certain act were watched 10 billion times on Facebook by 440 million different people.

The act? No, it wasn’t bonking. It was people getting a bucket of icy water poured over their heads. And those numbers in the first paragraph really are millions and billions.

It’s probably no coincidence that while the US sharemarket corrected 5 per cent in both August and September, Facebook’s share price pushed to new highs; since May Facebook has outperformed the S&P 500 by 31 per cent – 36 per cent higher versus 5 per cent.

And Wall Street analysts reckon the ALS ice bucket challenge was the tipping point for video on Facebook.

Forbes magazine tried to figure out how much money Facebook made from the ice bucket challenge and didn’t really get anywhere, beyond concluding that it was a lot.

But more to the point the ALS fundraising scheme cemented Facebook’s new strategy for making money from videos: the video, and the ad, starts playing automatically when it appears on your screen and keeps playing till you scroll beyond it.

Facebook started running video advertising last December and at the time pundits queued up to opine that autoplay video ads would turn users off and Facebook would go into decline.

The ice buckets have confirmed that that didn’t happen. The company now says it is doing a billion video views per day and it starting to make a lot of money from video advertising.

If TV executives aren’t having nightmares about this, they should be.

The television industry’s revenue comes from its ability to offer access to just about everybody, as well as to divide them up into broad demographic segments determined by the type of program being shown.

The combination of providing large scale brand advertising and targeted product promotions has obviously been enormously profitable over many years.

Facebook is now being used by more than 80 per cent of the people who use the internet. More importantly, 30 per cent of the time spent on the internet is spent on Facebook; the next highest “time spent” is Google, at 10 per cent.

So Facebook, like TV, has an audience of “just about everybody” and its users spend a lot of time on it, every day, like TV.

But what Facebook offers that TV can’t is absolutely precise targeting – not broad demographics because on the style of program, but ads tailored virtually the individual.

That’s because Facebook knows who each of its 1.3 billion users is, by name, age, sex, job, hobbies, you name it. TV networks only have broad numbers.

On Twitter you can be anonymous, and many users are; on Facebook you are yourself.

Facebook hasn’t fully started using this power for making money – Mark Zuckerberg is probably a little bit scared of it – but he has definitely started down that path.

In the second quarter, Facebook’s advertising revenue totaled $2.67 billion, an increase of $1 billion, or 60 per cent on a year ago. Ad revenue per user was $2.06, up from $1.41 a year ago.

The business has an operating margin of 48 per cent and is making 30c a share. The share price closed on Friday at $77.44, giving it a market cap of $200 billion.

However the business is also vulnerable from the thing that’s making Zuckerberg and his colleagues so rich – the advertising and the use of user data.

A new social media website has started up called Ello which is specifically designed to attack Facebook on this score – no ads, and no sharing of data.

Ello is not giving out any data on itself, beyond saying that it’s getting 40,000 requests an hour to sign up. An hour. (It’s invitation only).

Facebook is also vulnerable to a new breed of real time messenging services, one of which, called WhatsApp, Facebook has just bought for $19 billion.

Maybe services like Ello will ensure that social media generally remains ad-free, but more likely it will become like TV, with the ad-free ABC and the commercial stations operating side by side.

Google and YouTube changed everything about media ten years ago, and Facebook is now doing it again.

What Facebook video with precisely targeted advertising will do to television is hard to say. Usually these things stalk for a long time and then kill suddenly, as Google did to Yellow Pages.

Maybe TV will be fine. That’s certainly what TV executives are telling each other.