Facebook and its advertisers. Who has the power and who wins?
In portfolio management one of the most powerful words is diversification. In business, diversification is equally a powerful attribute and one that a wise investor will consider when evaluating an investment.
Facebook has been the target of criticism over its policy of not restricting certain types of content on its properties.
Large advertisers like Coca-Cola, Best Buy and Ford Motor, along with Canada’s big banks and more than 400 companies in total, have said they will suspend advertising on Facebook for at least July, and some until the New Year, in support of the many voices calling for a moderation of points of view that many people find upsetting.
The argument goes that brands do not want to be associated with racially charged or hateful comments.
Ok, so what does this mean to Facebook and how damaging is this threat?
$60 billion in value was wiped from Facebook’s market value in one session last week. The “market” seems concerned!
Here are some facts:
- Advertisers may not want to be seen to support hateful content but that does not mean they don’t want to sell things to the people who espouse that content.
- A lot of advertisers have stopped or severely reduced advertising because of the pandemic. It’s not just about Facebook but it makes the advertisers look good. Free advertising, so to speak.
- The top 100 Facebook advertisers represent less than 20 per cent of its revenue
- 13 (so far) of the top 100 have said they will stop or limit their spending.
- Not all of those 13 top 100 advertisers have said they will stop for the full year.
- If every one of the top 100 stopped advertising on Facebook for a full month it would impact revenue by one per cent and profit by three per cent.
- There are eight million advertisers on Facebook and the number is growing 10 per cent per annum.
- When the big advertisers step away from buying ads on Facebook the cost for the eight million little guys and gals to buy ads falls and they buy ads like crazy. This is exactly what happened the last time the big companies tried to push around Facebook. This will mitigate the drop in revenue (small as it is) from the big guys and gals.
Facebook is a company that everyone loves to hate but the facts remain that it is the most effective advertising platform in the world because that’s where a big part of the world goes to spend part of their day.
Advertisers can say anything they want but of all the places they spend their advertising dollars Facebook provides the highest return on their investment.
Just as Facebook CEO Mark Zuckerberg has said, big advertisers “will be back soon enough” when the dust settles because in the end they are just like Facebook; they’ve got something to sell and that’s where their concern ends.
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Also read How the Facebook Boycott Could Just Make Facebook Stronger
And why this hedge fund manager says the boycott is an opportunity to buy Facebook’s stock.