Advertisers Want Facebook to Do Better, But When Will That Reflect on Its Advertising Revenue?
Once again, social media giant Facebook is in the news. Shortly after whistleblower former employee Frances Haugen testified in front of Congress, Facebook, Instagram, and WhatsApp servers went down for six hours. Will a combination of supposedly predatory practices and unplanned downtime finally be what impacts Facebook’s advertising revenue?
Facebook Drives Small Business in America
In 2020, Facebook advertising revenue totaled $84.2 billion, with ten million-plus advertisers making up 98% of this. These advertisers are mostly small businesses whose ad spends aren’t under the public scrutiny that public companies are subject to. These businesses depend heavily on Facebook advertising, which allows them to specifically target their desired customers without wasting money advertising outside of their catchment areas. They also use Facebook for gathering data on their customers and even for customer service.
Facebook is now the second-largest online advertiser in the U.S., per data from eMarketer, with 25% of the digital ad market. Only Google, at 29% of the market, has a larger share. Moreover, a 56% increase in ad revenue caused Facebook’s 2021 Q2 profits to grow by 101% to 10 billion. That increase in ad revenue was driven in part by businesses paying higher prices for ads.
Don’t Put All Your Ad Eggs in One Basket
Fortune magazine estimates Facebook’s losses for the six hours it was down at close to $100 million based on its second-quarter earnings. However, as large as this sum is, it’s a drop in the ocean for Facebook and will most likely be shrugged off by investors.
However, the loss of revenue faced by Facebook’s clients could mean something more to them and their investors. The New York Times cites examples of businesses losing as much as 30% to 70% of revenue during the outage compared to average revenues over comparable timeframes. While Facebook has said advertisers wouldn’t be billed for the lost time, that won’t make up for their customers’ lost revenue.
In addition, the outage came at a horrible time for most businesses — the start of holiday advertising campaigns for a season that already looks to be dampened by pandemic-related supply chain issues. As a result, media buyers are warning their clients who advertise exclusively on Facebook and Instagram to consider diversifying. Platforms like Snapchat, Google, and TikTok offer promising alternatives, according to many.
For those customers concerned with Facebook’s ethical standing, Haugen’s testimony and the internal research documentation she leaked to the press may put them in mind to disinvest from Facebook entirely. Haugen has provided evidence that Facebook chose to ignore the adverse effects of some of its services. For example, the company’s research reached the same conclusions many external studies have — that Instagram is damaging teen mental health.
Facebook has also, apparently, exempted almost 6 million high-profile users from standard content moderation rules. The company claims its “XCheck” system isn’t used extensively and its data can’t be tracked. Still, Haugen is convinced Facebook helped stoke the division that led to the Capitol Hill riots on January 6th of this year, indicating Facebook chose profits over doing the right thing.
Omnicom Media Group, an organization responsible for global marketing of more than $30 billion annually, created a lobby group to encourage tech companies to do better in moderating content via a Facebook advertising boycott last year. And advertisers are starting to insist on control over “adjacency” the way they had with traditional advertising, which allows them to decide during which shows their television ads air. Big brands don’t want their ads to appear on Facebook next to racist or other inflammatory content. While Omnicom intends to continue to work with Facebook, it hopes to help it improve its oversight functions. After Haugen’s testimony, they advised their customers that it has become clear Facebook “operates with no public accountability or transparency.”
Is Big Tech the Next Big Tobacco?
Comparisons are being made between the whistleblowing allegations against Facebook and those that resulted in Big Tobacco ultimately being regulated. But if that’s the case, it is likely to be a long road before there are any concrete results. So what are Washington’s options in dealing with the tech giants? According to The New York Times, they include:
· Revising current laws that shield tech companies from the consequences of amplifying harmful content.
· Making insight into their current “black box” software mandatory.
· Creating a new federal agency dedicated to tech industry oversight.
· Expanding the Federal Trade Commission’s remit to do so.
· Passing more robust child privacy and security laws.
· Regulating the advertising business models of big tech.
· Revising antitrust laws to reduce reliance on a few big tech companies.
Unfortunately, none of these proposals will happen easily or quickly, and there is still disagreement over the question of whether political interference is the best way to proceed. So, for now, advertisers must let their conscience determine how they proceed