Facebook's Future: Apps, Video Will Generate Billions

Facebook's Skype deal exemplifies new apps and strategic alliances aimed at using the social network to create a marketing and entertainment video-sharing economy worth billions.

Much of what Facebook founder Mark Zuckerberg is doing and saying points to solving the expansive online video monetization challenge by logical progression rather than a leap of faith. Facebook's new visual calling and messaging service, through the already broad-based Skype, has implications beyond the obvious threat to wireless voice carriers, especially as premium paid functionality is added.

The move is a quiet disruptor that Innovator's Dilemma author Clayton Christensen says will contribute to the gradual upending of legacy business and thinking -- and help clear the way to new value creation.

The nascent use of video marketing, entertainment and communications on Facebook and elsewhere in the social-media universe is poised to explode.

The challenge is creating a levy system that generates money flow around entertainment, information and marketing video. Clearly, Facebook considers its morphing social sharing ecosystem as a means to that end.



It could help to establish sharing, engagement and end actions (such as transactions) as clear, core metrics for marketers and content providers seeking real dollars for their digital investments. "It's all about the rate at which they're sharing more stuff," which is exponentially and doubling annually, Zuckerberg said.

In making the Skype announcement, Zuckerberg explained that while the last five years have focused on connecting people, the next five years will be about connecting apps -- more specifically, social apps being used to connect consumers with marketers' video pitches and companies' video content.

As two fertile areas for new revenues, Facebook could use its super-powered distribution platform to create a new dynamic for charging, discounting and providing credits for friends who are sharing marketing and entertainment videos.

It was no coincidence that Zuckerberg last week cited Netflix as an example of a company seeking to accelerate its video sharing and sales using social apps. There's already a love fest between the two that includes Netflix founding CEO Reed Hastings, newly appointed to the Facebook board. It intensifies integration by the companies aimed at using the social network as a way for users to share, discover and view movies and other video.

Social activity surrounding new and rerun, broadcast and cable television programming is booming according to real-time data tracker Trendrr. Results for sports and other live events and movies are meteoric. Video aggregator categorizes the most shared videos on Facebook and Twitter, making it easier for social media users to feed their video habit.

Rival Google's continued online video land grab (that includes NewNetworks, YouTube and reports of aggressive bidding for, and more than a $100 million investment in original video fare) has advertising support but no user paid revenue stream. Amazon is the only on-demand video player that so far combines formidable storage, retail and social infrastructures to support vibrant online video economics.

For its part, Facebook is working closely with companies such as cloud hosting service RackSpace, Zynga and Skype through its Open Commute Project to leverage its new data center to create revenue-generating personalized, shared video advertising and content services.

Facebook's long-standing alliance with minority investor and Skype owner Microsoft will continue to come into play. Among other things, Microsoft is one of a handful of well-heeled bidders for Hulu, which stretches across the Sony PlayStation and Apple iTunes lucrative platforms, and is headed toward 1 million users for its paid-service tier. Microsoft's acquisition of Hulu (like its $8 billion purchase of Skype) would provide Facebook (and partner Netflix) with all the strategic ancillary benefits of what essentially would be a rocket boost to their online video ambitions.

Mining the interactive activity on Facebook among users and companies will take many forms, including pay-for access and transactions, both are facilitated by -- but not monetized on -- Facebook pages or elsewhere on the social platform.

While Facebook clearly influences buying decisions, it is not a place where consumers shop, according to new insights from eMarketer. Video interface among friends sharing marketing pitches and demonstrations could help turn Facebook into a formidable e-commerce force by turning "likes" into measurable spending.

Facebook's Groupon wannabe, called Deals, is one means of nurturing local merchant-consumer connections. Facebook Credits is a form of virtual currency connected to PayPal and a growing list of blue-chip merchants. Among other things, Facebook used "credits" to reward its 750 million global users for watching third-party advertising, which represents just the beginning of an effective way to incentivize video marketing and entertainment transactions.

Facebook recently launched Sponsored Stories, allowing companies to seize select user actions within its apps to feature in their news feed pitches, while Facebook Studio highlights marketing efforts. Both are stepping stones to more aggressive, innovative paid video advertising moves. Facebook Ad manager caters to smaller marketers, while Clickable and other third-party agencies facilitate larger marketer Facebook advertising placement, which also gets Microsoft support.

Nascent video advertising online is steadily gaining traction as more of an attention-getter, but still represents only about $3 billion of the more than $31 billion in domestic online ad spending expected next year, according to eMarketer. Could more creative viral use of video advertising on mobile social media change that? It's certain that Zuckerberg will try. And if he succeeds in meeting the video marketing and entertainment monetization challenge, Facebook's $80 billion private market cap is going to become a distant memory.

2 comments about "Facebook's Future: Apps, Video Will Generate Billions".
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  1. Kent Ford from Missouri Press Association, July 12, 2011 at 11:20 a.m.

    This looks like a golden opportunity for someone to develop a blocking app for commercial videos. Will "friends" really tolerate "friends" sending videos to them all day long on their social media devices? And will the sending "friend" get credit for forwarding video ads to friends who block the ads? Or will the video ads simply ride along with Billy Bob's constant video chats with his buds? Who's going to build all that bandwidth? Will Facebook spend some of those "billions" to build its own infrastructure network to carry all of those video ads? And if it does, will it prioritize whose ad gets top exposure via pricing structure? When the network locks up because of too much traffic, will the advertisers get refunds? So many questions. Will they be answered before governments have to step in?

  2. Howie Goldfarb from Blue Star Strategic Marketing, July 12, 2011 at 11:42 a.m.

    Facebook is an unused dying network. It is on it's last legs. The numbers Media Post and other news outlets deceive everyone on reality. Here is my latest of many posts on this topic.

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