Point, Facebook, which can finally relax a little now that its share price is significantly higher than its IPO value, after spending well over a year beneath it.
Twitter might be facing a tough week, but these two companies still tend to dominate the media conversation about digital platforms. And yet neither of these two even make the list when it comes to share of digital ad spend by the big agencies on Madison Avenue.
As my MediaPost colleague Joe Mandese reported yesterday, that list is, of course, dominated by Google, at 40.2% of total digital spend, followed by those evidently far from extinct dinosaurs Yahoo, AOL, and Microsoft. Fascinatingly, none of the remaining four companies with a big enough share to itemize is a pure digital platform: Walt Disney Co., Comcast Corp., Time Warner, and CBS bringing up the rear with 3.2%. These eight comprise 88% of the spend, with the remaining 12% attributed to “all other digital.”
Mandese generously points out that digital companies “derive a significant portion of their overall revenue, and much of their growth, from so-called long-tail advertisers, including small businesses that either buy direct or through small ad agencies not affiliated with the big agency holding companies.” But the big issue here seems to be one of category, with search being the big win, followed by content. It’s not just Facebook that doesn’t feature on the list; it’s all social media.
The fact remains that social media platforms are still trying to figure out how to predictably and sustainably monetize their user bases. The SuperBowl had 112 million viewers; Facebook has over 750 million users every day. But people watch the Super Bowl specifically for the ads, while Facebook’s goal with ads is to make sure the “user experience won’t be tainted.”
This explains why Facebook’s P/E ratio is in the 90s, compared to Google’s in the low 30s and CBS is in the low 20s. Investors are still relying on the social media site to realize its untapped potential, even if we don’t know what that looks like.
It’s not totally certain Facebook will realize that potential, given the fundamental difference in motivation between users of search, consumers of content, and sharers of social information. As I wrote back in 2009, in response to a different Mandese column, the first two are “market norm” environments, while the third is an environment for “social norms.” It remains to be seen whether social environments can yield the commercial results required by Madison Avenue -- and, therefore, Wall Street.
Twitter has more to worry about than its user metrics. And for the sake of its investors, it will need to figure things out fast.
I always enjoy your columns; this one too. Just want to point out that Twitter's stock price is not a proxy for market acceptance of its ad product. By almost any measure, at 50X revenues, it is in the heady, speculative area where investors are betting on a greater fool or a miracle. You are correct, Facebook can sport a 90PE because of its future miracle as well (Twitter's PE is almost infinite). I continue to believe we can't conflate TV advertising with online, or we will ruin the online experience by stuffing it with mandatory pre-rolls. TV 15s and 30s allow a story to be told. Most online ads are an invitation to hear or see or read the story. With the unique example of the SuperBowl and its SuperAdBowl presentation that likes real-time, I predict the audience that grows up with digital interactive, everything on demand, is going to want TV to behave their way, and that is what will happen, not the other way around.
Twitter is not profitable, which is ignored in this post. The article only talks about revenue. Mystery solved why Twitter is unloved on Wall St.