The Lives Of Others: Unpacking The Value Of Social

On April 27, Facebook announced another spectacular quarter: 1.65 billion monthly users, $5.38 billion in revenue, $1.5 billion in profit (up 195% year over year), and an increase in average revenue per user (ARPU) of 32%. Mobile advertising comprised 82% of the total.

Four years ago, prior to Facebook’s IPO, mobile accounted for 0% of the total, as the company stated then in its amended S-1: “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.”

It may be hard to remember that version of Facebook, since today, together with Google, it receives the lion’s share of all digital & mobile advertising spend. Though one does have to wonder how long the juggernaut can last – 1.65 billion people is, after all, a vast number, and no business can scale forever. Additionally, signs seem to indicate that the great smartphone wave is ending, not because people have stopped liking smarthpones (hardly), but because most adults on earth already have one, or will soon.  



For advertising revenue to increase continually over time, one or more of the following key inputs has to also increase continually: unique audience, ad exposure rate, or price – or some combination of the three. As it turns out, the desire to connect to other people through a palm-sized supercomputer is an inherently human one, and this natural accelerant is one reason WhatsApp grew from 200 to 700 million users in 21 months, and from 700 million to 1 billion in 12 months. When things go well, the natural limiter of audience growth starts to resemble the total adult population of the planet.

Once scale is there, unit revenue, or ARPU, becomes even more important, especially outside the United States. Facebook’s ARPU in the U.S. & Canada, for example, is $12.43, while only 91 cents in “Rest of World.” Twitter’s ARPU in 2016 will be around $9, according to The Information, but that’s on a much smaller global user base, while Snapchat – which is entirely focused on the U.S. and Europe – will be around $1.25.

So how do you increase ARPU? One way is through better ad products and better targeting. New ad products tend to be visible – the introduction of video, for example – while improvements in targeting tend to be invisible. Like Google, Facebook is a vast data company that makes most of its revenue from advertising, and one doesn’t need to be concerned about its ongoing commitment to improving ad effectiveness.

Everyone knows someone on Facebook who seems to share only the most self-flattering content: pics from the St. Barths vacation, but not from the marathon they quit at mile 15. However annoying, this kind of inauthenticity may not matter when it comes to advertising. This is partially because, as a culture, we are so accustomed to ceaseless self-expression that we tend to put all of the relevant data out there anyway.

It’s also because of the increased importance of machine learning and inferential analysis in targeting. Turns out that it’s not what you mean to say that reveals the most about you as a consumer, but what you’re not consciously aware you’re saying. That’s the thesis of Toronto startup Receptiviti, whose technology uses linguistic analysis, AI and applied psychology to reveal the decision-making patterns of individual consumers.

Receptiviti makes a persuasive case that declarative statements (e.g.,  Facebook posts) and self-assessment tests (e.g., Myers Briggs) communicate mostly your perception of yourself – the person you want the world to think you are – not necessarily the person you actually are. Through the analysis of “function” words (pronouns, prepositions), their technology creates a real-time linguistic fingerprint of an individual, which their data shows to be far more predictive of future purchase behavior than traditional behavioral methods.

This kind of analysis may turn out to be especially useful in parts of the world where self-expression is actively discouraged. There are huge regions of the world – Africa, Asia, the Middle East – where the cultural norms around self-expression diverge starkly from those of the U.S. and Europe. Growing ARPU in those regions may require a different approach to targeting.

Of course, the answer might lie in private social environments, i.e. messaging. WhatsApp, Messenger, WeChat, Viber, Snapchat, and Telgram already have scale, and they’re mostly private. Additionally, they offer what traditional social, to date, has not: commercial transaction platforms.

Monetizing users directly is, of course, a great way to grow unit revenue – just ask HBO, WeChat, or Amazon. If you can do that within a secure messaging environment, in high-growth areas of the world, for users who take personal privacy very seriously, all the better.

1 comment about "The Lives Of Others: Unpacking The Value Of Social".
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  1. Leonard Zachary from T___n__, May 6, 2016 at 11:13 a.m.

    Double-check your ARPU numbers, Facebook ARPU is based on quarters not monthly.

    Most folks think ARPU in monthly per user.

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