Don Marti

Sat 26 Jul 2014 07:43:05 AM PDT

Newspaper dollars, Facebook dimes

(updated 27 Jul 2014: add Gannett ad revenue)

Hard to miss the Facebook earnings news this week.

Facebook earnings beat expectations as ad revenues soar

Facebook Beats In Q2 With $2.91 Billion In Revenue, 62% Of Ad Revenue From Mobile, 1.32B Users

Let's take a look at those numbers. (I'd like to fill in more and better data here, so any extra sources welcome.)

Mobile ads: 62% of FB ad revenues.

Total US FB ad revenue: $1.3 billion.

Which would make mobile US revenue for the company about 800 million. (Other countries are heavier on mobile, so this might even be high.)

Americans spend 162 minutes on a mobile device per day of which 17% is Facebook. So figure about 28 minutes per day on average. (Average of all US "consumers", not just mobile or Facebook users.)

That's double the time spent reading the printed newspaper.

US users spend an average of 14 minutes/day on printed newspapers. (Average of newspaper readers and non-readers. Just print, not web or mobile.)

But how are newspapers doing with the ad revenue?

Even after a sharp decline, newspaper print ad revenue in the USA is at $17.3 billion/year. That's the 2013 number, so it's reasonable to expect it to continue to come down as newspaper-reading time continues to decline.

Let's say it comes down another 10 percent for this year (which is faster than trend, and Gannett's print advertising is only down 6% this quarter compared to a year ago) and take a quarter of that. That's $3.9 billion.

So the newspaper brings in more than four times as much ad money by being in front of users for half the time. The newspaper completely lacks all the advanced behavioral targeting stuff, and Facebook is full of it.

What's going on here? Why is Facebook—the most finely targeted ad medium ever built—an order of magnitude less valuable to advertisers than the second-oldest low-tech ad medium is?

Here's my best explanation so far for the "print dollars to digital dimes" problem.

Advertising is based on a two-way exchage of information. You, the reader, give advertising your attention. Advertising gives you some information about the advertiser's intentions. That's often not found in the content of the ad. The fact that it's running in a public place at all is what builds up your mental model of the product, or brand equity.

On the other hand, advertising that's targeted to you is like a cold call or an email spam. You might respond to it at the time, but it doesn't carry information about the advertiser's intentions. (For example, you might be the one sucker who they're trying to stick with the last obsolete unit in the warehouse, before an incompatible change.)

As Bob Hoffman, Ad Contrarian, wrote, Online advertising has thus far proven to be a lousy brand-building medium. Walk through your local supermarket or Target or Walmart and see if you can find any brands built by online advertising. So what is web advertising good for? Thus far, it has been effective at search and moderately effective at a certain type of direct response.

Without the signaling/brand building effect, those targeted Facebook ads don't pull their weight, and come in at less valuable than newspaper ads.

I'm not saying we should go back to dead trees, but clearly mobile is leaving money on the table here. What's the solution? Paradoxically, it's going to have to involve some privacy tech on the user's end—preventing some of the one-sided data flow towards advertisers in order to introduce signaling effect.

More: Targeted Advertising Considered Harmful