Long-Term Questions to Ask About Social Media’s Ad Revenue Boom

Long-Term Questions Ask About Social Media’s Ad Revenue Boom
Cheyne Gateley/Variety Intelligence Platform

The advertising recovery over the past year has been remarkable, but no one has been benefiting more than tech companies — especially social media platforms. 

As second-quarter financial results this week from social giants including Snap, Twitter and Facebook indicate, companies continue to pour their cash into advertising on the platforms with the largest reach.

Total revenue at those three social companies, which comes almost entirely from advertising, saw another blowout quarter. Snap reported revenue growth of a whopping 116%, while Twitter’s revenue rose 74% for its strongest growth since 2014.

Meanwhile, Facebook’s revenue jump of 56% was its strongest since 2016, and the company had ads to thank, which make up about 98% of all its revenue. The number of Facebook ads delivered rose 6%, and the social giant saw a 47% increase in average price per ad during Q2.

It shouldn’t be too surprising given the massive user engagement on these platforms. In Q2, Snap reported daily active users (DAUs) climbed 23% from last year, to total 293 million, and Twitter’s monetizable daily active users (mDAUs), or users who view ads on their platform, grew 11% to 206 million.

Then there’s the behemoth that is Facebook, which has a jaw-dropping 1.91 billion DAUs and 3.51 billion monthly users across its family of apps, which include the main Facebook app, Messenger, Instagram and WhatsApp.

According to a new study fielded for VIP+ by GetWizer Consumer Insights among almost 1,500 Americans, Facebook reigned supreme for the older demographic when it comes to usage. Things were more interesting among those age 15-29, who actively use a variety of different platforms more regularly. They said they used Instagram, Facebook, Snapchat and Twitter for at least 30 minutes in the last week.

Whatever these companies are doing right now is clearly working, as ad revenue has been steadily increasing at an astonishing rate. However, there is a concern that the level of growth will not be sustainable in the long term, and the recent Apple iOS 14.5 update is seen as a major threat to Big Tech’s advertising strategies.

Social media platforms such as Facebook, Twitter and Snap use targeted ads to reach audiences. It’s a personalized experience that has proven to be more effective at getting people to click and even purchase through the ads they deliver.

However, the new Apple software update put more power and control into the hands of users by offering the option to opt out of app tracking. While Snap, Twitter and Facebook are all doing their best to estimate how big an impact the software update will have, Facebook CFO David Wehner warned that if there is impact to their ad business, it will be worse in Q3 than in Q2.

As the social giants navigate the current ad landscape, the biggest opportunities lie within video and mixed reality (VR, AR etc.). Video advertising has been seeing healthy growth, and Facebook COO Sheryl Sandberg noted on the earnings call Wednesday that the company has over two billion watching in-stream ad-eligible videos per month. Facebook and Snap are both aggressively working to become leaders in VR and AR, respectively, and the move could open up a fresh outlet to further drive ad revenue.

Facebook revealed on the earnings call that it is planning to create a so-called metaverse, which Zuckerberg said will be a social and digital environment unlike anything else that exists. Building out the metaverse won’t happen overnight, but the goal is eventually to rake in profits by selling virtual goods and advertising within.

Whether or not Zuckerberg’s metaverse idea is as grand as he made it seem, it is true that the social media companies need to think hard and long about innovation and tapping into the next phase of growth in an environment that is rapidly evolving.

Advertising is the bread and butter for social, and new ways to deliver will play a critical role in determining who will thrive and who will get left behind.