Google Inc. (GOOG) is the undisputed king of ad-supported internet video.
But if Mark Zuckerberg has his way, social media giant Facebook Inc. (FB) will also be a force in the video space soon.
(Sorry Netflix [NFLX], but outrage over your promo may prohibit you from ever playing this advertising game on your content.)
A recent report from TV and internet video research firm Ampere Analysis has predicted a big fight between Google and FB as both look to serve more videos (and video ads) to their big-time audiences of more than 1 billion monthly users each.
But as Ampere Research Director Richard Broughton said, “If the social network’s own video ambitions are to be realized, and if it is to convince content owners it is a viable alternative to YouTube, it must deliver comparable returns.”
FB stock has proven that it can hang on the advertising front … but can Facebook actually become a video destination that will rival YouTube, serving up enough eyeballs to make that video advertising revenue substantial?
YouTube Still Chasing Video Profits
It’s worth reviewing some history here before we look at where we are headed in the internet advertising game.
GOOG stock turned many heads in 2006 with its $1.65 billion acquisition of video site YouTube. After all, the young site was a playground for piracy and blurry do-it-yourself clips that didn’t make its owners a dime.
Since then, the rise of streaming video’s popularity and the potential for lucrative video advertising has come a long way as connectivity has improved and more folks than ever are “cutting the cord.” Time has vindicated GOOG stock on this decision, and as of last year, YouTube racked up $4 billion in total revenue — up from $3 billion in 2013.
But one thing remains true: Google still doesn’t make a profit with its YouTube division, even if viewership is high.
That’s partially because YouTube still largely allows users to “escape” from ads by skipping them after the first few seconds, and because ad blocking software increasingly prevents advertisements from even being served. But it’s also because most of the ads you see are big accounts directed at general audiences — and thus not as lucrative.
GOOG continues to make improvements with ad targeting, and the ability to serve up specific offers to specific audiences is part of the appeal of the Google AdSense platform. Surely it will figure out how to do the same with video eventually.
But the pressure from Facebook is very real on this front, even if FB stock doesn’t have a robust video content business as of yet. Its sophisticated Atlas advertising platform allows for incredibly sophisticated targeting of Facebook users, and this targeting is the big driver of ever-increasing ad revenue even as the total FB user base remains pretty flat.
Could Facebook “solve” the video ads game in the same way? Maybe … if it can get content to critical mass fast enough to connect with consumers.
This will be an interesting advertising battle to watch. Because while internet users tend to hate internet ads, they certainly do love Facebook and YouTube videos.
So the first tech giant to connect the dots here will be a big-time winner in the ad wars.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
