Facebook Woos Publishers With Mobile Hosting Deal

27 Oct 2014 | Author: | No comments yet »

As Facebook Says, Not As It Does.

Facebook is reportedly offering publishers a deal whereby it would host articles directly on its mobile app, splitting the revenues with the publishers. With Facebook’s stock rising by 30% over the last six months due to impressive results, many investors will be on their heels on October 28, to see if the company can keep its growth momentum intact with Q3 2014 earnings.This week, David Carr writes about Facebook’s increasingly psychodramatic relationship with publishers, who, whether or not they’ve actively catered to the site, have come to depend on it profoundly.Facebook is exploring the idea of distributing articles and features from major news outlets directly to its mobile users in a new deal which could see the social network take a slice of each publication’s ad revenue. The column also carries a bit of news, which has been circulating as a likely theoretical for the last year or so, but which now seems to be real: The company has been on something of a listening tour with publishers, discussing better ways to collaborate.

Online media sites could in future use Facebook as a distribution platform to directly send articles to mobile users through the app, according to the New York Times. Facebook also loads content quickly – far more quickly than many of the publishers’ own websites, which are slowed by the amount of advertising they host and the fact that each slot is auctioned on-the-fly. We expect the company to show solid results in the third quarter as well, fueled by its strategy to focus on mobile devices, improve ad products and grow the number of marketers on the platform.

To its credit and economic benefit, Facebook has done a better job of cleaning some junk from its feed, featuring news that leads to stronger levels of engagement, which is a win for the platform, the publisher and the readers. One possibility it mentioned was for publishers to simply send pages to Facebook that would live inside the social network’s mobile app and be hosted by its servers; that way, they would load quickly with ads that Facebook sells.

This would increase the firm’s control of the press, a move some outlets may not be keen on as Facebook is already responsible for just under a quarter of referrals to news sites. Facebook could offer a more popular and easy to use way to view content than publishers, who often have sites that are slowed down by constant advertising bidding on their sites — a problem Facebook insists it can solve. And for smaller publishers in particular, this could be a very attractive deal – many depend almost completely on Facebook for their audiences already. Building out the eco-system (which comprises of several entities such as WhatsApp and Instagram) and enhancing online video advertising will further propel top-line growth for the company in the long term. Enter Facebook’s popular mobile app, which has captured greater amounts of time and, more remarkably, managed to fit a business model onto the small screen by providing extremely relevant advertising.

Some are large, and see a short-term opportunity: They’re already optimizing for Facebook with “TRENDING NEWS” teams and the like, so they would be glad to remove any friction between their most viral posts and the cascading feed at which they were intentionally angled. Facebook, on the other hand, insists that they are having conversations with publishers in order to make sure it is a win-win for both sides, and that the ultimate goal is to come up with a good experience for the consumer as well as publishers.

We forecast Facebook’s revenue and EBITDA to grow meaningfully from $7.9 billion and $4.9 billion in 2013 to over $42 billion and $30 billion by the end of our forecast horizon (i.e 2021) in our model. By contrast, publishers like newspapers and magazines and even some digital sites have tried to shoehorn old business models and web templates onto tiny screens. But there is another way to look at this, which situates Facebook not as an evil force colonizing publishing, nor as a lumbering dumb beast grabbing for everything around it.

It spent many billions of dollars on a messaging app that was already successful; it spent a couple billion on a virtual reality helmet that it finds promising. In 2011, a number of publishers including The Guardian, The Washington Post, Business Insider and The Independent partnered with Facebook to create “Social Reader” apps to allow users to consume and share content in the Facebook environment.

He wasn’t speaking for attribution, but he derided the approach that traditional publishers take to mobile devices, saying it made for an unpleasant user experience, hurt user engagement and crippled their efforts to make money in a smartphone world. It threw weight behind Facebook-adjacent internal projects, such as Slingshot, Paper, and Rooms, none of which have caught on, not that it matters yet—Facebook has a lot of cash and at least some time to figure out its next contraption to convert human attention into money.

As Chris Duncan, chief marketing office of News UK, tweets: “Facebook positioning this as “on behalf of customer” breathtaking… Naked ambition to be mobile platform that locks Google out.” It’s important to stress that this is just one of many possibilities that Facebook is exploring with publishers. But it certainly implies that the company is looking to increase its focus on external content – in ways that could end up looking a lot more like competition than collaboration.

While the total number of ad impressions is decreasing, due to a continued shift from desktop to mobile, Facebook has made its platform more effective for marketers by increasing the proportion of feed-based ads and making the interface less cluttered. If it goes ahead with this particular project, publishers will be wise to look carefully at the small print – and consider Facebook’s plans l;ong term. They know that preferences change and tides turn and that their old site, the single feed of photos and updates and links from a mishmash of friends and family and coworkers assembled over a decade, the first hugely successful smartphone platform but definitely not the last, will eventually give way to something else. That kind of wholesale transfer of content sends a cold, dark chill down the collective spine of publishers, both traditional and digital insurgents alike.

With Facebook focusing on making its mobile ads as interesting and likeable as regular content, we believe this will bring even more marketers to the platform in the future. Though Asia, Africa and South America constitute for a large proportion of the world’s population, they don’t contribute significantly to the company’s revenues. While the average revenue per user for the U.S. stood at $6.44 in Q2 2014, the figure for Europe, Asia and rest of the world stood much lower at $2.84, $1.08 and $0.86, respectively.

Chris Cox, chief product officer for Facebook, knows that the frightened chatter is out there, but says those worries are unfounded because the interests of Facebook and digital publishers are pretty much aligned. If this is true, that Facebook believes its priorities to be aligned with those of publishers,* then publications should consider what will happen when this ceases to be the case—when Facebook, like virtually every large tech company that has survived for more than five years, changes forms, finds its next cash cow, stops paying attention to News Feed, and puts its partners out to pasture. (Or if it fails!) For the most eager partners, the ones who were first in line, the ones who had the most faith in the alignment of their priorities with the big friendly tech company’s, the ones who reaped the most, in the beginning, from Facebook’s content rush: What, by then, will be left of your publication? But eventually consumers rebelled against excessive notices about what their friends were reading, Facebook tweaked the algorithm, traffic fell and the plug was pulled in 2012.

It reminds me very much of those times when other digital behemoths tried to persuade content providers into letting them host the publishers’ content. For a great number of Facebook employees, web publishing is either one more advertising opportunity or a minor engineering problem—a source of slow-loading links that must be optimized.

In the early days, when AOL was dominant, the service preyed on the publishers’ fear that if they didn’t put their content inside the walled garden of AOL, their content would be invisible. And I remember a visit to Google when Sergey Brin, a founder of the company, and some of his colleagues talked about how clunky most news web pages were — sound familiar? — and offered to host content with quicker load times and a revenue share. And, oh, by the way, they should run it. (All considered, Apple has already pulled off that trick, creating a private enclave of apps that it controls.) David Bradley, who owns and leads the Atlantic Media Company, says it has an excellent relationship with Facebook and profits nicely from the traffic the site generates. But he says the next battle for control over content is a significant one, not so much mandated by Facebook as by consumer preference. “Increasingly, people would rather have their news curated by friends rather than editors,” he said. “Facebook technology may create a better reader experience than publishers can match — pages that load better and better page design.” “My job is to navigate The Atlantic to continuing good relations with the platforms,” he said. “In my last trip to the Valley, the best minds were talking about the same issue: Is the coming contest between platforms and publishing companies an existential threat to journalism?

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