What could finally cause advertisers to abandon Facebook, despite sticking with it through years of scandals

Adam Hunger/Reuters

Facebook cofounder Chris Hughes called for Facebook to be broken up in a New York Times op-ed.
Facebook’s domination has been enabled by advertising, which has continued unabated despite years of scandals.
That’s because Facebook works for them, thanks to its scale and targetability, and advertisers are slow and conservative, experts told Business Insider.
That could change if Facebook’s targeting continues to be curtailed and advertisers migrate to other platforms like Amazon and Google.
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Facebook cofounder Chris Hughes called for the breakup of Facebook in a New York Times op-ed. Hughes wrote that there’s been no accountability at Facebook because it dominates social networking. That domination is enabled by advertisers, from whom Facebook makes its money.

Facebook’s advertising, as well as user and stock price growth, have continued unabated, despite years of scandal, as well as problems specific to advertisers (measurement snafus and a walled garden approach to data). Facebook beat Wall Street’s revenue expectations for the first quarter, and shrugged off news it was expecting to settle an unprecedented $3- to $5-billion Federal Trade Commission fine over privacy issues.

With advertising continuing to enable Facebook’s growth, is there anything that would cause advertisers to tap the brakes?

Right now, Facebook is a superior ad vehicle because it has mountains of data advertisers can use for targeting. But it’s been curtailing targeting abilities after scandals and has promised a tool that will let people clear their history. At the same time, advertisers can target on Amazon, Google, and eventually, through addressable TV. If Facebook’s targeting edge erodes significantly, it could become less attractive as an ad vehicle, said Debra Aho Williamson, a principal analyst at eMarketer.

"Amazon has its own form of targeting," she said. "Google has access to lot of location data. Advertisers are looking at addressable TV that has new ways of targeting. You have to wonder if at some point it all comes together."

But until then, there are powerful forces keeping advertisers on Facebook. Here’s a breakdown:

1. Facebook works

Advertisers still perform better on Facebook than on alternatives, experts said.

"We continue to hear from performance marketers that news feed is still killing it and the relative simplicity/efficiency of Facebook’s delivery across three massive scale platforms — news feed, Instagram, Messenger — is unmatched and continues to get better," said Mark Zgutowicz, managing director at Rosenblatt Securities. "Until that changes, spend will stay."

2. Facebook has the scale

Facebook’s reach outstrips other digital platforms’, with 2.3 billion users worldwide on the Facebook app alone. All Facebook-owned apps comprised three of the top four networking platforms, with Google’s YouTube at No. 2 with 1.9 billion users. Snapchat, which advertisers have pinned hopes on to rival Facebook, trails with less than 300 million. The scale in turn fuels Facebook’s data.

"If eyeballs stay on Facebook, advertisers will remain," said Darren Herman, operating partner at Bain Capital. "It’s hard to move off the Facebook platform because of the eyeballs (thus leading to data platform) they have."

3. There’s safety in Facebook

For as much as advertisers say they want to be nimble and adapt to consumers, they’re slow to pivot when it comes to their advertising, Williamson of eMarketer said. Take traditional TV, whose revenue hasn’t dropped along with ratings.

Their agencies are invested in Facebook, too, having built systems to plug into these platforms.

"Advertisers get a lot of benefit from Facebook," she said. "They have their Advertising Council that major brands are part of. And they see the advertising is performing well."

4. That performance fuels a conservative mindset

"This is an industry that is pathologically obsessed with reach, which means no advertisers will ever get fired for buying on Facebook," said an agency exec, speaking anonymously. "Between the big boys and the long tail, no marketer is going to abandon Facebook until another scale alternative presents itself."

Don’t advertisers care about their social impact, what with all their talk about being purpose-driven?

Advertisers are reluctant to mix business decisions with social media’s social consequences, said Rob Norman, the retired global digital chief of GroupM. That’s because their imperative is the performance of their own business and they are reluctant to take positions from which it may be hard to retreat, and that might open their own businesses to criticism (pollution, obesity, unfair pricing, discrimination). Advertisers also aren’t damaged by their ads showing up next to objectionable content on Facebook in the same way they are on YouTube.

5. Facebook has the long tail

Advertisers stick with what works, and so far Facebook has worked, said Terry Kawaja, founder and CEO of Luma Partners, an advisory firm focused on digital media and marketing. Even if big brands take a stand, most of Facebook’s revenue comes from the long tail of marketers, he said.

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Source: Business Insider – lmoses@businessinsider.com (Lucia Moses)