Facebook’s Q4 earnings prove how to respond to adblock

Dr Johnny Ryan Ad Networks, AdBlock, CMO, Monetization Leave a Comment

Facebook’s Q4 earnings now prove what its Q3 earnings had indicated: the unblocked web – when used appropriately – is an opportunity for marketers. 

From August 2016 onward Facebook deployed tamper-proof ad serving to show ads to users who have adblock installed on their machines. Before doing this it listened to users to identify and fix problems that adblock users had with its ad formats.[1]

Last week Facebook’s CFO, David Wehner, told investors and analysts on an earnings call for Q4 that “desktop ad revenue grew 22%, despite a decline in desktop usage, helped by our efforts to limit the impact of ad blockers on advertisements served on personal computers.[2]

This builds on Facebook’s Q3 earnings, when Wehner revealed 18% growth in desktop ad revenue. This was roughly twice the year-over-year growth of previous quarters.[3] He told investors “that acceleration in desktop revenue growth is largely due to our efforts on reducing the impact of ad blocking”.[4] In other words, the additional 9% of growth year-over-year was due to serving tamper proof ads to users that had installed adblock.

The scale of this uplift is remarkable because Facebook began to serve tamper-proof ads only half way through the quarter.[5] The uplift over a full quarter is 18%, which is also the percentage of adblock usage in the United States.[6]

Facebook’s lesson for publishers 

Facebook warned investors in 2015 that adblock has “had an adverse effect on our financial results” and cautioned that “if such technologies continue to proliferate, in particular with respect to mobile platforms, our future financial results may be harmed”.[7] Its response is a model for all media owners. Facebook took three steps:

  1. Listen to users’ grievances.
  2. Fix privacy, user experience, security, and bandwidth – for example using IAB LEAN standard display formats.
  3. Serve ads using tamper-proof ad serving technologies.

Listen, Fix, Serve gives visitors the same ultimate power over publishers that they have always had. The power to leave any website that does not live up to their expectations has always been in visitors’ hands.

What this means for Facebook’s future earnings 

For a conservative estimate we will continue to use the run-rate from Q3 rather than the better Q4 figures, and maintain what now appears to be a conservative prediction that Facebook will make three quarters of a billion dollars by showing tamper-proof advertising.[8]


Notes

[1] See note from Facebook’s chief advertising executive, Andrew Bosworth, “A New Way to Control the Ads You See on Facebook, and an Update on Ad Blocking”, Facebook statement, 9 August 2016 (URL: http://newsroom.fb.com/news/2016/08/a-new-way-to-control-the-ads-you-see-on-facebook-and-an-update-on-ad-blocking/)

[2] Facebook Q4 earnings call, 1 February 2017.  See transcript.

[3] Facebook Q3 earnings call, 2 November 2016.  See transcript.

[4] ibid.

[5] Facebook deployed tamper-proof ads to desktop users on August 9th, but between August 11th and August 18th fought – and won – an engineering war with AdBlock Plus.

[6] The state of the blocked web: 2017 global adblock report, PageFair, https://pagefair.com/blog/2017/adblockreport/

[7] Facebook Q4 and Full Year 2015 Earnings, 27 January 2016 (URL: https://s21.q4cdn.com/399680738/files/doc_presentations/FB_Q4_15_Earnings_Slides.pdf)

[8] In Q2 Facebook reported advertising revenue of $6.2 billion, before it began tamper-proof ad serving. This translates to roughly $25 billion a year (ignoring quarterly variation). Desktop, which accounted for 16% of Facebook’s advertising revenue, is therefore approximately $4 billion. If Facebook enjoys a similar 18% uplift from tamper-proof ads through 2017 then its desktop advertising revenue will grow from $4 billion to $4.72 billion.