In 2017, digital will capture 77 cents of every new ad dollar according to GroupM, the world’s largest ad buyer. And when it comes to the digital ad dollars invested in social channels, there’s one big winner: Facebook.
For instance, WPP, the parent company of GroupM, plans to spend $1.7 billion with the world’s largest social network, up substantially from the $1 billion it spent with Facebook this year.
Snapchat, which is widely considered to be one of the biggest threat’s to Facebook’s social dominance, will pull in $70 million from WPP, an amount that reportedly accounts for a substantial portion of Snapchat’s total revenues but still represents less than 5% of what WPP will spend with Facebook.
To understand why Facebook is gobbling up so much of the dollars being invested in social, one need only look to Yik Yak, a location-centric social app that launched in 2014 and grew quickly on college campuses thanks in large part to the anonymity it offered. Within a year, Yik Yak was one of the 10 most downloaded apps and had reportedly been blessed with a valuation of $400 million by investors.
But Yik Yak’s success was relatively short-lived. Last week, news broke that the company, which had raised nearly $80 million from investors, is laying off 60% of its staff as it struggles with a sharp drop in user growth. And with just 20 employees said to remain, it appears the company’s fate could be in question if it fails to turn itself around.
The harsh reality of social
Yik Yak’s decline is likely due, in part, to changes the company was forced to make to deal with user abuse of its initial anonymity. While anonymity proved to be attractive early on, and probably fueled much of Yik Yak’s early growth, anonymity became problematic as the company’s user base grew.
But Yik Yak’s struggles are also evidence of just how hard it is to sustain and grow a social platform. Even Twitter, which is expected to generate more than $2.5 billion in total revenue this year, has been struggling with user retention and stagnating user growth, something that has caused observers to question its long-term viability, especially after the company failed to sell itself earlier this year.
The challenges in building a real business around don’t stop at user retention and growth, however. Even with a vibrant platform, monetization remains a big hurdle. Snapchat, which now has more daily active users than Twitter, will reportedly generate some $365 million in revenue this year, and is expected to hit nearly $1 billion in revenue by the end of next year.
But while marketers are attracted to Snapchat’s young user base, the company’s ability to build the type of revenue engine Facebook has is still in question. Case in point: with sub-three second average video ad views said to be the norm, it would appear that the jury is still out on Snapchat’s ability to deliver results for marketers.
Facebook, despite the fact that it isn’t without its own challenges, such as metrics miscalculations, continues to grow and has established itself as a platform capable of producing ROI. Until another company in the space does both, expect to see Facebook continue to capture the bulk of social ad spend even as new platforms emerge.
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