Facebook, Inc is Crushing Google and YouTube in this Key Metric
This has a "David vs. Goliath" feel to it: Facebook vs. Google . It's hard to think of Facebook, with its 1.32 billion monthly average users, or MAUs, as "David" in most any scenario, but compared to the search king's annual run-rate of nearly $60 billion in revenues, Facebook's $7.87 billion in annual revenues is measly.
Based on the disparity in revenues, it may seem like a stretch to suggest Facebook will ever pass Google as the leading online advertiser on the planet. The social media leader has a few arrows in its quiver that bode well for continued, explosive growth, even as Google's primary driver of revenues -- cost-per-click ad rates -- is consistently declining. But when it's said and done, if Facebook ever does surpass Google, it will be because of one key metric.
It all comes down to this
With its stock price up just shy of 42% year-to-date, Facebook shareholders have had a lot to celebrate in 2014. Impressive growth in both MAUs and revenues, despite higher comparables, warrants Facebook's nice run. The question is: How is Facebook continuing to grow its topline so rapidly, despite not inundating its users with more ads?
As Facebook fans know, it's able to target its ads better than any digital advertiser around. Facebook's 1.5 million marketing partners, and literally millions of spots in their respective arsenals, are able to select the handful most likely to be of interest to each user. Facebook CEO Mark Zuckerberg has always known data is where the revenues lie. His laser-sharp focus on collecting, analyzing, and ultimately using all that information is what drives Facebook's targeting efforts, and it's working.
There are multiple ways to measure an ads success, regardless of the medium: TV, radio, print, or digital. But ultimately, marketers want to know if a spot drives sales. And in that key metric, Facebook is the hands-down winner among social media sites. A recent study of conversion rates for online and off-line results -- in other words, digital ads that drive a consumer to purchase a product or service, but not directly via the web -- suggests Facebook drives 1.85% of its users to buy.
Google's highly successful YouTube site is tied for second in conversion rate, with 1.16%. Facebook's dramatic leadership position in converting its marketing partner's ads is all the more impressive when you consider it's primarily static images, or display ads, driving all those sales. Being a video site, YouTube would seem to hold the edge, as video gives advertisers a chance for consumers to see the product or service "in action." But Facebook's focus on amassing and implementing its user data, as its ad results indicate, are simply the best in the business and easily overcome what would seem to be a handicap.
Facebook's unmatched ad targeting abilities will manifest themselves in other ways, too, beyond the current display ads on its site. Recent acquisitions including Oculus and its virtual reality headset, mobile messaging king WhatsApp with its 600 million plus MAUs, and beaming Internet access to remote areas via its new drone consultant will all help drive long-term growth. And all that growth will result in even more information Facebook can use to target ads, and continue to increase what it charges its marketing partners. Let's not forget the impact of implementing a full-scale video ad solution, something Facebook appears close to bringing to fruition, along with monetizing its popular Instagram property.
As Google knows, display ads are where the big digital revenues are. Sure, Google continues to generate higher cost-per-click, or CPC, revenues each quarter, but that's not due to growing fees for each CPC -- those costs have been steadily declining for years. The sheer volume of online search has more than made up for the drop in individual CPC fees. Naturally, Google recognizes this, and recently introduced an updated suite of ad network tools specifically designed to help its partners purchase display ads for mobile devices.
Final Foolish thoughts
Is it a foolish notion to consider Facebook could one day be king of the digital advertising universe? The disparity in Facebook's and Google's revenues today may make that seem far-fetched. But just as investors are wise to think long-term, so too should companies. Zuckerberg, even at this early stage, should have Google in his sights. Facebook is far from the heels of Google, but if the company ever does become the online ad leader, it will be because it's already the king of what matters to marketers: converting clickers to customers.
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The article Facebook, Inc is Crushing Google and YouTube in this Key Metric originally appeared on Fool.com.Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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