Facebook Inc. (NASDAQ:FB) is home to at least 1.2bn active users and the firm is not ready to relinquish its hold as the first place for people to stay connected. Facebook thrives on user-generated content to keep its users engaged and it has done a great job on this. One of the ways in which Facebook can maintain its hold is through video content.
Google’s YouTube is still the top dog in the video content market, but Facebook is fighting to close the gap rapidly. In April YouTube reported that it has 7 billion video views per day with a forecast to reach 8 billion views per day by the end of this year. Facebook reported that it had more than 4 billion videos view per day in April up from 1 billion videos viewed per day in September 2014.
However, while Facebook is closing the gap in the number of view per day, it has not been able to nix video ad revenues in the same way that Google has done with YouTube. Facebook is a publicly traded firm – it can tout its 4 billion views from now until tomorrow but investors only want to know how those views can translate into money.
Facebook’s Achilles Heel – No Content ID System
YouTube has a ten-year start ahead of Facebook videos; hence, people can argue that Facebook is doing a great job with its current growth. In the last earnings call, Facebook CEO, Mark Zuckerberg remarked that the firm is very pleased with the growth in video. However, Facebook can have all the growth it wants but it won’t be able to monetize its videos unless its users make original content.
People post original videos on YouTube and those videos are indexed by Google’s search system. Users finds tons of fresh content to watch, advertisers are able to reach their audience, YouTube makes money from video ads, it gives a cut to video creators and everybody goes home happy.
On Facebook, users usually bring videos from other sources to post on their timelines. This action doesn’t support video ads and it even makes Facebook vulnerable to IP protection lawsuits. YouTube has a content ID system that tests for original content.
The system removes copied content or pays the creator for any ad revenue that the content brings. Facebook doesn’t have such a system; hence, there’s little motivation to create original content on its platform. Interestingly, Facebook has a great AI system to ID people in photos even when Google’s image ID AI mistakes dark-skinned people for Gorillas.
Analysts have mixed views on Facebook’s plans to challenge YouTube in the video ads industry. MarketWatch reports that, Evan Wilson of Pacific Crest Securities says he only expects video ads and Instagram to generate “modest contributions” and he will “continue to recommend other names as Facebook’s growth is slowing and margins are contracting while expectations remain extremely high”.
On the other hand, analysts at Raymond James believe that the huger user growth is a sign that Facebook is “laying the foundation for long-term revenue growth.”