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Facebook Inc To Earn Millions As Election Ads Roll In

Facebook Inc NASDAQ:FB
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Facebook Inc (NASDAQ:FB) is the name most connected with the launch of the Hillary Clinton presidential campaign. Why? Because the company is going to be one of the major battlefields on which the election plays out. That means a huge amount of advertising money for the Menlo Park company over the next year and a half, exactly how much is a difficult calculation to make.

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Hillary already has 4.7 million Facebook users talking about her presidential campaign, according to data seen by the Wall Street Journal. She’s going to need a lot more than that in order to keep the conversation on her as the long arduous road to the White House unfolds before her and her attendants. Facebook will be the ultimate beneficiary of the push to start social media conversations.

Facebook vies for political funding

Facebook has been explicitly looking for revenue from political parties in the run-up to the 2016 presidential election. The company released a report late last year that showed that ads on its platform increased the level of political donations. The report, which was seen by the New York Times, said that ads on Facebook resulted in a 200% return to the campaigns that ran them.

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 Mark Zuckerberg knows the political power that Facebook can levy, and he wants a piece of the billion-dollar market that is campaign advertising. In the course of the 2012 presidential campaign $7 billion was spent. The 2016 election is expected to spend even more than that, given the likely two-party primaries set to take place next year, and the seemingly ever-inflating costs of running a political campaign.

How much revenue can Facebook score?

The question for investors is how much of that $7-billion cash pile Facebook can funnel through its own coffers. According to figures released after the 2012 presidential campaign Obama and Romeny jointly spent just over $50 million on digital campaigning. That includes everything from Google to Twitter.

In 2016 that spend is going to be much bigger for a number of reasons.

Firstly, social media is much bigger and the power of its advertising is much more trusted. This can be seen in the company’s cost per thousand impressions, a standard way of comparing the effectiveness of advertising. Facebook CPM was 33 cents in the election quarter of 2012. Facebook’s video ads cost more than $20 per 1,000 impressions.

Secondly, the company now accounts for a bigger proportion of total online advertising spending. the company’s total revenue in 2014 was $12.5 billion, about 20% of Google’s $66 billion. Twitter’s revenue for the full year was just $1.4 billion. Back in 2012 Google brought in $50.2 billion, ten times the $5 billion that Facebook attracted that year.

Thirdly Facebook is stronger than every other part of the competition on mobile, a platform that’s going to be key in the coming election battle. You can be sure that the company is going to leverage its knowledge about the whereabouts of voters, and the profile it has built of their preferences to ensure that political spending is more efficient.

Calculating Facebook political exposure

It’s not clear how much advertising revenue Facebook will be able to bring in in dollar terms, because the total size of the digital market has not yet been decided. A number of things are clear. The digital spending of candidates is going to be massive in 2016 compared to 2012, and a greater portion of it is going to go to Facebook.

If the Menlo Park company is able to convince political parties of the efficacy of its ad model, it could earn millions in the next two years. Picture, from a campaign managers perspective, the ability to target Ohio as a swing state. Now picture them ignoring the demographics that are unlikely to vote for his candidate, targeting just a couple of million voters that could go either way.

The structure of American democracy makes increasingly granular targeting the future of elections. It’s been that way throughout the 20th century, and it hasn’t stopped with the arrival of the Zune.

Facebook investors are hoping that Mark Zuckerberg & Co. are able to set themselves as the forerunners in the new area of pinpoint campaigning.

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Paul Shea

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