Knowledge economy
When Zuckerberg speaks to a knowledge economy he’s referring to helping companies grow through Facebook’s advertising platform. Facebook’s platform, perhaps more so than any other, allows businesses to connect with potential customers. It helps developers create apps, nearly 18 million local businesses find customers, and big brands to tell their story.
Going forward, Facebook ought to continue the excellent advertising growth it saw in the second quarter. It plans to add special video advertisements that could generate upwards of $1 billion in added revenue for the company next year. Additionally, it should see continued acceleration in its app install advertisements. Moreover, the visual nature of its yet-to-be-monetized Instagram service lends itself well to excellent advertising opportunities.
On the back end, Facebook’s acquisition of Atlas from Microsoft earlier this year will allow it to provide analytics and important insights for both advertisers and Facebook itself, thus increasing ad value and prices. Eventually, Facebook could build an ad network to place its ads on websites outside of Facebook. Using its knowledge from its vast user base, an external ad network could increase revenue 200%.
For investors concerned that Facebook could compromise its user experience through advertising, fear not. Facebook is likely even more concerned. That’s why Zuckerberg iterated on the conference call, “Our top priority is to expand the number of marketers and overall demand in our system. … We believe that this will help us … by creating a more competitive auction.” Investors should see increases in cost-per-click, and more clicks will come from an expanded user base, not more advertisement, thus preserving the user experience.
Bottom line
Facebook has come a long way from its dorm-room beginnings. Originally designed as a place for people share information with their friends, the site has become a depository for the goings-on of 1 billion lives. Going forward, the company has plenty of opportunity to 1) bring its service to two-thirds of the world’s population, 2) use the information users share to create new products, and 3) help businesses (and its own revenue) grow using its advertising platform. All three of these factors make Facebook a great long-term investment.
The article Facebook’s New Goals originally appeared on Fool.com and is written by Adam Levy.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google.
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