December 17, 2013

Today Facebook announced that video advertisements are on their way.

Every day millions of people sift through dozens or even hundreds of posts, just to see what their friends and family are sharing. In some ways the daily ritual of checking your news feed has almost become as habitual as waking up and going to work. I say this not as a criticism, but only to illustrate a point, that video advertisements will not prevent people from continuing to like, comment, and post.

Facebook's entry into the video ad world is important because they're a key player, and, to date, advertising has been the only real driver of revenue in their industry. While investors are in love with social media's opportunity and potential, they also want a business model that works in today's economy.

YouTube, for example, has revenues that are competitive with the biggest players in cable television, like AMC and ESPN. Facebook already brings in $1.8 billion from advertising alone, proving that there is money to be made today. Twitter, on the other hand, has received criticism largely because it has yet to establish a proven business model like its rivals.

Today's social media companies are largely judged based on two key factors, the advertising platform itself and the big data being mined from users. It's easy to measure a social media company's success based on advertising because there are other industries that have competed in this space for years, and have established a market. Data mining, on the other hand, is a real unknown. It's difficult enough to determine the complexity of this information and how it is currently being used, let alone what the future will bring.

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).