How Facebook Prints Money

0 min read
August 24, 2020

Performance marketing on social is foundational to Dysrupt. As such, it would be tone-deaf to not speak about the #StopHateForProfit campaign.

Currently, 313 companies are participating in the protest including some of the largest advertisers in the world: Unilever, Verizon, Walgreens, Patagonia, Diageo, etc. (Full list here). It is important to note that as we were finishing our write up Facebook posted an updated response addressing the nine recommendations outlined by the Stop Hate For Profit boycott organizers. It will be interesting to see how the boycotting advertisers respond to the Facebook updates.

If Facebook was a TV network, this type of boycott would work extremely well. Unfortunately for these brands Facebook is not a TV network. Facebook has entirely different economics than a TV network for multiple reasons, but the big two that matter in this discussion are that:

  • Facebook has an extremely large advertiser demand coupled with self-serve ad buying that can be effective for anyone
  • Facebook's auction has no fixed price for an impression and thus rates are dictated by the market

Because of these facts, this boycott by the top advertisers could mean Facebook makes more money - not less.

Huh?

With 8 million active advertisers and $17.74 Billion in revenue in Q1 2020, Facebook has a healthy business and a high level of demand. Furthermore, Facebook's business is driven almost entirely by a self-serve auction that allows the smallest business to compete and consistently win against the largest, most well funded creative agencies and corporations in the world.

This ability for a small business to compete with a large business is driven by an auction that actively subsidizes great ads and penalizes poor ones. This is a core component to Facebook's algorithm - if you make more relevant and engaging content then Facebook will let you win more impressions with lower bids -  or if you make bad content then Facebook will require a higher bid in order to win impressions. It's why we feature a Creative Review each week in our newsletter. For anyone wondering why they aren't hitting daily spend limits, look at your creative & site flow.

And yes while all advertisers are welcome and can compete in the auction, in reality the larger advertisers still have more resources at their disposal.  They have access to the best creative and strategic agencies in the world, platform teams dedicated to their business, and likely an internal team that knows every nuance and hack to extract the most value out of the auction.  And Facebook's auction allows them to pay less for each impression because of this extra work.

Now what happens when that subsidized top tier advertiser leaves the auction?

Stratechery explains one aspect in a recent article, "The news about large CPG companies boycotting Facebook is, from a financial perspective, simply not a big deal. Unilever’s $11.8 million in U.S. ad spend, to take one example, is replaced with the same automated efficiency that Facebook’s timeline ensures you never run out of content. Moreover, while Facebook loses some top-line revenue — in an auction-based system, less demand corresponds to lower prices — the companies that are the most likely to take advantage of those lower prices are those that would not exist without Facebook, like the direct-to-consumer companies trying to steal customers from massive conglomerates like Unilever."

This goes to our first point -- Facebook has relatively unlimited advertiser demand.

Unilever pulling ad spend has no impact on Facebook as the impression share would simply be gobbled up by the next advertiser in-line. There is no upfront or roadblock so Facebook isn't scrambling to fill the inventory space. Essentially all impressions are bid/won dynamically in fractions of a second, every second, of every day.

*And now the bold statement and irony that #StopHateForProfit could actually make Facebook more money.

As we noted above, the impressions won by a top tier advertiser like Unilever mean they are likely paying less than the second-place finisher. The logic goes as follows.

  1. Unilever drops out of the auction
  2. There are 8MM other advertisers available to potentially purchase ads in the auction that Unilever was previously beating with stronger creative/tactics and thus having to bid less
  3. What would have been the second-place finisher in the ad auction will now instead win that impression. They were second because their ads were of lower quality/relevance to the user.
  4. This new winner will thus pay slightly more for that impression than Unilever would have (all else being equal)

Facebook only loses revenue when people stop using the platform. Fewer impressions to sell means less revenue for Facebook. Though we doubt that's going to happen as Facebook saw a 10% increase in MAU due to COVID.  Our bet is that Facebook's next quarterly will once again show record revenue.

--
* Article originally written on July 7th for Issue 30 of Weekly Dysrupt

Thanks to Mirza Babic for sharing their work on Unsplash.

Nate Lorenzen
Founder
Jenner Kearns
Chief Delivery Officer
Jenner Kearns
Chief Delivery Officer
Jenner Kearns
Chief Delivery Officer
Kenneth Shen
Chief Executive Officer
Kenneth Shen
Chief Executive Officer
Kenneth Shen
Chief Executive Officer
Kenneth Shen
Chief Executive Officer
Jenner Kearns
Chief Delivery Officer
Kenneth Shen
Chief Executive Officer
Jenner Kearns
Chief Delivery Officer
Jenner Kearns
Chief Delivery Officer
Jenner Kearns
Chief Delivery Officer
Jenner Kearns
Chief Delivery Officer
Kenneth Shen
Chief Executive Officer
Jenner Kearns
Chief Delivery Officer
Kenneth Shen
Chief Executive Officer
Kenneth Shen
Chief Executive Officer
Isla Bruce
Head of Content
Isla Bruce
Head of Content
Isla Bruce
Head of Content
Jenner Kearns
Chief Delivery Officer
Isla Bruce
Head of Content
Kenneth Shen
Chief Executive Officer
Isla Bruce
Head of Content
Isla Bruce
Head of Content
Isla Bruce
Head of Content
Kenneth Shen
Chief Executive Officer
Isla Bruce
Head of Content

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*This article originally appeared in Forbes on February 26th, 2024. Link HERE

Innovation doesn't always scream; sometimes, it whispers. This is a lesson I've internalized as the founder of Dysrupt, where we've navigated the fine line between groundbreaking advancements and the comfort of familiarity. The 3% rule of change, championed by the late Virgil Abloh, a visionary in both fashion and design, offers a compelling lens to examine this balance. Abloh's ethos, focusing on the transformative power of subtle alterations, challenges the conventional push for radical innovation. It's a principle that resonates deeply in the tech world, particularly when comparing the strategic approaches of Apple's Vision Pro and Meta Quest Pro.

Abloh's influence extended beyond the realm of fashion; he was a cultural icon who redefined creativity, making his principles universally applicable, including in technology. His 3% rule—the idea that significant innovation can be achieved with minimal changes—underscores the importance of nuanced, thoughtful alterations.

The 3% Rule In Technological Innovation

Abloh's 3% rule is epitomized by the advent of Apple's "spatial computing." This term, much like "horseless carriage" in its day, melds the familiar with the novel, bridging the gap between traditional perceptions and forward-thinking technology. It suggests a nuanced evolution rather than a complete overhaul, offering a linguistic framework that makes new technologies more accessible and understandable.

Spatial computing, as introduced by Apple, allows for the integration of digital enhancements into our physical environment, enabling users to place virtual screens within their actual surroundings. This approach is contrasted sharply with Quest Pro’s goal of creating a fully immersive virtual environment, which, while technologically impressive, may alienate users who prefer a connection to their physical world.

This distinction is demonstrated in Casey Neistat's review of the Vision Pro in Times Square. Neistat's experience underscores the unique proposition of Vision Pro: the ability to seamlessly blend digital content with the real world, enhancing one's immediate environment rather than replacing it. By choosing what to see and where to see it, users retain control over their experience, embodying the essence of the 3% rule by making technology adapt to the individual's needs and preferences.

Expanding The NBA Viewing Experience

The divergent paths of Vision Pro and Quest Pro are nowhere more evident than in their partnership with the NBA to redefine the fan experience. While the Quest Pro aims to place fans directly courtside with its fully immersive VR experience, Vision Pro takes a different route. It introduces an enhanced viewing experience that transcends traditional limitations, offering "better than courtside" content. This approach leverages spatial computing to allow fans to enjoy multiple screens in their living space, offering various angles and aspects of the game in high definition, without losing touch with their immediate surroundings.

Meta Quest Pro's ambitious VR technology has the potential to transport fans into the heart of the action, offering an unparalleled sense of presence at live games. This full immersion into a virtual courtside experience represents a significant leap in how technology is used to bridge distances and bring the game to the viewer. However, this approach, while groundbreaking, may not align with all fans' desire for a more integrated viewing experience that maintains a connection to their physical environment.

Apple Vision Pro, in contrast, capitalizes on AR's potential to subtly enhance the real world. By allowing users to overlay multiple screens onto their physical space, Vision Pro offers a customizable viewing experience that can be tailored to each fan's preference. Whether it's accessing different camera angles, real-time statistics or social media feeds, Vision Pro provides a multidimensional viewing experience that enriches fans' engagement with live sports. This "better than courtside" experience doesn't remove fans from their reality; instead, it enhances it with layers of digital information and entertainment, embodying the essence of the 3% rule.

The Future Of Viewing

The introduction of Apple's Vision Pro into the marketplace heralds a nuanced shift in how viewers engage with broadcast entertainment. This principle, which advocates for impactful innovation through minimal adjustments, suggests a future where broadcasters will increasingly lean into subtle, AR-enabled enhancements to enrich the viewing experience. Instead of propelling audiences into fully immersive virtual realities, the trend is toward augmenting the physical environment with digital overlays that complement rather than replace the live viewing experience.

This evolutionary step, subtly integrated by technologies like Vision Pro, signals a move toward more personalized and contextually rich experiences within the familiar confines of viewers' existing environments. It represents a pivot in strategy for broadcasters, who now have the tools to create and distribute content that enhances reality, offering audiences the ability to customize their viewing experiences with information, graphics and interactive elements that were previously unimaginable.

This approach does not aim to upend the viewer's world with drastic changes; instead, it seeks to introduce enhancements that seamlessly integrate with their reality, offering a glimpse into how minimal shifts can have a profound impact on the collective viewing experience. In this emerging landscape, the 3% rule becomes a guiding principle for broadcasters and technologists alike, emphasizing that sometimes the most meaningful innovations are those that refine and redefine our experiences without displacing them.


Dysrupt is a 💎✋ marketing firm and not above the occasional meme trend. With all the news of r/wallstreetbets, RobinHood, $GME, etc. we want to take a step back and deep dive on this often used internet term with an interesting history - *meme.


Origin

Meme as a term predates internet culture. Originally coined by Richard Dawkins in 1976 in his groundbreaking book The Selfish Gene. 


Dawkins conceived of memes as the cultural parallel to biological genes and considered them, in a manner similar to “selfish” genes, as being in control of their own reproduction and thus serving their own ends. Understood in those terms, memes carry information, are replicated, and are transmitted from one person to another, and they have the ability to evolve, mutating at random and undergoing natural selection, with or without impacts on human fitness (reproduction and survival). - link


Dawkins himself defined meme as a noun that "conveys the idea of a unit of cultural transmission, or a unit of imitation."


The Selfish Gene was groundbreaking due to meme kicking off a deeper investigation in **academia around the extent of evolutionary processes that are unrelated to genes. 


Memes though are units of cultural significance. If they are repeated then they carry more significance than those that fail to replicate.


Here is a silly example: the cleaning crew in a hotel folding the toilet paper into a triangular shape is a meme. This happens worldwide now - even in some gas station bathrooms - and is an artifact of culture. It is a transfer of information in the network of humanity. This is a recent invention of culture which now carries a significance. Namely that the room was cleaned by a professional who spared no expense as they even decided to fold the toilet paper end into a small triangle.


In this light, the modern use of meme just being easily shareable phrases, images, gifs, etc. is a limited use of the term. It can extend to anything that is imitated within culture. Everything from the mundane - Fork, Knife, Spoon placement on a table - to the absurd - Qanon.



r/WallStreetBets and Community

We are a marketing firm and the recent explosion of meme stocks has been a fascinating watch in the power of community and how it empowers a movement. If you are in the business of brand building, you are trying to gain attention and direct it to action.


r/WallStreetBets created a movement of directing a group of disjointed individuals via the glue of memes. These memes allow the group to have a shared language and jokes that bond via an in group mentality. Their “units of imitation” are simple to replicate and share. 


The brazen ridiculousness of all the terms makes them even more mockable which requires sharing and imitation and bonding of the in-group. 




I’m an Advertiser and Don’t Care about Stonks

Budweiser made a meme with its “Wassupp” ad. TikTok’s Duet feature and many other product features on platforms are meme engines. (Memegins?) Share buttons are littered throughout the internet. Every piece of content screams to be replicated.


Yes r/WallstreetBets has a lot of weird language but after about 15 minutes you’ll start typing 🚀 🌕 with little thought and will start judging the 📜 ✋ in the midst who cost you tendies.


Easy to imitate and through the imitation the group improves upon the original idea. The successes are repeated and become even more shareable and immitatable. This is the evolutionary process Dawkins keyed into. Failure is easy to define as it is just content that is not replicated and shared.


The flywheel is that the sharing and imitation increases further sharing. Understanding how to bring this to your brand, your community, can be key to kickstarting your own movement.


What’s the Difference Between a Bad, Good and Great Story?

Bad stories are forgotten. Good stories are remembered. Great stories are retold.


The retelling and sharing within culture is the power of brand advertising. 


In fact, this might be the easiest way to differentiate between brand and direct response ads. Direct response ads are judged on product sales and perhaps help define a brand.


Brand ads should be judged on the great story criteria - are they retold? Shared? Imitated? Sales will come from causing this replication.



* How to pronounce: meme rhymes with gene. 

** Aaron Lynch in his book Thought Contagion defined 7 patterns of transmission for memes: Quantity of parenthood, Efficiency of parenthood, Proselytic, Preservational, Adversative, Cognitive, Motivational.