Facebook CEO Mark Zuckerberg laid out his company’s three, five and 10-year-plans Tuesday (Oct. 28), and none of those plans involved Facebook launching its own payments engine. But that doesn’t rule out Facebook choosing to have a major influence, as Zuckerberg said the massive social operation will partner with some existing payment player–and probably multiple players–to deliver a Facebook purchase experience.
Although stressing that payments is very important to Facebook, he said that advertising is the focus and will continue to be the focus.
“Payments in an important part of the online business ecosystem but we’ve traditionally thought of this as something we are going to partner with other companies on to enable great solutions rather than trying to compete and do it as a business ourselves,” Zuckerberg said. “And the reason why we’ve taken this approach is because it’s very important for all our online business, customers and partners, that there’s a good online payment system” needing a good partner.
Why is payments so important to Facebook?
“People run adds to get customers and sell products and, at the end of that conversion, if there is a good payment system that is smooth, then people buy more things, which ultimately makes the ads and the whole online flow more valuable for the partners and therefore more revenue for our business as well. We view the ads as a more profitable part of the business than payments.”
Third-quarter earnings for Facebook showed revenue from payments and other fees was $246 million, a 13 percent increase from the same quarter last year. Last year’s revenue from the same metric was $218 million, an increase of 24 percent from the year prior. These figures pale in comparison to the revenue from advertising, which was $1.8 billion, a 66 percent increase from same quarter last year. Mobile advertising accounted for about 49 percent of that revenue.
“Payments itself seems to be a fixed fee, whereas ads, because of the auction model, there’s really good price discrimination built-in. If a partner who is willing to bid us 30 percent of their revenue can bid that, than someone who is only willing to bid 5 percent of their revenue can bid that. The auction model inherently takes care of that. We think focusing on the ads part seems like the thing for us to do,” he said.
This doesn’t mean Facebook is overlooking the value of payments on a social networking site, Zuckerberg said, but what it does allow Facebook to do is look to a payments expert to give Facebook a strong payments system instead of having to create a product that has to compete with the already established companies who have the tools to enable mobile payments successfully. Zuckerberg was asked about the speculation that payments would be made possible through Facebook’s messenger app, but he didn’t offer any indication about that.
“We realize the importance of the ad system over time and for our partners to be a payment system and that’s why we’re excited about partnering with credit card companies and PayPal and all the different folks in online payments to make their solutions as good as possible as well.”
Sheryl Sandberg, Facebook’s chief operating officer, said the company is capitalizing on the shift to mobile, and focusing on building products to make Facebook ads more relevant to give a better return to marketers, which in turn will help Facebook’s long-term ad-tech strategy and continue Facebook’s ability to make a majority of its revenue from advertising.
“Our strong results show the shift to mobile is working,” Sandberg told the New York Times in interview. “Our performance is very broad-based. Our growth is across all of our regions.”
Sandberg said advertisement budgets aren’t shifting as quickly as consumer behavior is, and said Facebook’s data shows it can produce “highly-relevant advertisements,” through products like Atalas — Facebook’s ad serving and measurement platform based on data from people’s mobile interaction that was released Sept. 29.
According to the New York Times, Atalas’ re-vamped model “now allows marketers to choose the age, gender and other attributes they want to target and have Facebook serve specific ads to them on other websites and mobile apps,” and is the “biggest thing to take on Google in a long time,” according to Jan Rezab, chief executive of Socialbakers, a social media analytics firm. That may play into why Facebook is taking so much stock in developing the product.
Facebook’s last bit of news of it taking a bigger role on the payments side was in July when it announced it was experimenting with a “Buy” button on its site that allowed customers to purchase select items in the ads or on the newsfeed. But in the second-quarter earnings call, Sandberg said then it was just another way to provide a service to its clients. She also noted in July that Facebook is simply streamlining the buying process for the advertising client and not selling directly to the customer
Overall, Facebook produced another strong quarter for earnings and hit slightly above analysts expectations. Third-quarter revenue hit $3.2 billion, a 58.4 percent increase, year over year, compared with $2.02 billion in the same quarter last year. GAAP net income for the third quarter of 2014 was $806 million, up 90 percent compared to $425 million for the third quarter of 2013. Non-GAAP net income for the third quarter of 2014 was $1.15 billion, up 73 percent compared to $666 million for the third quarter of 2013. Daily active users increased 19 percent, year over year, to 864 million. Total monthly active users rose 14 percent, year-over-year, to 1.35 billion, while mobile monthly active users rose to 1.12 billion during the quarter, up 29 percent year-over-year.