TikTok challenge poses revenue issues for YouTube and Facebook

A move towards short-form video by digital giants YouTube and Facebook is posing ad revenue challenges as they respond to the burgeoning popularity of TikTok, the video-sharing app.

The TikTok challenge

TikTok has attracted over a billion monthly active users, with its ad revenues forecast to hit $5.96bn in 2022, representing growth of over 180% year on year. It has thus become a meaningful competitor to big players in the industry for both eyeballs and brand expenditure.

YouTube’s short-form shift

• YouTube Shorts, a 60-second vertical video format, was introduced in beta form in March 2021, and rolled out in over 100 countries in July 2021.
• This format currently averages more than 30 billion daily views, a figure that has grown four times over year on year.
• From an ad perspective, it is testing formats that encourage app installations and video actions – which feature a call to action – alongside this kind of material.
• Ruth Porat, chief financial officer of Alphabet, YouTube’s parent, told investors a move towards short-form content has revenue challenges.
• YouTube is experiencing “a slight headwind to revenue growth, as Shorts viewership grows as a percentage of total YouTube time,” she said.
• Monetisation tests are underway to gauge brand and consumer feedback. “The team is focused on closing the gap with traditional YouTube ads over time,” Porat added.

The Meta situation

• Facebook’s short-form video format, called Reels, lets users record 30-second videos. It launched in the US in September 2021 and rolled out globally in February 2022.
• This content format already claims over 20% of the time that users spend on Instagram, a content-sharing platform owned by Meta, also the parent company of Facebook.
• Mark Zuckerberg, CEO of Meta, told investors that short-form video “doesn’t monetise as well” as ad formats like Stories at present.
• Zuckerberg said this matched trends seen in 2012 when Facebook shifted from desktop to mobile feed in 2012, and when users started using Stories instead of the feed in 2018.
• “We're focused on growing Reels … and we expect that this expansion and engagement to shift from a short-term headwind to a tailwind at some point,” he added.

The big idea

“Obviously, other competitors have strong offerings, like TikTok, but we’re pleased with what we've got with Reels and the efforts that we’re making to grow that important product.” – Dave Wehner, chief financial officer, Facebook.

Sourced from CNBC, Pymnts, AlphaStreet