Warren Buffett Taking on Facebook
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As if Facebook (NASDAQ: FB) needs any more problems, competition in a critical area much needed for billions in advertising and marketing revenue will be coming from Warren Buffett.
Facebook, like so many other social media ventures, needs mobile marketing revenues to prosper. Buffett, who just bought 63 newspapers from Media General (NYSE: MEG) for the holdings of Berkshire Hathaway (NYSE: BRK-A), will be maximizing the digital editions of the publications. That puts Warren Buffett right where Facebook is not only heading, but needs to be.
In a recent article in USA Today by Jon Swartz, it was detailed how critical mobile marketing is to the future of social media firms. Swartz's USA Today piece, "Money from mobile remains elusive," noted that "...mobile ads are crucial to the growth of many companies, including newly public Facebook, though few businesses have been able to capitalize on the promise." Facebook, which "...barely registers yet...has the potential to rake in $2.5 billion from mobile advertising..." according to Chitika Insights, a market research firm. That would be almost one-quarter of the total spending for mobile advertising in 2016.
This huge market also has mobile advertising in the crosshairs of the digital editions of newspapers. For a periodical, the mobile market is the promised land. The second largest expense for a newspaper, about one fifth of the total, is the print itself. Just the act of going digital adds 20% to the bottom line. It does nothing to reduce expenses for Facebook.
In addition, a newspaper has a wide montage of intrinsic and inherent advantages over Facebook in mobile advertising and marketing. The most obvious is the vast amount of information. This allows for on-point, on-time advertising.
As an example, a newspaper can sell a season's worth of mobile advertising to a restaurant for baseball or basketball games, among many others. When a home run is hit, an immediate ad could be flashed to the newspaper subscribers over their smart phones at the game. It could offer specials, allowing the fan to reserve a table for after the game with a few clicks on the smart phone.
It is difficult to imagine that happening for Facebook, as no one utilizes it to follow sports. This also allows newspapers to combine advertising with the print editions. There is no such synergy existing for Facebook with a print version. This also holds true for contractors and others for social media stocks such as Angie's List.
In purchasing 63 newspapers, Buffett will also be able to offer multi-market mobile advertising that is focused and specific. If someone wished to sell a vacation home, classified advertising could be offered in the cities for each newspaper that had potential buyers. For a house on the North Carolina coast, newspaper subscribers in New Jersey, Maryland, Virginia, North Carolina, South Carolina, Georgia, Kentucky and West Virginia could be buyers.
While Facebook can offer classifed ads to its members, those can easily get lost in the clutter. This has certainly happened with Craigs List. The subscribers to a local newspaper will be a much more targeted audience than those members of Facebook from the area.
Many investors, ranging from Sam Zell to a variety of private equity groups, have poured into newspapers in hopes of monetizing the information resources into digital gains. This failed to materialize and many periodicals such as The Minneapolis Star Tribune and The Philadelphia Inquirer had to file for Chapter 11.
The huge advantage now for Warren Buffett (as if he needs any) is the advent and advances in smartphones, e-readers and tablets that are conducive for mobile marketing. Over the next half decade, mobile advertising is expected to increase from an estimated $2.6 billion this year to $10.8 billion in 2016. The newspapers owned by Warren Buffett will be in a dominant position as the market expands.
Fool blogger Jonathan Yates does not own any shares in any of the companies mentioned in this entry. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.