In its recent quarterly reports, Facebook disclosed it would be increasing its annual spending by almost 75% (to $12 billion) in the next financial year. The disclosure has stunned investors, who were already concerned regarding Facebook’s lavish spending of around $7 billion in this year. However, analysts are confused. Where is all the money going?
For a social media website to run, the average figure for operating expenses is somewhere around the $3 billion mark. But Facebook is not just a social networking website now. After Facebook bought Instagram in 2012 for $1 billion, it has been on a shopping spree. Facebook bought WhatsApp for almost $22 billion, bought Oculus VR for $2 billion, and three other companies, in 2014 alone.
However, in 2013, Facebook (NASDAQ:FB) bought a piece of Software from Microsoft for only approx. $100 million, called Atlas. Atlas is a system implement by Facebook in its system to work in integration with all of Facebook’s core apps, including the ones it has acquired, i.e. WhatsApp, Instagram, Facebook Mobile, etc., in order to track and generate user information relevant to the cause of targeted advertising.
Atlas is more integrated into the system of mobile phones, hence is able to gather up plenty of information to assess the ad requirements of users. Atlas gathers basic demographic information, and accesses user location in order to help Facebook deliver the most relevant ads on its services. For example, if a person’s search patterns and interests demonstrate his interest in shoes, then the location service will be used by Atlas and ads for nearby shoe stores will be shown on whichever Facebook service the person is using at the time.
For Facebook, Atlas is the next step in innovation and growth. Facebook’s entire revenue model relies upon advertising, and it can only hope to increase revenue if it offers advertisers a promising model. Atlas is that model, one which will be able to gather comprehensive user statistics in order to allow more targeted advertising.
Hence, according to analysts, Atlas is the reason for Facebook’s increased spending in the next financial year. Facebook has already started developing its Atlas framework beyond the point it had purchased it on from Microsoft. Last month, Facebook upgraded the ad server which Atlas was on.
But the increased budget spending may have another underlying factor as well: Google. Ever since Facebook established itself as an advertising platform, it has come in direct competition with Google, the market leader in the online advertising world.
Google has dominated the market for years now, with Facebook falling slightly behind. The only reason why Google is ahead of Facebook is because it is able to collect user search patterns comprehensively, with its DoubleClick program. Now, with the Atlas system emerging within Facebook, Google is in for tough competition.
However, Atlas may pose certain challenges for Facebook. Facebook (NASDAQ:FB) has come under fire recently for compromising the privacy of its users to advertisers, and Atlas may aggravate such concerns. Even though Facebook has denied the happening of any such occurrence, Atlas may still make users uncomfortable.
