Facebook Inc (NASDAQ:FB) recently unleashed a video feature for Instagram. In a blog post announcing the upgrade, the company basically states that people are going to be able to share mini-video clips and include the filter feature with it.
An effective strategy for monetization
Going forward, it is highly probable that a picture advertisement will show up at the end of a 15-second video clip. It’s almost always easier to advertise in a video than it is to advertise using banner advertisements. But then again, Facebook Inc (NASDAQ:FB) never bothered to monetize the Facebook video feature, so this is just speculation at best.
Another opportunity is to charge companies for product placement in Instagram videos, with brand names otherwise being blanked out in the videos that a user generates. After all, it was James Bond and his wearing of Ray-Ban glasses that turned Ray-Ban into a household name.
I am sure there are a variety of ways that Facebook Inc (NASDAQ:FB) can effectively monetize its services. The trouble comes from creating technology that accomplishes this without being too obvious.
Instagram video is in direct competition with Vine. Vine also allows users to share short clips with friends and family. One of the greatest weaknesses of Vine is that it is not very well known, whereas Instagram has over a hundred million active users. By launching Instagram video and offering filters, Facebook has reduced its exposure to competition. The company has a lot of money on its balance sheet, but it can’t afford to buy every company that crops up on the block with a good idea.
Since its IPO, Facebook Inc (NASDAQ:FB) has increased its spending on research and development by 871.5%. The significant increase in spending has resulted in some minor successes like Instagram Video and the introduction of hashtags on Facebook. Some major failures include Facebook Inc (NASDAQ:FB) Home and Facebook phone.
The company’s growth is primarily product driven right now.
Consider an alternative like Google
Investors have to bank on Facebook’s success in creating great products. But there’s no way of knowing the amount of commercial success its future products will have. Therefore, we have to consider investing in companies like Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN). These two companies are diversified and continue to grow.
I believe that Google will continue to be a successful investment opportunity, and there’s a lot of untapped demand internationally for global advertising. The fastest-growing category for advertising is in mobile and Internet-driven advertising. Google Inc (NASDAQ:GOOG) is well positioned with the Android operating system, and the company’s revenues from Motorola Mobility Holdings Inc (NYSE:MMI) could also improve depending on how effectively the company is able to market and sell its products outside of the United Sates.
Over the short-term, analysts anticipate significant revenue growth. The growth will primarily be driven by Android application sales. IDC projects that Google’s Android OS will grow at an 18% annual growth rate until 2016. The same company also assumes that 1.4 billion smart phones will be shipped in 2016. Assuming that digital advertising and Android sales continue to grow in the double digits, the future will be bright for Google Inc (NASDAQ:GOOG). Analysts back my assumption by projecting a 15% growth rate on average for the next five years.
Buy Amazon
Let’s be honest, we all love Amazon.com, Inc. (NASDAQ:AMZN). The company got plenty of headlines recently with captivating pre-order statistics and initial survey responses on whether or not Xbox One or PlayStation 4 is the superior console. My optimism in this company primarily stems from its involvement in Europe and the emerging markets.
The World Bank estimates that the Euro Area could recover to a 0.9% gross domestic product growth rate in 2014, and follow that with a 1.4% growth rate for 2015. Amazon cited weakness from its European retail operation, which led to the international segment growing revenues by 16% year-over-year. Amazon.com, Inc. (NASDAQ:AMZN) has been able to grow sales at 32.72% on average over the past five years. The lackluster growth from its international operations is likely to improve if the World Bank forecasts are accurate.
The company’s primary growth catalyst is the cloud right now. Companies are trying to cut back on information technology spending, and one way to do this is to outsource networking solutions. This is where Amazon comes in with its remote servers for cloud hosting. Amazon.com, Inc. (NASDAQ:AMZN) was able to grow revenues from its cloud segment by 47.3% year-over-year.
Analysts on a consensus basis anticipate that the company will grow earnings by 37.15% on average over the next five years. The projections seem realistic based on the improving global economic outlook and the company’s growth rate from cloud hosting.
Conclusion
Google Inc (NASDAQ:GOOG) and Amazon are clearly better investment opportunities than Facebook Inc (NASDAQ:FB). After all, both companies have a proven track record of growing shareholder equity over time. Facebook, on the other hand, may have difficulty with this as the company has had problems maximizing the profit potential from its business operations.
Even so, Facebook Inc (NASDAQ:FB) is likely to grow in the future as the company provides the largest social network and has accomplished an economy of scale that no other company can realistically compete with. Over the short-term, I find it highly unlikely for the business to generate substantial earnings surprises. Given enough time, however, this company has the potential to become a web conglomerate as large as Google or Amazon.com, Inc. (NASDAQ:AMZN).
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Google Inc (NASDAQ:GOOG).
The article Instagram Video Equals InstaProfit originally appeared on Fool.com.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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