Facebook India Online Services, the Indian arm of global tech giant Meta, saw a slowdown in its gross ad revenue growth this year, which rings an alarm for the digital advertising industry in one of the fastest growing economies of the world.
Facebook India recorded a 13% growth in its FY22-23 gross ad revenue, a big fall from last year’s 74% growth and 41% growth in the pandemic year of FY20-21. Although it has always seen a growth in YOY, the growth seems to have become smaller, closing in on single digit. exchange4media had earlier predicted in a story that Meta could see lower ad revenue growth in 2023 in India.
The company is a bellwether for digital in the country and these numbers could drag down the yearly digital ad revenue for the industry in India, pointing to a degrowth in the social search market in the country as well.
Meta’s India market
India is one of Meta’s largest markets. On many occasions, Mark Zuckerberg has mentioned that this country is an important market for the company, given its large user base. Arun Srinivas, Director & Head of the Ads Business of the US-based tech giant, told e4m on May 10 this year, “India is our largest user base across all three Meta plaftorms-Instagram, FaceBook and Whatsapp- and Reels feature has grown significantly since it was launched three years ago and now it is the fastest growing segment for Meta India.”
Other than that, the small and medium sized businesses (SMBs) in India are also largely depended on Meta and its platforms for advertising, be it through influencer marketing or targeted ads. Meta has been a forerunner when it comes to promoting SMBs in the Indian market. SMB advertising business was a big part of the gains for Meta India during the pandemic and it still accounts for a very large portion of the company’s ad revenue in the country.
The social media giant has seen a lot of changes in the past year in the country, after it laid off a large number of employees and handed over pink slips to some of the senior managers in the company in India. Now, Meta is also reportedly set to test ad-free subscriptions for the company’s social media platforms in India, trying to revamp the revenue system for the company. The initiative is expected to begin in 2024.
Facebook is one of the biggest digital advertising platforms in India, and this slowdown for the company could present a concern for the overall digital ad industry in the country which is now going through shift after struggling in the years of and post the pandemic due to macroeconomic constraints and advertisers tightening their pockets.
Could e-commerce competition be the reason?
Digital advertising market in India itself grew above 30% in the last year, according to reports, while Facebook India saw only a 13% growth. The reason for this could be the growth in e-commerce advertising, and a shift from social media search to retail network marketing which has seen a significant rise in demand in the last 12 to 18 months. According to Statista, in 2022, Amazon reported 37.74 billion U.S. dollars revenue generated through advertising sales. A year earlier, the figure was roughly seven billion lower. This figure is expected to further grow to reach 70.8 billion U.S. dollars by 2027. Flipkart Internet, the marketplace part of Walmart-owned Flipkart India, posted 50% year-on-year growth in ad revenue at ?2,083.5 crore in FY22.
Analyst Karan Taurani says, “Within digital advertising, the competitive intensity has picked up. Social search dominance obviously has always been the case, but in the recent past, over the last 12 to 18 months or rather in the post Covid era, there has been a lot of disruption and shift towards e-commerce platforms. More e-commerce platforms are now trying to chase ad revenue to drive profitability for their business per se. Their customer bases are kind of getting larger as such and they have the ability to have better conversions as a lot of consumption is happening on e-commerce platforms. This could kind of hamper growth rates for social and search advertising. So, because of these reasons, I think Meta’s revenue has come at 13%.”
Global digital ad recovery to help?
Facebook India earns revenue by selling ad inventory to brands on its social media platforms Whatsapp, Instagram and name-sake Facebook. Last year, the company moved from just reselling ad inventory to adopting reseller and operating license model.
Globally, Meta saw a drop in ad revenue from FY 2021 to FY 2022 from $ 114.93 billion to $113.64 billion. Meta’s third quarter results announced on Wednesday night, however, point to a digital ad recovery globally, with year-over-year revenue rising 23% to $34.15 billion. Meta's ad impressions delivered rose by 31% year-over-year while the average price per ad decreased by 6% year-over-year for the quarter ended Sept 30.
According to Sayak Mukherjee of Brandwizz Communications, the advertising industry in FY23 has encountered several significant challenges. Large brands have been adopting a cautious approach due to the economic slowdown, and there has been a noticeable decrease in startup funding. On top of this, Meta has been grappling with regulatory changes in both the USA and India, while Apple's privacy policies have further complicated ad distribution. “Despite these challenges, there has been an overall increase in digital ad spending in FY23, with Meta and Google still enjoying a significant share of the market. Meta is poised for growth in the coming years. Notably, Meta India made a significant operational shift in August 2022, transitioning from being an ad reseller of Meta USA to a licensing model. This strategic change has had an impact on revenue, likely due to shifts in ad inventory costs.”
e4m has reached out to Facebook India for a comment, but is yet to get a response.
