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The Future of Facebook Advertising Isn't in the United States

Facebook ad revenue will soon be dependent on emerging markets like Brazil and India.

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Facebook has a lot of long-term projects. It’s building a virtual reality headset. It’s putting Internet-beaming drones in the sky. It’s building a virtual assistant that can help you shop and manage your schedule.

But one of the least sexy plans on Facebook’s list — yet undoubtedly one of the most important to Facebook’s future — rests on the shoulders of a small, 30-person team in London that focuses on emerging markets. To boil it down simply: The team, which is just over two years old, is responsible for making money from Facebook advertisers in places where money, and a reliable wireless signal, can be hard to come by.

Facebook makes about half of its advertising revenue outside of North America, but its business is disproportionate to its user base. Roughly 85 percent of Facebook’s users are outside of the United States and Canada, established markets where the company’s growth is slowing. Facebook has nearly 2.5 times as many users in Asia-Pacific than it does in North America, yet APAC generates less than a third of North America’s revenue.

The point is that APAC and other “emerging markets” like India, Brazil and parts of Africa are growing a lot quicker for Facebook than the U.S. or Europe. In the first three quarters of 2015, Facebook added 73 million users in APAC; it added just 23 million across the U.S., Canada and all of Europe combined. Fast forward five, 10 or 15 years down the road and it’s possible (probable?) that those emerging markets — the areas of the world where millions of people are coming to the Internet for the very first time on mobile phones — will be Facebook’s most important markets.

That’s why Facebook’s emerging markets team exists, and why it is spending so much time getting people Internet access through its Internet.org initiative. (The two teams are completely separate, Facebook tells me.) The idea that regions like India and Brazil may be anchors for Facebook’s bottom line a decade from now may sound obvious, but actually mining those countries for ad dollars isn’t necessarily simple.

“Over a long period of time, surely there’s a revenue opportunity here,” said Andrew “Boz” Bosworth, Facebook’s VP of ads and Pages and the man who initially green-lighted the emerging markets team back in 2013. “I would say the priority we’ve given it lately is because the revenue opportunity in the long term is actually eclipsed by our ability to more effectively serve our consumers today.”

 Facebook revenue by region for Q3 2015
Facebook revenue by region for Q3 2015
Facebook

That’s Facebook-speak for yes there is money to be made, but we are focused on the product right now instead. The key challenge: Creating ads that don’t sop up mobile data, which is a luxury in many parts of the world, including most of Facebook’s largest markets.

That makes it hard for Facebook to sell, say, video ads in Indonesia. Few users want to spend their valuable data watching a brand’s video (that’s if they have a video-capable phone to begin with). That’s why Facebook rolled out photo slideshow ads in October as a video alternative. Advertisers can also target users who have feature phones or based on their wireless connection, meaning they can go after users with 2G, 3G or 4G signals depending on their ad campaigns.

These are the types of advertising options Facebook is trying to perfect. It wasn’t even thinking about its ad plan for these markets until late 2013, more than a decade after the company was founded. At the time, Facebook’s emerging markets team consisted of one product manager, Kelly MacLean, who still runs the team, and offered feature phone targeting. That was about it.

The team is now more than 30 people and in 2015, it sent employees to a dozen different countries, including India, Kenya, Indonesia, Egypt and Brazil, to figure out what advertisers and users want to see in their Facebook feeds. Part of what they found was that some regions need their own personalized ad options. In India, for example, Facebook offers “missed call” advertisements so that brands actually call users with info instead of sending it within News Feed (and thus using more mobile data). It’s a popular method in India, and one that other companies like Twitter have also employed.

Kurt Wagner/ Re/code

So what is coming in 2016?

For starters, Facebook is testing its new Canvas ads in APAC, the new type of mobile ads it launched this year that lets Facebook host a mini version of an advertiser’s website within its app. It’s also extending its target-rating points metric to advertisers in APAC countries like Indonesia and the Philippines, which essentially means advertisers familiar with TV ad metrics can buy comparable Facebook video ads.

Stealing from TV ad budgets is starting to work, even overseas. Pungkas Riandika is a digital marketing manager for consumer goods giant Reckitt Benckiser in Indonesia. Riandika says RB is traditional in that TV is still king, but the company just recently started to buy digital ad space for RB’s brands, including the soap brand Dettol. He uses Facebook for the same reasons American brands use Facebook: The massive audience and targeting. “No other channel can give me this targeting,” he said.

But that makes sense for Riandika and big brands like Dettol. Using Facebook to run a marketing campaign as a small business? That would be “useless,” he said. Part of the issue is that while the ability to target ads at a city-level is available in every country, its still developing as more and more people join Facebook. It’s why Facebook is expanding its targeting options to allow more advertisers to target via postal code, something it already offers but hasn’t rolled out to all its emerging markets.

Even with Facebook, there can be issues with user density, too. Unlike the United States where people in almost every city use the social network, a small business in Kenya, for example, may not have many people to advertise to if it’s not in the capital city of Nairobi.

“If you’re going broad, the ads are going to be very expensive,” Riandika said. “[Small businesses] will be crying if they see the numbers for what it costs to engage with lots of people on Facebook.”

Small businesses offer a lot of potential for Facebook. More than 50 million businesses have Facebook pages, but just 2.5 million are paying customers. That means these businesses understand the value of Facebook, but haven’t been convinced it’s worth ad dollars. In many emerging markets, TV is still dominant. In parts of Africa, radio ads offer the most reach.

“There is a little bit of a knowledge gap between what we have available and what’s possible on Facebook, and sharing that so businesses in emerging markets are aware of it,” said Nikila Srinivasan, a product manager on the emerging markets team, who added that Facebook launched a small business council in India in December to help teach small business owners how to use the service. “We just have to do a better job of letting people know the value of using Facebook to run their business[es] on mobile.”

It’s one of the main reasons Facebook opened a sales office in South Africa back in June. Waithera Kabiru, who manages Coca-Cola’s digital campaigns in 30 different African countries, says she’s in contact with that South Africa office regularly. “They reach out to use when they’re developing new products or features so we can give our input,” she said. “That’s really good.”

Luckily for Facebook, it has some time to figure all of this out. User growth may be slowing in the U.S., but eMarketer predicts revenue per user will continue to climb for the next few years (probably thanks to the expected increase of more lucrative video ads).

Bosworth agrees. “I think there’s a mismatch between time spent on digital and the amount of money spent on digital,” he said, citing ad budgets for TV and newspapers as examples. “So I feel well positioned even in markets where user growth is slowing.”

Still, it’s never too early to start laying the groundwork. Facebook was infamously late to bring its product to mobile. It doesn’t want to be playing catchup for ad dollars overseas, too.

This article originally appeared on Recode.net.