Facebook (NASDAQ: FB) has never been afraid of co-opting the best features from competing platforms. Over the last few years, it's consistently ripped off features from Snapchat, finally striking gold when it put Stories in Instagram.
Snapchat is constantly pushing to innovate faster than its competitors can copy it. That strategy hasn't quite worked out for its parent company, Snap (NYSE: SNAP), as the company's revenue growth lagged expectations in its first three quarters as a publicly traded company.
In Snap's fourth-quarter earnings call, Snap highlighted a new ad product it launched in December: Promoted Stories. It's a perfect target for Facebook's next cloning experiment.
Stories are the future
Facebook CEO Mark Zuckerberg made a bold prediction on the company's fourth-quarter earnings call: He expects Stories to overtake posts in feeds as the most common way people share on social media.
Facebook's Stories products are already more popular than Snapchat. Instagram Stories has over 300 million daily active users. WhatsApp Status has a similar number. Facebook Stories -- shared across both Facebook and Messenger -- has 70 million users. In comparison, Snapchat has 187 million daily users with about 140 million viewing stories each day.
Stories have become so popular on Facebook that Zuckerberg said the format "will have an impact on how we build products and think about our business."
When it comes to advertising in Stories, it's still very early for Facebook, but it's one of the biggest and most scalable sources of revenue for Snap. Facebook COO Sheryl Sandberg sees a lot of potential for monetizing the feature. "It's full screen, it's authentic, it's very engaging," she said on the fourth-quarter earnings call.
Enter Promoted Stories
Snapchat's first month of Promoted Stories went well. The new ad format allows advertisers to tell their story by stringing together up to 10 images and videos. Users opt in to view the Story, as opposed to typical Snap Ads, which are single image or video ads that automatically pop up between Stories from friends.
Snap said users that chose to watch Promoted Stories spent an average of over 10 seconds viewing the ad.
In the world of digital video ads on mobile where 3 seconds of a video with 50% visibility and no sound counts as an ad impression, 10 seconds of a complete screen takeover with the sound on is an incredible value proposition. What's more, ad viewers qualify themselves by opting in to view the ad, making each impression more valuable.
Promoted Stories seems to be a great premium ad product for Snap, which could help bolster its average ad price. But Facebook can take it and run with it.
Speaking about advertising in Stories, Sandberg said, "The opportunity in the future for us to combine the power of this new format with the targeting and measurement we offer, we think is going to be really powerful in the business of our clients."
And that targeting data is where Facebook has a big competitive advantage over Snap. Snap collects relatively little data on its users compared to Facebook. Facebook's data will allow it to put Promoted Stories in front of the right users at the right time, which will not only make them convert better, but enable Facebook to scale the ad format much more effectively than Snap.
Consider that Facebook's data could allow it to get as many users to click on a Promoted Story even if fewer total users actually saw the Promoted Story. That means fewer users annoyed by irrelevant ads and more opportunities for Facebook to show them something that is relevant to them.
It's only a matter of time before Promoted Stories show up at the top your Instagram feed. And the revenue potential is even better for Facebook than it is for Snap.
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Adam Levy owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.