FB, P selling targeting advertising to political campaign groups.
New algorithms allow for targeting customers based on music preference, location, and news frequency.
Possible big revenue stream for social media companies by 2016 presidential race.
With less than 100 days until the November midterm elections, political campaigns are beginning to ratchet up the spending on targeted advertising. For many, this means campaign commercials ad infinitum on television and direct mailers in mailboxes traditional and electronic. This time around, thanks to the powerful influence of social media and the algorithmic refining of targeted advertising, people will now be seeing ads tailored to their online presence, from music to what one "likes" or follows.
Media measured on likes and shares
It should be no surprise that the big playground for this new world of political advertising is Facebook (NASDAQ: FB), which practically wrote the book on monetization of social media. According to company sources, Facebook's recent algorithmic tweaks to match the product with the profile have made political media easier to access. This has had an effect on both new and traditional media sources, who can now write stories geared towards getting shared and reposted on Facebook. According to Ben Dreyfuss of the left-wing blog Mother Jones¸ people want to share these articles because it helps people "tell the world who they are". Also, knowing that the most shared articles tend to come from more ideological sources like Mother Jones or the right-wing Brietbart and Daily Caller, it makes campaign advertising easier because candidates and political action committees (PACs) can find their audience based on what they share. For Facebook, this turns into revenue because campaigns with big budgets will be looking to get the most for their money, and what better place than a social networking site that can target customers far better than traditional media?
Country music fan from Dallas? You might be a Republican
Facebook isn't the only one playing with algorithms for political advertising, Pandora (NASDAQ: P) is looking to go even further by determining political affiliations with customers' music preferences and GPS stamps. Introduced this winter, Pandora is looking to tweak its advertising for free customers to allow for targeting political advertising based on music selection through predictive modeling. While this is not a new development by any stretch (TV advertising has been doing this for over 60 years), the level of customization is still pretty new.
While Facebook is able to target customers based on direct political interest, Pandora has the challenge of deciphering political leanings based on music, which isn't as exact a science. For example, a country-music listener in Dallas will likely be a Republican voter, so conservative groups with a Texas focus will pay to advertise to this group of listeners, while a punk listener in Seattle may be given ads from liberal groups with a Pacific Northwest focus. This new service, according to company reps, is said to be "75-80% accurate", with improvements on the way to further distill data based on income levels or precise zip code data rather than just official county election figures.
Possible revenue spinner for second half
Aside from the impressive leaps in technology, targeting political advertising is gold for ad-dependent revenue streams like Facebook and Pandora. It's unclear how much money will be spent over the next three months on federal, state, and local races, the news of the Republican Governors Association spending $100 million in 100 days is indicative of a big year. With Facebook and Pandora positioned to grab a slice of this spending, it could translate to above average quarters for both companies in terms of revenue. Already two ad agencies, Precision Network and Bully Pulpit Interactive, are on-board with the new frontier, and more may follow as the fall approaches. Social media advertising for politics may still be in its infancy compared to direct mailers and television, but given promises of accurate targeting and high social media usage, it could mean votes for aspiring office-seekers, and big bucks for investors.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.