NEW YORK — Investors are giving a thumbs-up to the idea of Facebook's making hundreds of millions in new revenue from video advertisements, but some users argue that the social network is already too cluttered and has become more about commercialism than communing with friends.
Facebook said Tuesday that it's testing video advertisements that show up in its users' news feeds. As part of the test, Facebook said some of its users on Thursday will see videos teasing Summit Entertainment's upcoming release of the film "Divergent" in their feeds.
The Menlo Park, Calif.-based company says the idea is still in the testing phase and that it's not currently selling video ads. The company wouldn't disclose pricing, but said its goal is for the test feature is to make it a premium advertising product to reach large audiences at specific times.
Facebook's shares, which posted substantial gains over the past four months, hit an all-time high of $55.18 on the news, before closing up $1.05, or 2 percent, at $54.86.
Citi analyst Mark May backed his "buy" rating for Facebook's
stock on Tuesday, noting that the video advertising effort could add more than half a billion dollars to the company's revenue next year and up to $1 billion by 2016.
Advertising, in general, has already helped Facebook achieve enormous growth in recent years. The company's revenue grew from $3.71 billion in 2011 to $5.09 billion in 2012. Revenue was $5.29 billion through the first nine months of this year.
While an additional revenue boost would be good for Facebook's bottom line, the company needs to proceed with caution. People have grown accustomed to video ads online, but Facebook is seen as a place where users connect with friends and family and is often perceived as a more personal setting than other websites where video ads may not seem as intrusive.
Under the current plan, the advertisements automatically start playing without sound when they appear. Users can click on a video to view it with sound, or just scroll past it.
Facebook notes that for mobile users the advertisements are preloaded only when a device is connected to wireless Internet and will not consume additional data, removing a big worry for users who face hefty charges if they exceed the limits of their data plans. And no sound will play unless a user taps on the video.
Facebook says it's been testing the silent auto-playing videos for video content shared between Facebook users since September, and has seen a 10 percent increase in the number of videos users watch, like, share and comment on.
According to research firm eMarketer, spending on digital video advertising will more than triple from 2012 levels to $9.42 billion in 2017, though that still pales in comparison to the TV advertising market which is expected to reach $75.25 billion by the same year.
Debra Aho Williamson, eMarketer's principal analyst, says autoplay ads have the potential to be very effective because people are more likely to pay attention to ads if they don't have to decide whether to click on them.