As Reels crosses $1 bn annual revenue run rate, Meta doubles down on algorithm-driven content

This remark comes at a time when Meta is grappling with its first-ever quarterly revenue drop and is also exploring ways to drive up usage of its family of apps, especially among young users.

The company's short video offering Reels, which is devoid of the user's social graph (which depicts the social interconnections and relationships between users) and is instead driven by algorithms, has been a key strategy on this front since it has been one of biggest contributors to engagement growth on Facebook and Instagram.

The amount of time people spend engaging with Reels across Facebook and Instagram has increased by more than 30 percent this quarter, driven by AI advances, Zuckerberg said during the earnings call.

He mentioned that they saw a 15 percent increase in watch time in the Reels video player on Facebook alone after launching a new large AI model for recommendations. Previously, Zuckerberg had mentioned that Reels contributed for about 20 percent of the time that people spend on Instagram.

Read: Meta to cut down on headcount growth after first revenue loss: Mark Zuckerberg

Monetizing Reels

While video has historically been slower to monetize as compared to other formats, the social media giant expects Reels to be a big money spinner on a long term basis.

During the earnings conference call, Zuckerberg mentioned that Reels ads has crossed an annual revenue run rate of $1 billion and also "has a higher revenue run rate than Stories did at identical times post launch". That said, revenue growth is a challenge at the moment since Reels doesn't monetize at the same rate as feed or stories.

"In the near term, the faster that Reels grows, the more revenue that actually displaces from higher-monetizing surfaces. Now in theory, we could mitigate this short term headwind by pushing less hard on growing Reels, but that would be worse for our products and business longer term since we're confident that Reels will grow engagement overall and quality and will eventually monetize closer to feed (rates)," said Zuckerberg.

Meta's outgoing Chief Operating Officer Sheryl Sandberg said their focus with monetizing Reels is currently on ramping up ad load, improving performance, and making sure the ads are easy for advertisers to create.

Facebook and Instagram's major redesign

In recent months, Meta has taken a leaf out of rival TikTok's playbook to debut major redesigns of Facebook and Instagram with more focus on algorithmic content recommendations while also providing an olive branch to users in the form of chronological feeds available as secondary tabs on these apps, enabling them to view content only from their friends, family and accounts they follow on the platform.

These moves have attracted severe criticism from several longtime users, including high-profile personalities such as Kim Kardashian and her sister Kylie Jenner, who is the most-followed woman on Instagram. This also resulted in Instagram head Adam Mosseri posting a video to clarify the recent changes on the platform.

During the earnings call, Zuckerberg also weighed in on these concerns saying that they are still "ultimately a social company focused on helping people connect" and the content from people and accounts the user follows will remain an important part of the experience.

However, social feeds are going to be increasingly driven by AI recommending content that they will likely find interesting from across Facebook or Instagram, even if they don't follow those creators, he said.

"Reels is one part of this trend that focuses on the growth of short-form video as a content format, but this overall AI trend is much broader and covers all types of content, including text, images, links, group content, and more. Building a recommendation system across all these types of content is something we're uniquely focused on," said Zuckerberg.

He also mentioned that they are witnessing a trend where people are shifting from public conversations on their feeds towards communicating with their friends over private messages.

"One social trend that we're seeing is that instead of people just interacting in comments in their feeds, most people find interesting content in their feeds and then they message that content to friends and interact there. This creates this flywheel of discovery, and then social connection, and inspiring those people to create more content themselves" Zuckerberg said.

For instance, Reels makes up more than half of content reshared in messages, he noted.