Tech Transformers

Facebook’s augmented reality push could solve one of its biggest headaches

Key Points
  • Augmented reality could open new advertising opportunities for Facebook.
  • Location and object recognition technology could help ad targeting.
  • Facebook warned last year that ad revenue would slow "meaningfully" this year.

Augmented reality (AR) – where digital images are overlaid on the real world – was front and center of the opening day of Facebook's F8 developers' conference. While it is technology that is in its infancy, it could be a big growth driver for the social networking giant.

At the end of last year, Facebook's chief financial officer David Wehner warned that ad revenue would slow "meaningfully" in 2017 because ad load was getting saturated. Ad load refers to the ratio of ads to personal posts. After all, there is only so many ads Facebook can shove in a news feed.

But some of Facebook's F8 announcements could solve this problem which is becoming a concern for investors.

Is Wall Street too bullish on Facebook?
Is Wall Street too bullish on Facebook?

Firstly, the company announced it will let developers begin making AR apps using the camera in the Facebook app. It will use precise location and object recognition to detect an item then allow developers to create effects to overlay on the real world. It is part of bringing AR to the mainstream, something Chief Executive Mark Zuckerberg is hoping to do.

But this location and object recognition technology could also be key for advertising and solving the near-term ad load problem, analysts said.

"It is what is under the 'fun stuff' that is really key in terms of technology and opportunity for Facebook monetization. Namely the precise location technology which can map out images in 3-D with extreme precision and can be combined with Facebook's object recognition technology which has the capability of processing images in real time, image tracking and recognition, location tracking," Neil Campling, head of global technology, media and telecom research at Northern Trust Capital Markets, told CNBC by email on Wednesday.

"The same can provide very targeted artificial intelligence services, relevant ads and suggested content and increase engagement and value of the platform even further than what it does already."

Smartphones are at the heart of Facebook's augmented reality push - for now
Smartphones are at the heart of Facebook's augmented reality push - for now

The analyst added that he is still bullish on Facebook stock, which is up over 22 percent this year.

Facebook also showed off a new feature called "spaces" which allows users to create 3-D avatars for Facebook video calls and virtual reality headset Oculus Rift. Again, this and other new AR features in the Facebook app could provide more spaces for ads with new and innovative formats, helping to improve the ad load problem in the future, as the company looks ahead to future growth.

"It is still very early days in the development of AR ad products, but 'virtual stickers', codes or the next generation of display advertising could be applied to all sorts of items through the AR filters," Richard Broughton, research director at Ampere Analysis, told CNBC by email.