Many analysts will be looking past Facebook’s Q4 ’16 earnings, which will be reported later today, for reassuring signs of how the company will continue its blazing revenue growth in 2017 and beyond. Over the past couple years, there has been no other company (except possibly Google and Apple) that has benefited financially more from the shift to mobile lifestyles.

Facebook’s 1.8 billion monthly active users in Q3  ’16 were 93% mobile. And 97% of the company’s $7 billion in Q3 ’16 revenue, which was up 56% vs. Q3 ’15, was advertising-based. Clearly Facebook has become a mobile advertising machine.

But trees don’t grow to the sky; the number of global mobile users is slowing and Facebook’s ability to include more ads in users’ newsfeeds is reaching its limit. As a result, Facebook has messaged that revenue growth will soften. Clearly Facebook needs a next act, and so over the past 6-9 months Facebook executives, including CEO and founder Mark Zuckerberg, have repeatedly signaled that the company intends to be “video-first.”

While executives may talk about the value of video as a way of Facebook’s users to connect and communicate with each other, there’s one hard-nosed reason Facebook is going all-in on video: it represents the biggest source of existing ad revenue that can be tapped to feed Facebook’s appetite for revenue growth. Facebook’s law of large numbers problem is stark: to keep growing revenue at 50%+ per quarter requires it finding at least $3.5-$4.0 billion of incremental advertising each quarter.

With most companies’ ad budgets flat at best, that kind of money doesn’t just materialize, it needs to be shifted, at least partially, from existing sources. Facebook has clearly identified the key source to pursue as TV advertising, and it’s now racing to get its ducks in a row in order to lure as much of that spending over as it can - just as YouTube and other online video providers have been trying to do for years.

To succeed, Facebook faces a massive test of product evolution, user compliance, partner motivation and marketplace acceptance. Here’s how I break it down:

Product evolution
Facebook has trained its users well how to use its product as a scrollable mobile feed that incents quick content scanning and sporadic, short bursts of attention to things that catch a user’s eye. Now, to drive more video usage, Facebook is emphasizing both live streaming and also a new video-centric tab. It is also tweaking its algorithm to prioritize longer videos over shorter ones. Even more significant, the company is now reportedly building apps for connected TV devices, attempting to move users out of the mobile usage environment entirely. No doubt even further product changes emphasizing video are yet to come. Taken together, they are a major product overhaul from the proven newsfeed formula.

User compliance
For these product changes to succeed, Facebook users have to comply and change their behaviors, coming to think of Facebook as something different than what they’re used to thinking of it. Sometimes companies succeed in evolving their users’ behaviors and sometimes they don’t.  For example, Amazon, known for e-commerce, now seems to have transformed a portion of its users into video viewers. Conversely, when it tried to turn them into users of an Amazon-branded smartphone, it failed. It’s not clear if there’s any success formula for transitioning users’ behaviors that Facebook can follow.

Partner motivation
Part of Facebook’s embrace of video can be accomplished by users creating more video themselves. But as YouTube learned a long time ago, user-generated video isn’t what advertisers covet. They want premium quality video, which in turn means professional partners are critical. Facebook has dabbled a bit, with a $50 million live-streaming fund spread among 140 partners (though it’s reportedly not renewing those commitments). More recently, it’s been exploring production partnerships for longer-form content, under the direction of Ricky Van Veen.

It’s a given that these efforts will be hit or miss so a huge commitment, along the lines of what we’ve seen from Amazon and Netflix, will be required to ultimately gain real momentum. More importantly, partners will need to have an attractive financial model. Is Facebook going to bear the production costs as, for example Verizon has, to try getting Go90 off the ground? Or will Facebook look to reduce risk by relying mainly on advertising revenue sharing? If the latter route, will it embrace pre-rolls, which it hasn’t to date? Or will it rely on mid-rolls? And per the above, where will long-form usage occur - on mobile devices or in TV apps, or both? Lots of questions for partners to consider. And remember, they have lots of new opportunities to evaluate besides partnering with Facebook.

Marketplace acceptance
Assuming the product, users and partners all fall in line (big assumption), the most serious looming question is to what extent can Facebook actually drive ad revenue from its premium video? More specifically, can it persuade decision-makers to shift TV dollars? Fortunately, the ground has been hugely softened by YouTube and other online video providers over the years. Agencies and corporate marketers are now fully attuned to shifting viewer behaviors, declining linear TV ratings, rising ad blocking, targeting effectiveness, power of digital, etc. - in short, all the rationales Facebook ad sellers will be raising with ad buyers.

But then Facebook will encounter all the same questions others have as well, around measurement, effectiveness, standards, viewability, etc. In Facebook’s case, credibility will also be raised given the company’s well-publicized internal measurement miscues and reluctance to work with established third-party measurement firms. In its favor though, Facebook offers potentially massive reach and unprecedented targeting. Newly released tools will help marketers understand the potential better. To the extent TV buyers want to narrow in on their core audiences rather than focus on broad awareness (still an open question), Facebook is well-positioned.

It’s a lot to ponder, yet these are the very real issues that Facebook will need to address as 2017 unfolds. How well it does will determine if the company can make the leap from being mobile-first to video-first, and consequently if it can keep revenue growth humming along.

Update:

Facebook reported a strong Q4 ’16 with ad revenue of $8.6 billion, up 53% over Q4 ’15. But Facebook executives again reiterated their forecast that revenue growth would materially slowdown in 2017.

Underlining analysts’ focus on video, on the earnings call, all of the first 5 analysts asked video-related questions and more continued for the rest of the call. A few important notes, adding detail to my post above:

- Zuckerberg said the company is more focused on short-form video than long-form, at least for now.

- As far as a partner business model, Facebook is emphasizing advertising revenue sharing (based mainly on the mid-roll model) over direct funding of productions, though it said it will do some of this too.

- The video tab is now rolled out to all U.S. users and is meant to be a dedicated place for users to watch video. Zuckerberg acknowledged it’s a different intent model than the way video is consumed in the core Facebook newsfeed. He said the early trends are good, and expects as more content is added (especially professional episodic content), it will grow.

- Asked about potential M&A to accelerate video business, the reply was this is “not about doing big deals.”