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Facebook ramps up mobile app strategy in face of monetization fears

While Facebook is making a significant push into mobile with a new app store, the social network giant also issued a warning that the number of users of its apps is growing quicker than the number of ads it is serving, potentially hampering its mobile strategy.

Facebook's push into mobile is facing a potential challenge on another front as well, with the Federal Trade Commission reportedly reviewing the social network's recent $1 billion acquisition of photo-sharing mobile app Instagram. While the newly announced App Center should help Facebook leverage its large user base to drive downloads and purchases for social apps across platforms, the question is how big a boost to its mobile strategy the move will provide.

"Given the size of the Facebook users, this is a significant announcement and it will help with overall discovery of apps on both iOS and Android,? said Peter Farago, vice president of marketing at Flurry Analytics, San Francisco .

?The opportunity lies in what Facebook does with App Center,? he said. ?If they can use their reach to increase engagement with apps versus simply try to increase downloads, then they will have a better, more important impact on the ecosystem.

?As we have said before, apps don't really have a discovery problem, they have a ?traffic acquisition? problem. Facebook has an opportunity to address this using social.?

Monetization matters
As consumers spend more time in mobile apps and move traditional desktop behaviors to mobile, they are increasingly accessing Facebook via its mobile apps. 

Facebook, which is expected to debut its initial public offering of company stock soon, has been vocal about the fact that it needs to monetize its mobile strategy.

With the IPO likely to take place very soon, the company reiterated the problem this week in an updated filing, saying that the number of users of its apps for smartphones and tablets is growing quicker than the number of ads it is serving in mobile.

Facebook reported in the amended filing with the SEC that is had 488 million mobile active users in March 2012 and that mobile use continues to grow. March is also when it began to include sponsored stories in users' mobile news feeds.

"We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered," the filing said. "If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected."

Focus on apps
While advertising has been one prong of Facebook's strategy to monetize mobile, the company has also placed a significant focus on apps in recent months.

To buys apps in the App Center or make in-app purchases, consumers will need to use Facebook Credits, with Facebook taking a 30 percent share of the purchase price.

Last month, Facebook made its largest acquisition ever with the $1 billion deal for mobile photo sharing app Instagram (see story).

This deal was followed by the purchase of loyalty app Tagtile, pointing to how the social media giant might use mobile to connect the dots between social media display ads and in-store activity (see story). 

Additionally, Facebook integrated social discovery of apps a few month ago.

Per Mr. Farago, the social network issued stats showing it has sent 160 million users to mobile apps that contributed 1.1 billion sessions in April. Based on Flurry?s measurements, this is roughly a 0.7 percent impact on the market.

By having a specific App Center, Facebook hopes to move the needle on the impact it has on the app market. Facebook can take advantage of its strengths in using social recommendations and personalization to create new tools that will facilitate app discovery

Social a signal
Facebook is also moving to support more types of apps on the social networking platform and will give developers the option for the first time to offer paid Facebook apps

Since Facebook?s play is about driving app discovery and directing users to the Apple App Store or Google Play to complete a transaction, it does not necessarily put Facebook in direct competition with these other app stores.

?This will simply help them,? Mr. Farago said. ?Social is only a signal, it is not the only signal though.?

Facebook faces several challenges as an app purveyor, including that its success here relies on the level of integration that developers accomplish.

Additionally, because consumers will have to complete transactions on the Apple App Store or Google Play, this adds another step in the process for downloading apps and making purchases.

?The challenge is that Facebook is not in control of the whole transaction,? Mr. Farago said. ?Consumers still have to go through the Apple App Store and Google Play to complete the transaction - download an app, buy in-app-purchases - and that will always be a challenge?

The App Center is designed to grow mobile apps that use Facebook ? whether they are on iOS, Android or the mobile web. From the mobile App Center, users will be able to browse apps that are compatible with their device.

Facebook is also introducing a new app ratings metric so developers can see how users rate their app over time.

Apps with strong ratings will be prominently displayed in the App Center while those that receive poor user ratings or don?t quality guidelines put forth by Facebook will not be listed.

?We hope and expect Facebook will have an impact as this will have a good impact on the App Economy,? Mr. Farago said.

?Yahoo! tried with their App Spot product which was a pure discovery play, but their impact was not that big,? he said.

?One would expect Facebook's impact to be better. The real question is: how much better it will be??