Can mobile ad revenue outpace desktop on Facebook?
While Facebook?s significant gains in mobile are propelling the social network to new heights, managing advertiser demand versus user tolerance for ads will be a challenge for the company going forward.
Facebook said mobile advertising revenue represented approximately 41 percent of overall ad revenue for the second quarter and the company?s CEO Mark Zuckerberg is bullish that mobile revenue will soon outpace desktop. Much of the company?s growth in advertising revenue is being driven by ecommerce companies, local business and brand marketers.
?We now have more daily actives on mobile than on desktop,? Mr. Zuckerberg said during a conference call with analysts to discuss the results. ?Nearly half a billion people use Facebook on their phones every day.
?And soon we will have more revenue on mobile than on desktop as well,? he said.
?This progress is the result of investments we started making more than a year ago and in some cases years ago.?
Facebook's second-quarter mobile ad revenues beat analysts? forecasts and were up from nearly 30 percent in the first quarter and 23 percent in the fourth quarter of last year.
At the same time, the number of mobile users totaled 819 million as of June 30, up 51 percent year-over-year. Overall, the number of users totaled 1.15 billion as of June 30, an increase of 21 percent year-over-year.
Facebook also beat analysts? expectations in terms of overall revenues, which totaled $1.81 billion in the second quarter, up 53 percent year-over-year.
One of the biggest areas of success in mobile has been app install ads, which promote the download of mobile applications .
?We expected an increase, but an 11 percent increase in mobile share of ad revenues in a single quarter is an astounding surge, and that's for a company that just eight months ago some were saying had missed the boat on mobile,? said Craig Palli, chief strategy officer of Fiksu, Boston.
?This increase to 41 percent really validates Facebook's focus on new experiences, new ads and new features for their over 819 million monthly users on mobile,? he said.
The right tools
Part of Facebook?s appeal to marketers is an advertising toolset that provides API-based access, rich segmentation, programmatic buying and transparent measurement, per Mr. Palli.
As a result, Facebook is able to attract incremental ad spend and is encouraging marketers to shift dollars from other channels.
?Our clients are seeing high volumes of users at extremely competitive CPIs and, as a result, we've increased our spend on Facebook over 500 percent in the last two months,? Mr. Palli said.
?We expect that mobile will continue to represent a larger percentage of Facebook earnings and usage in future quarters,? he said.
Facebook?s second-quarter performance is in sharp contrast to Google?s results, which showed a 6 percent year-over-year drop in the cost-per-click rate, partly because mobile ads are less expensive than desktop ads.
While Google, Yahoo, Microsoft and others are having a hard time monetizing the growth in mobile use, Facebook is benefitting from its ability to deliver ads in the newsfeed on mobile that are not as disruptive and a strong user base that spends a significant amount of time interacting with the social network from their mobile devices.
?Mobile is pivotal to Facebook's future, and to the future of social brand marketing,? said Roger Katz, CEO of Friend2Friend, Palo Alto, CA. ?Facebook has shown real innovation in this area, with its innovative and successful in-Newsfeed placement.
?By contrast, Google is seeing ad revenue compressed as the consumer switches from desktop to mobile, with higher volumes of lower-cost mobile display revenue,? he said.
Maintaining the user experience
Despite the strong numbers, Facebook faces a challenge continuing to drive growth from mobile by simply serving more ads.
At some point, users will reach a threshold where the ads are no longer welcome.
"Brands are very interested in the convergence of mobile and social, but it's tricky: how do you balance SoLoMo convenience but stay away from becoming 'spammy'?? said Aaron Everson, chief operating officer of Shoutlet, Madison, WI.
?Facebook ads have received a lot of scrutiny already, so it will be interesting to see how they allow brands to advertise to the mobile set,? he said. ?Brands know the value and potential revenue that can be tied to on-the-go deals or check-in deals, but how much location-based advertising is too much?
?Facebook will need to find effective ways to include social advertising into feeds without ruining the user's experience."
Another challenge that Facebook faces is the growing competition in the social space.
Not too long ago, Twitter and YouTube were the only major competition for consumer attention in social.
However, other social networks are quickly growing.
?Today, there are more than 200 million photos a day uploaded to SnapChat ? more than Instagram, Tumblr's meteoric rise got it snapped up by Yahoo, Pinterest and Instagram continue to suck in consumer time spent,? Friend2Friend?s Mr. Katz said.
?Facebook will need to stay ahead of the pack by showing real brand ROI on ad spends and innovating in ad products to retain and grow its share of social marketing spend,? he said.
Another challenge is measuring mobile campaign performance so that campaigns can be optimized.
This is a challenge that others face in the mobile advertising space as there is no persistent cookie for mobile.
?Facebook is making headway with the release of its SDK for mobile app makers that once incorporated into an app, enables app marketers to measure performance beyond the install and better understand in-app customer interactions, purchases and customer lifetime value and, most importantly, tie this back to specific mobile ads and campaigns,? said Todd Herrold, senior director of product marketing at Kenshoo, San Francisco.
With the growing competition in the social space, there is concern that Facebook?s user base could take a hit.
However, the company put those concerns to rest ? at least for the immediate future ? with its latest results.
?While there has been much talk about users abandoning the platform for other mobile-specific or youth-targeted apps, Facebook continues to grow its user base and remains one of the few mobile platforms to generate a profit,? Mr. Herrold said.
?This combined with its massive scale and increasing share of mobile minutes suggests it will remain the 800 pound gorilla for the foreseeable future,? he said.
Chantal Tode is associate editor on Mobile Marketer, New York