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Facebook cuts out middleman to drive mobile ad network revenues

While Facebook has previously tested serving ads in third-party mobile apps, a current test recently revealed by the social network resembles a mobile ad network as the company is working directly with a few advertisers and publishers instead of using an outside ad-serving platform.

The new ad network model would enable advertisers to leverage Facebook?s significant data about its users to target ads in third-party applications. While earlier attempts used an external ad network, Facebook reports it is working directly with advertisers and publishers, a strategy that would mean higher profit margins and more control.

?While some Facebook users have been ?abandoning ship,? and recent studies have show a slightly waning millennial audience, the social network still maintains 1.19 billion active monthly users,? said Harley Block, senior vice president of brand development and marketing at Rokkan, New York. ?And, as users turn to their phones now, more than ever, it only makes sense that mobile advertising is the logical direction for Facebook to be moving in.

?Facebook?s mobile advertising has seen wavering success with the previous two tests of their mobile ad network,? he said. ?However, it remains to be seen how this latest test fares to see if brands and other advertisers, as well as developers, get onboard.?

Competing with Google
As mobile continues to grow, Facebook is looking to crack the formula on how it can best facilitate advertising away from the social giant?s own platform by delivering ads in third-party apps.

The benefit for advertisers, according to Facebook, is being able to leverage Facebook?s targeting both on and off the social network.

The challenge for Facebook in working directly with advertisers and publishers will be in managing the process.

The test is an example of how Facebook and Google are beginning to compete head-on in mobile, both in terms of ad networks but also increasingly on the search front, as well. With consumers bundling their social and brand interactions into Facebook, they are increasingly using the platform for discovery and search (see story).

Exiting users
Going forward, Facebook could have a harder time convincing marketers that it is best way to reach mobile users at scale given the growing conversation around Facebook?s waning relevance with some consumers.

A new study from Princeton Universe predicts that Facebook will lose 80 percent of its peak user base between 2015 and 2017. The researchers used epidemiological models for studying the spread of disease, suggesting that ideas are similar to disease in that they spread infectiously between people before dying out. The researchers believe Facebook has already reached the peak of its popularity and had entered a phase of decline.

Other research has come to similar conclusions, with a study by iStrategy Labs revealing that Facebook had 25 percent fewer teenage users in 2013 compared to 2011.

Not only is Facebook simply losing appeal with some users but competition is growing from other, newer social media offerings that have a more organic mobile experience. Teens, in particular, are finding some of the newer social networks more appealing.

For example, Snapchat is proving to be very popular with younger consumers and already a number of brands are partnering with the app to reach its audience. The list includes Wet Seal, Taco Bell and Acura.

Attracting advertisers
By positioning itself as a mobile ad network, Facebook could increase its relevancy for advertisers.

For example, retailers are allocating less than 20 percent of their Facebook budgets to mobile compared to the average of around 40 percent, according to recent data from Nanigans (see story).

However, if retailers can target mobile users beyond Facebook, this could make a Facebook buy more attractive.

Facebook faces ongoing questions about its mobile advertising strategy.

Mobile represented 49 percent of Facebook?s advertising revenue in the third quarter of 2013. However, some marketers have been saying that the results so far are not there. This suggests Facebook could face a challenge continuing to scale its mobile advertising business (see story). 

Also, the social network?s mobile video advertising is still relatively new and unproven so far (see story).

There is also concern that as Facebook continues to push mobile advertising, it is moving away from its core strategy as a person-to-person engagement tool (see story).

?Facebook is positioning itself as a platform and not just another media company,? said Kalyan Lanka, vice president of product at Lotame, New York.

?As a platform, it?s very important to have your own technology assets to not only attract consumers but to deliver messages that their audience would find most compelling from marketers to drive engagement,? he said.

?Facebook's potential on mobile will continue to be very strong because the engagement levels on mobile platforms are rising - particularly within the Instagram acquisition they are poised to grow even further. We strongly believe this is just the beginning of cross platform targeting as Facebook is uniquely positioned to target the same user across multiple devices.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York