How Facebook is transforming the mobile advertising landscape
For the first time, more than 50 percent of Facebook's revenue is coming from mobile advertising in a reflection not only of how quickly it has transformed into a mobile powerhouse, but also of how the social giant is transforming the advertising landscape.
Facebook reported yesterday that its mobile ad revenue topped $1 billion for the first time in the fourth quarter ended Dec. 31, 2013, while sentiment around mobile ads improved and click through rates remained stable. The social network?s significant growth in mobile advertising helped create the app install ad category, buoy native advertising as a strategy and, with recent plans for a mobile ad network, has other ad networks taking notice.
?Facebook already partners with other ad networks, notably Zynga, and we?ll see more of that as they refine their approach, and no doubt learn everything they can from industry veterans,? said Deborah Hanamura, director of marketing at Metia, Kirkland, WA .
?Our advice to the ad networks is to find an angle to partner with Facebook rather than try to go up against them unless they are backed or partnered with equal fire power at Google,? she said. ?There may be an opportunity to come out strong against Facebook with a better ad service with stronger analytics and more reliability, but the likelihood for a smaller ad network to beat out Facebook, even off of Facebook?s platform, is slim.
?Basically, either get on board, or get off the tracks."
Mobile ad revenue jumps
Facebook reported that mobile advertising revenue represented approximately 53 percent of its total advertising revenue for the fourth quarter, more than doubling from 23 percent a year ago and up from 49 percent in the previous quarter.
Overall, revenue from advertising totaled $2.34 billion, a 76 percent increase from the same quarter last year. Total revenues came in at $2.59 billion, up 63 percent.
To keep the momentum going, Facebook is focusing on several areas, including enabling users to share content with smaller groups, improving the quality of ads and deepening relationships with mobile operators worldwide to enable new ways for people to get on the Internet.
In terms of improving quality, Facebook is regularly surveying users around their sentiment towards ads.
In the second half of 2013, Facebook saw improvement in sentiment around ads on mobile even as volume grew during that period and sentiment around desktop remained stable.
Additionally, Facebook reports that click through rates on mobile have remained stable even as the volume of mobile ads has grown. The results suggest the strategy for improving quality is working, said Mark Zuckerberg, founder and CEO of Facebook, during a conference call with analysts to discuss the results.
?We are very pleased with the growth of our ad business, especially on mobile,? Mr. Zuckerberg said during the call. ?Overall, 2013 was an important year for us.
?If 2012 was the year that we turned our core product into a mobile product, then 2013 was the year we turned our business into a mobile business,? he said. ?I expect 2014 will be the year where we begin to deliver new and engaging types of mobile experiences.?
Big challenges ahead
One of the challenges that Facebook faces going forward is overcoming the issue of cross-device targeting and tracking, which is of growing importance as brands increasingly look to reach consumers across a multitude of channels.
?Facebook is uniquely positioned to solve this problem given the impressive volume of users and the ability to tie engagement across devices through user logins,? said San Francisco-based Todd Herrold, senior director of product marketing for Kenshoo Social. ?Accomplishing this is not trivial and will require significant enhancements to its advertising products and systems."
Facebook will also need to improve its mobile ad products if it is to continue to drive growth here. For example, the recently launched auto-play video product is getting mixed reviews.
?Truthfully, Facebook?s ad products aren?t as good as they should be, but because their audience is so big, they can get away with selling a glitchy product,? said Metia?s Ms. Hanamura said.
There is also concern that as Facebook continues to build out its mobile advertising offerings, the user experience will suffer.
?Is the usefulness of the service worth the intrusiveness of the advertising interruption,? said Mark Pinsent, social and content lead at Metia. ?Balance is important when you're walking the tightrope of user experience vs. commercial need.
?And as social media platforms mature, and particularly as they do such grown-up stuff as list themselves on the world's stock markets, this balance becomes trickier and trickier,? he said.
User base evolves
Another issue for Facebook is just how sticky the platform will remain as newer social media offerings come on the scene. For example, a recent study from Princeton University forecasts that Facebook?s user base will plummet as teens exit.
Facebook reported yesterday that its mobile user base also continues to grow.
Mobile daily active users totaled 556 million on average for December 2013, an increase of 49 percent. Mobile monthly active users totaled 945 million, up 39 percent.
In comparison, the number of overall daily active users grew 22 percent for a total of 757 million while monthly active users were up 16 percent for a total of 1.23 billion.
?The change in demographics within Facebook?s user base poses the biggest challenge,? said Jay Hawkinson, Chicago-based senior vice president of emerging products for SIM Partners.
?Facebook currently faces the issue of retaining younger users, especially those migrating to other popular apps like Snapchat, while catering to the older set,? he said. ?Another challenge will be improving the advertising platform to benefit SMBs, encouraging more of them to advertise.?
Chantal Tode is associate editor on Mobile Marketer, New York