Facebook eased concerns about its ability to make money in mobile when it reported third-quarter earnings showing mobile ad revenue had jumped to $150 million from $10 million in the second quarter. That amounted to 14% of its total ad revenue in the latest quarter.
Facebook Revenues in Millions - Q3 2010 through Q3 2012 - Facebook Q3 2012 Earnings Report (Click Image To Enlarge)
CEO Mark Zuckerberg suggested in the analyst conference call that the results dispelled the "myth" that the social network could not monetize its 600 million mobile users.
He reiterated that the company expected to make more money eventually from mobile per amount of time spent than on the desktop. Facebook also expects the growth of mobile usage to outpace that through PCs for the foreseeable future.
But there remains the question of whether Facebook can continue to ramp up mobile advertising fast enough to make up for the decline in desktop revenue. If not, "Facebook could have a problem," noted Macquarie analyst Ben Schachter in a research note following the company’s third-quarter report.
Facebook Monthly Active Users (MAUs) - Q3 2010 through Q3 2012 - Facebook Q3 2012 Earnings Report (Click Image To Enlarge)
Other analysts also highlighted this challenge, even as Facebook begins solving its mobile “problem.” The company’s desktop revenue, for instance, fell 4% in the third quarter from the prior quarter. Facebook CFO Brian Ebersman indicated that the trend wasn’t just seasonal.
Ebersman said during the conference call.
“I think that we opened up a lot of inventory on mobile in this quarter, and so we had advertisers who shifted some spend that might’ve been on the desktop compu1ter into mobile feeds.”
But he also noted that the introduction of newsfeed ads -- both on the desktop and mobile -- has led to improved ad performance across both platforms.
Facebook Daily Active Users (DAUs) - Q3 2010 through Q3 2012 - Facebook Q3 2012 Earnings Report (Click Image To Enlarge)
One factor influencing the shift of ad spending from mobile to desktop is how many Facebook users are mobile-only. In its quarterly 10-Q report filed with the SEC, the company said the number of these users had increased 24% from 102 million in the second quarter. That equates to about 10% of Facebook’s 1 billion users overall. The other 478 million mobile users also accessed the site via PC.
Facebook Mobile Monthly Active Users (Mobile MAUs) - Q3 2010 through Q3 2012 - Facebook Q3 2012 Earnings Report (Click Image To Enlarge)
Despite the rapid rise in mobile-only users, Brian Wieser, senior research analyst at Pivot Research Group, pointed out that few were in developed markets, like the U.S. and Europe, where Facebook makes most of its money.
Still, he stated in a research note:
“If a marketer decided they wanted to reach a certain group of consumers and accomplish a certain goal, a loss of users on Facebook’s conventional Web site could erode Facebook’s otherwise dominant position versus another standalone Web publisher (practically, Yahoo or AOL in the United States).”
Wieser estimated that Facebook had 18% of the total U.S. Internet advertising marketplace in the third quarter.
Still, Facebook said in its quarterly report that it expects
"Usage through personal computers may be flat or continue to decline in certain markets, including key developed markets such as the United States, in part due to our focus on developing mobile products to encourage mobile usage of Facebook."
Can the company increase mobile ad revenue quickly enough to offset a decline on the desktop? Given how new the mobile ads are -- Facebook only started running these ads in March -- Macquarie’s Schachter indicated it’s still difficult to project how smoothly Facebook can continue to make the transition toward mobile.
In recent months, Facebook has launched a wide range of new ad initiatives retargeting users on the site, based on their activity across the Web, to promote mobile apps.
The Facebook Ad Exchange, which came out of beta in September, could help Facebook bolster desktop ad revenue.
COMMENTARY: In Facebook's Q3 2012 earnings call with analysts Tuesday, October 23, 2012, Facebook CEO Mark Zuckerberg said he “wanted to dispel the myth Facebook can’t make money on mobile.” He noted that Facebook derived $150 million, or 14%, of its ad revenue from mobile in the third quarter after beginning to monetize on devices only six months ago.
He also reiterated that he expects Facebook to make more from mobile on a time-spent basis than on the desktop over time because of the tight integration of ads into mobile and the continued expansion of the mobile audience globally.
Zuckerberg assured.
“We’re just getting started.”
In the second quarter, Facebook said it generated about $1 million a day after launching Sponsored Story ads in the mobile newsfeed. Facebook CFO David Ebersmann said on the conference call that newsfeed ads overall are driving $4 million a day, with three-quarters coming from mobile. The latter would put mobile revenues from newsfeed ads at about $3 million per day.
Facebook COO Sheryl Sandberg emphasized that newsfeed ads overall have higher engagement rates than the banner ads that run on the right side of the page. They draw 8 times more interaction and have 10 times higher recall per impression.
In recent weeks and months, Facebook has ramped up the rollout of new mobile and other ad products to accelerate revenue growth. Those include the launch of Facebook Exchange for retargeting users based on their Web activity; Custom Audience ads to target existing customers on Facebook via email addresses and phone numbers; search advertising; and app install ads.
Mobile advertising is a "penny" business and you have to sell millions and millions of ads to generate significant mobile ad revenues. Everybody is going mobile, and the added competition from other mobile web destinations is going to put pressure on ad CTR's and CPM's, and this could hurt Facebook's mobile ad revenues over time.
In a world that is rapidly adopting smartphones, tablets, and everything in between, there is a serious disconnect between making money from users of those devices versus users of desktops and laptops. Frankly, it’s a little scary for those who make a living from the web.
First, the good news: People are rapidly adopting mobile devices and mobile Internet traffic is growing quickly. The total amount of Internet traffic coming from mobile now sits at about 10 percent versus 1 percent in late 2009. That means mobile devices are immensely popular and people are responding well to using phones to access web-based content.
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And in India specifically, take a glance at just how quickly mobile adoption is overcoming desktop-based web growth.
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But — and it’s a big but — the advertising on mobile web and mobile apps is absolutely terrible versus the desktop-focused web. It’s so much of a problem that it almost certainly will affect Facebook’s long-term growth prospects, which is one factor that weighed down its IPO. Also, take note that current comScore projections say the effective CPM per desktop user is $3.50 per person, but eCPM per mobile user is just $.75 per person.
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Mobile advertising has grown over time. Apps have especially have seen their compound annual growth rate (CAGR) rise.
As A Percentage of Total U.S. Advertising Spending, Mobile Advertising Has Doubled from 4% to 8% of U.S. Advertising Between Q2 2011 and Q2 2012 - Interactive Advertising Bureau (IAB) (Click Image To Enlarge)
Make no doubt about it, mobile advertising is here to stay. The latest report from the Interactive Advertising Bureau showed that mobile advertising topped $1.36 billion during the first half of 2012, nearly double the amount spent during the same period in 2011.
U.S. Online Advertising Revenus Q1 and Q2 2012 Totaled $8.31 Billion and $8.72 Billion Respectively - Mobile Represented $1.36 Billion or 8% - iab (Click Image To Enlarge)
Courtesy of an article dated October 26, 2012 appearing in MediaPost Publications Online Media Daily and an article dated October 23, 2012 appearing in MediaPost Publications Online Media Daily and an article dated October 11, 2012 appearing in GeekWire
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