Facebook ad revenue slowdown: a mobile problem

28 Jul 2012


Andreas PourosLondon: With Facebook's inaugural results perceived as being underwhelming, and Facebook looking to mobile to grow revenues, the challenge of how it monetises people's usage of its network over mobile phones continues to be a primary concern for investors (See: .Facebook reports $157 million Q2 loss) 

According to leading independent digital marketing agency Greenlight, if a phone is now not part of its plans, Facebook has a mobile problem on its hands.

If a Facebook phone is now not on the cards, Facebook remains without a solid answer to its mobile problem.

Yes, new ad formats have been and will continue to be launched by the company for mobile users, but there is a serious question over whether Facebook can integrate a compelling advertising offering on the smallest of screens which users will be comfortable with and that does not interfere with their Facebook user experience.

Suffice to say, yesterday's earnings call shows Facebook to be a great company that can make lots of money, but in the mobile battle, Google and Apple remain far ahead of the pack.

Why is mobile so important?

Late last year, Facebook stated that over 425 million monthly active users accessed Facebook on a mobile device, approximately half of all of Facebook's monthly active users.

Whilst this has increased Facebook usage, it means that users are accessing the social network increasingly on devices which Facebook has less control over, with less opportunity to make money from with advertising, mainly because these devices have less space for advertising, are influenced by third parties (Apple, Android, etc), and Facebook delivered via apps, like Flipboard, are much harder to infiltrate with advertising.

This is not the case for other companies, such as Google. Its advertising mechanisms fit infinitely more comfortably on a mobile platform.

Facebook struggles to monetise usage because:

  1. Apps: People often access the Internet on their mobile devices via apps. This is fine for the likes of Google because whether you access Google's results in a web browser or one of their apps you are still being shown their paid search results.

    With Facebook however, many people access it via third party apps that are not in Facebook's control, such as Flipboard.

  2. Smaller screens: The smaller devices (mobile phones) obviously have limited screen space which means that Facebook needs to come up with advertising that sits within people's News Feeds rather than within the column on the right hand side that you see in a browser on a desktop.

    This means that Facebook has to infringe on the user experience people have come to know and accept.

    We just don't know how much Facebook can invade the news feed with advertising units before users resist the format.

    Google again is different here in that paid search ads will simply sit above the natural search results on a mobile device as they do on a desktop machine, so the user experience is the same

  3. User intent: When people visit Google, regardless of platform or device, they don't treat it as a destination – they are there to find a link and leave Google as quickly as possible.

    And Google then gets paid – for encouraging people to leave!

    Facebook is a destination where people stay and comment so any advertising that encourages people to leave the Facebook page will be far less successful.

    This impacts their advertising opportunities in general, and not just in mobile, as many advertisers want measurable traffic and not just 'likes', etc.

  4. Device influence: Google and Apple have control over devices at the OS level (ios, android) and so can monetise any activities that take place on a phone – from putting advertising on free apps to integrating their own search engine choice into it. This gives them far more options to make money from mobile. Facebook has no hardware influence.

''The earnings call provided little confidence that Facebook has made any significant inroads into this problem, and many investors commented that they would have liked a more elaborate plan and forecast to alleviate their concerns over future profit growth,'' says Pouros.

No Facebook phone but if there were, a poll by Greenlight shows over 50 per cent could be swayed to switch.

Reports in yesterday's press about Facebook and HTC having brokered a deal to produce a Facebook phone were denied in the earnings call.

Speculating one month ago on how successful such a strategy might be though, Greenlight polled 500 people globally to gauge consumer appetite were Facebook to produce its own mobile phone. 50 per cent said they would 'never' switch to a Facebook phone, 8 per cent said they 'definitely' would, whilst the remaining 44 per cent stated that they would 'maybe' purchase a Facebook phone.

*The author is an expert in the business and technological principles of internet search

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