Bloomberg News

Facebook Mobile-Ad Success Shows Model to Twitter-Snapchat: Tech

July 26, 2013

Facebook Mobile-Ad Success Shows Model to Twitter-Snapchat

The login page for the Facebook Inc. social media site, is seen on an Apple Inc. iPhone 4 smartphone. Facebook is benefiting from a user base that checks in several times a day and is willing to accept marketing messages in news feeds. Photographer: Chris Ratcliffe/Bloomberg

Facebook Inc. (FB:US)’s success in mobile advertising, which is making it a stronger rival to Google Inc. (GOOG:US), is also providing a model for other social-networking sites such as Twitter Inc., Pinterest Inc. and Snapchat Inc.

Facebook’s mobile ads generated 41 percent of revenue last quarter, up from 14 percent a year earlier, helping the company top second-quarter profit and sales estimates this week. The results contrasted with earnings from Google and Yahoo! Inc. (YHOO:US), which both reported lower-than-predicted revenue.

As companies cope with a shift to wireless devices, Facebook is benefiting from a user base that checks in several times a day and is willing to accept marketing messages in news feeds. Twitter is already seeing ads surge with a similar approach and others such as Snapchat may not be far behind, said Laura O’Shaughnessy, chief executive officer of SocialCode.

“You will see mobile ad dollars booming as usage heads in that direction,” said O’Shaughnessy, whose company helps advertisers buy on social and mobile networks. “Facebook made huge changes to its news feed ads that made them much more effective, and that’s why there’s more spend there.”

While Google accounts for more than 50 percent of the world’s mobile-ad market, it’s now growing more slowly than Facebook. Internet-search ads -- Google’s biggest strength --are less effective on mobile screens than on desktop computers, said Scott Kessler, an analyst at S&P Capital IQ in New York.

Lower Pricing

“It’s harder to read,” Kessler said. “People are less likely to click on it, and there’s lower pricing in a mobile environment.”

Rob Shilkin, a spokesman for Mountain View, California-based Google, declined to comment.

Twitter, which lets users share 140-character status updates, also sells ads that appear inside mobile news feeds. Those ads account for more than half of the company’s revenue on some days, CEO Dick Costolo has said.

Pinterest, a site for collecting and sharing images, and Snapchat, a mobile messaging service, haven’t yet introduced mobile ads. Still, they’re now better poised to do so in the wake of Facebook’s success, O’Shaughnessy said.

Banner advertising, meanwhile, can be less relevant because it doesn’t typically target users based on their interests or habits, Kessler said. Google’s AdMob unit and Apple Inc.’s iAd service both focus on those kinds of promotions, which often appear at the top or bottom of a device’s screen.

Bar Bets

Facebook’s mobile application has gained support from advertisers because it more closely ties ads to the activities of its 819 million users, said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles. Facebook, the world’s largest social-networking site, has 1.15 billion members in total -- including people who just use it on desktop computers.

“The existence of a Facebook app on your phone makes you more likely to check on it day in and day out,” Pachter said. “Google is great in satisfying bar bets. I’m not sure if it’s as good in Internet ad revenue as Facebook.”

Facebook hones its ad messages by looking at what has worked in the past with a user’s friends, said George Bell, CEO of the mobile-ad company Jumptap Inc. That helps generate more clicks and purchases. Facebook further refines its targeting by using data from outside marketing firms such as Acxiom Corp. (ACXM:US) and Epsilon Corp. (EPSO:US), he said.

“They’re on the path to take the social signals conveyed through actions on Facebook and supplement those with insights from third parties to paint a richer picture,” Bell said.

‘Paying Off’

By showing progress in mobile advertising, Facebook’s quarterly results sent its shares (FB:US) up almost 30 percent to $34.36 yesterday for a record one-day gain. That brought the stock within a few dollars of its May 2012 initial public offering price. The shares slipped 1 percent to $34.01 today in New York.

“We’re effectively navigating the shift to mobile,” David Ebersman, chief financial officer of Menlo Park, California-based Facebook, said in an interview. “All the investments we’ve been making in the business have been paying off.”

Unlike Google and Apple, which built out their mobile-ad businesses by acquiring startups, Facebook has relied mostly on internal development for this piece of its intellectual property. That may have helped it better customize mobile ads to its service, said Lars Albright, who co-founded Quattro Wireless Inc. -- a company sold to Apple in 2010. That startup became the basis for iAd.

“They are building this all in-house,” said Albright, who now runs mobile startup SessionM. “They feel that particularly the targeting piece is so core to their IP and who they are that they felt best-suited to do it.”

Seeking Scale

The challenge for smaller social-networking companies is building enough scale to do what Facebook is doing, said Will Margiloff, CEO of IgnitionOne, a marketing-technology company that analyzes industry trends. For now, there aren’t many services with enough mobile users, he said.

“Facebook’s strategy can’t be replicated elsewhere, except maybe Twitter,” Margiloff said. “The platform itself lends itself well to mobile as it already has so many mobile users.”

Luis Caballero, chief operating officer of media-buying firm Blinq Media LLC, sees more advertisers shifting their budgets to Facebook. That’s coming at the expense of Google, he said.

Marketers increased their mobile-advertising budgets for Facebook’s mobile app to about 24 percent last month from 10 percent in January, he estimates.

“Advertisers are definitely going heavier on Facebook right now,” he said.

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Nick Turner at nturner7@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • FB
    (Facebook Inc)
    • $73.52 USD
    • -2.34
    • -3.18%
  • GOOG
    (Google Inc)
    • $545.34 USD
    • -3.99
    • -0.73%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus