Facebook’s mobile advertising problem

Facebook’s registration with the Securities and Exchange Commission is a brilliant read for anyone who works in marketing or social media, because as Facebook prepares to go public it has to lay out everything that could go right or wrong in the future of social. The company is crushing its numbers now, with a cool $1 billion in profit, but read Facebook’s “risk factors” and what leaps out is the challenge of mobile.

Nobody has figured out how to make big money from mobile advertising; advertising rates for mobile ads are absurdly low, from $0.06 to $0.25 cost per click, a signal inside the ad industry that perhaps the back-end conversions from consumers clicking the ads are pitiful, and the macro mobile ad market has missed every rosy forecast of the past decade. Facebook hasn’t even launched mobile ads yet on its app (although that is coming soon) — and yet you know where consumers are headed. Handsets, tablets and other portable screens.

Here’s what Facebook warns in its S-1 filing:

Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.
We had more than 425 million MAUs [monthly active users] who used Facebook mobile products in December 2011. We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. Although the substantial majority of our mobile users also access and engage with Facebook on personal computers where we display advertising, our users could decide to increasingly access our products primarily through mobile devices. We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.

Digiday reported this week that Facebook will soon run mobile ads inside its smartphone app UI. For Facebook, it is absolutely critical that this new format succeed. Google also has been struggling with this issue, because the smaller screens in mobile mean any ads are more intrusive and less likely to be welcomed by consumers; this is one reason why Google bought Motorola Mobility and has pushed handset hardware designed with hot keys that boot search (and the corresponding search ads). As Facebook user growth slows (there are only so many people on the planet) and consumers shift away from PCs to portable Internet devices, the question is will we all want advertiser friends in our pocket?

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

Originally posted on G+.

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