Goin’ Mobile

The Who - Who's NextFacebook’s IPO (NASDAQ: FB) has taken its rightful place in the history books, but the attention has shed new light on its biggest challenge: mobile advertising.

About 25 percent of our time consuming media is sent on a mobile device, yet mobile accounts for only two percent of total advertising. That’s a problem that is affecting all media right now, but for Facebook, it’s huge: about half of the company’s users regularly access the service form a mobile device. According to comScore: Facebook left more than 400 minutes per user on the table—enough to make a cable executive cry:

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As I noted in an earlier piece, Facebook squarely addresses the issue in its S-1:

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 average 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.

Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control.

There is no guarantee that popular mobile devices will continue to feature Facebook, or that mobile device users will continue to use Facebook rather than competing products. We are dependent on the interoperability of Facebook with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive products could adversely affect Facebook usage on mobile devices. Additionally, in order to deliver high quality mobile products, it is important that our products work well with a range of mobile technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use Facebook on their mobile devices, or if our users choose not to access or use Facebook on their mobile devices or use mobile products that do not offer access to Facebook, our user growth and user engagement could be harmed.

Since that filing, Facebook has introduced “Sponsored Stories” that show up in your news feed on a mobile device:

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Venture Beat describes the new service this way:

“For Facebook, brands can now make popular news updates with high levels of engagement into “Sponsored Stories”(shown right) that show on Facebook’s website and mobile apps. Rather than hitting the viewer over the head with outright advertising, these stories have a similar status to updates from his or her friends and family members.

While the strategy is aimed at unlocking Facebook’s final ad revenue frontier, it is also a big shift in the way brands interact and advertise on Facebook. That means a lot is riding on how advertisers react to the new options.”

The challenge now is on advertisers to make the “stories” feel as such. BOGOs and “operators are standing by” will not work. But advertisers aren’t being left to fend for themselves: Inside Facebook reports that the company is doing extensive preference testing to see what kinds of ads its users prefer. Forbes Columnist Peter Cohan asks, “Can Facebook Tap $11 Billion Mobile Ad Market To Justify P/E of 206?” and comes up with a resounding “No!” But I feel that the mobile market can grow exponentially larger tha current expectations, if Facebook, its partners, and its advertisers come up with the right formula.

“Sponsored Stories” may well be a part of that formula, but I am sure that Facebook’s Chief Hacking Officer Mark Zuckerberg and his team are working on the next version right now. The IPO also gives them two powerful tools, cash and stock, to be used in acquisitions of companies with promising solutions.  All phone-based ads need is the right code, the right app, the right content, and they’re goin’ mobile.