In the hours leading up to the company’s fourth-quarter earnings call investors and analysts were curious about Facebook’s mobile results. Turns out that mobile advertising accounted for 23% of $1.33 billion advertising revenue, up over 14% in Q4 2012. The numbers show growth, especially in the mobile department, but investors remain skeptical as the sell-off of shares between the earnings release and market close indicated.
Perhaps their skepticism arises from Facebook’s emphasis on mobile growth — mobile growth being one of the unclearest growth strategies of the past year. Other media companies such as Twitter and Yahoo have talked about becoming a mobile first company on earnings calls and executive interviews. None, however, have explained how they plan to take advantage of the consumer move to mobile. More importantly, they haven’t said why mobile advertising will succeed when online advertising didn’t.
In fact, advertisers are generating less ad revenue per mobile subscriber than per desktop viewer. That’s saying a lot, considering online advertising as a whole is nowhere near the $60 billion U.S. television advertising industry. (A recent Forrester report shows that the U.S. online display ad industry is $12 billion.) A few of mobile’s problems parallel the challenges of online. For example, 40% of all online clicks are fraudulent — and the response rate is still low, even with fake clicks taken into account. Mobile has problems of its own as well. The small screen does not allow advertisers to pack in as many ads as they do on a desktop. Full screen ads infuriate consumers, and Facebook does not run them for fear of losing users. The cost of running an ad on mobile in additional to desktop is not marginal, either, since the ads must be formatted differently for each view.
But the largest problem that applies to both mobile and desktop is that ads are still not targeted narrowly enough. Companies banking on upping ad revenue are hopeful about geotargeting — the practice of tailoring ads to a user’s location on their mobile GPS. But geotargeting must be combined with behavioral targeting — tailoring ads to a user’s interests based on their past searches–in order to work. Platforms need to do much more than have alerts pop up each time a user is within ten feet of a store. And so far, behavioral targeting is far from perfect.
Experts regard mobile advertising as still in its infancy, but if the concept wants to have a better fate than online advertising (ten years of evolution towards a mediocre solution) firms need to find a mobile strategy sooner than later — one separate from the failed online experiments of past.