Facebook had no idea their mobile advertising platform would become as successful as it has. Only a couple years ago Facebook was scrambling in an attempt to jump on the fast growing mobile trend. The developer-heavy company even considered hiring an outside firm to build their initial Android app due to a lack of internal experience. Advertising was the least of their worries.
Shockingly though, the company has managed to turn a new found focus on mobile into a multi-billion dollar revenue source. The rapid success is nothing short of extraordinary. Yes, Facebook is a huge brand and has possibly the largest audience in the world. Yet even Microsoft, one of the largest technology companies in the world, is a great illustration of how influence, capital, and talent alone can’t generate success when it comes to the exploding mobile market.
If you were to look back a couple years, the challenge of mobile monetization was a standard conversation topic among industry insiders. Yet in a relatively short period of time, Facebook has unlocked a cash cow. So where is all this money coming from? Three words: inline feed advertisements. From multiple conversations with mobile startups around the valley, vast amounts of capital are being reallocated towards Facebook over Google. The reason is simple: Facebook app install campaigns are the most effective type.
Thanks to Facebook’s existing targeting capabilities, feed advertisements have seen incredible performance. While Facebook doesn’t break apart their various mobile revenue sources during quarterly earnings, anecdotally two ad types stand out: suggested posts (articles), and suggested apps (both pictured below).
These two boxes are worth billions. The performance isn’t all that surprising: the ads typically take up over 50 percent (and often times more than 80 percent) of the feed screen real estate on mobile devices. In other words: the larger the ads, the more people that click. What is surprising though is how users appear to have adapted incredibly well to the ads. While there are consistent complaints about Facebook, the numbers continue to show rabid usage of the product.
Mark Zuckerberg has for the longest time emphasized the importance of user experience over ad dollars. As he frequently described in the past: advertising can easily break the experience for the user. Yet through what may be nothing short of a miracle, users have grown tolerant of the advertising. From my own conversations, rarely are there complaints about “too many ads” (despite there being many other issues).
It has been an incredibly rapid evolution of Facebook and so far the users appear to be sticking with the company. While it’s impossible to predict whether Facebook will lose its dominance to fast growing texting apps, the company has zeroed in on a model that is working. Over the coming months we can only expect Facebook’s mobile product to evolve rapidly.
Whether that’s new designs, new features, or upgrading existing products, Facebook is shifting to mobile. This shift has been supported by shareholders, skyrocketing the company’s stock to all time highs. Facebook is now valued at roughly one-third that of Google’s despite having just over one-tenth the revenue. That means investors want growth. Hopefully for Facebook’s sake, the two boxes pictured above can continue generating massive amounts of cash.
If the past year is any indicator, there’s a good chance that’ll happen.