Feb 2, 2012

Facebook’s conundrum over Mobile ads


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One of the more eye-catching elements of Facebook’s obligatory rundown of “risk factors” in Wednesday’s IPO filing was the section on mobile.
Facebook has huge scale on mobile. Half of Facebook’s monthly active users – 425m people – use its mobile products, as of December.
Its iPhone app is the most downloaded in the App Store’s short history, according to Apple, and Facebook has optimised mobile sites for both smartphones and low-end feature phones, some of which can be accessed without incurring data charges thanks to deals with carriers.
“We believe that mobile usage is critical to maintaining user growth and engagement over the long term,” the company writes in its filing with the SEC, which mentions mobile over 120 times.
But Facebook today shows no advertisements on mobile, where any kind of commercial message is always seen as disproportionately intrusive on the small screen.
As Facebook points out in its S-1 filing, this poses a problem as more people start to use the social network solely on their mobile, where the company does not generate any “meaningful revenue”:
“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.”
As it expands into emerging markets where there are more smartphones than PCs, the proportion of mobile users is only going to get larger.
“We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall [monthly active users] for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook…. 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.”
That strongly suggests ads are coming to Facebook mobile in the not-too-distant future, to grab a slice of what is forecast to be a $17.6bn market by 2015. The company itself flags this elsewhere in its S-1 document:
“…we believe that we may have potential future monetization opportunities such as the inclusion of sponsored stories in users’ mobile News Feeds.”
Pulling this off will require Facebook to manage another of its risk factors: its dependence on iOS and Android. Both Apple and Google have their own mobile advertising businesses to push. “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,” Facebook writes, adding later:
“Certain competitors, including Google, could use strong or dominant positions in one or more markets to gain competitive advantage against us in areas where we operate including: by integrating competing social networking platforms or features into products they control such as search engines, web browsers, or mobile device operating systems; by making acquisitions; or by making access to Facebook more difficult.”
Facebook has already begun to integrate sponsored stories into the news feed on its desktop website, to only minor consternation from users. Will they baulk at more ads on mobiles?
For prospective investors, on the other hand, there may be a huge new revenue stream in mobile which Facebook has not even begun to tap. Source from ft.com

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