/// Facebook: 30% of Our Revenue Now Comes from Mobile Ads
Facebook is accumulating evidence to make the case that it’s become a mobile company. Thirty percent of its first-quarter ad revenue came from mobile ads, up from 23% last quarter.
Leading into its fraught IPO last year, the question of how Facebook would make money off users who access the platform primarily from their mobile devices was a serious existential threat to the social network. The company only announced its first mobile ad offering in February 2012. Since then mobile news-feed ads have become ubiquitous, and gaming companies have seized on mobile app install ads.
Facebook reported that 3,800 developers bought mobile app install ads last quarter to drive 25 million app downloads.
“Every major brand, company or service wants to build apps as an interface for their customers,” said Facebook CEO Mark Zuckerberg. “This market is already big and I expect it to grow quickly.”
Overall, Facebook reported solid revenue of $1.46 billion last quarter, up 38% from $1.06 billion a year ago. (It’s down from Q4′s $1.59 billion, which was fueled by holiday spending.) Ad revenue was $1.25 billion, or 85% of the total, while the balance of $213 million came from payments and fees.
Net income was $219 million, up 7% over the previous year. Facebook’s costs and expenses have risen 60% since the first quarter of 2012 due to infrastructure investment and hiring. An example of the former is the $1.5 billion data center the company is building in Iowa.
The direction of Facebook’s ad business has undergone a shift away from social in the past year. It’s launched a slew of new products and partnerships with the likes of Acxiom and Epsilon to enable targeting using offline data. It’s also opened the door to a more traditional, cookie-based approach to web advertising through the Facebook Exchange, which relies on the scale of the network’s user base but doesn’t incorporate social context like sponsored stories do.
FBX in particular has whetted the appetites of direct-response advertisers, who can now place retargeted ads in users’ news feeds, where ads have the highest engagement.
However, it’s unclear how much FBX or custom audiences — the capability for marketers to show ads to existing customers by anonymously matching their emails or phone numbers to Facebook users, which launched in beta last fall — are currently contributing to the company’s top line. Facebook didn’t break out its revenue by ad product type.
“[FBX] is working well, but the volume is still relatively small,” said Simon Mansell, CEO of TBG Digital, a major Facebook ads seller. He observed that roughly one out of every seven ads that appear on the right-hand rail of users’ news feeds are served through the exchange. He also said adoption of custom audiences has been relatively slow, since marketers often need to await approval from their legal departments. (Facebook’s chief operating officer Sheryl Sandberg noted that the number of custom audiences advertisers doubled last quarter over the previous one.)
There is considerable opportunity for the Facebook Exchange, however. EMarketer estimates that U.S. advertisers will spend $3.36 billion on real-time bidding this year, up from $2 billion last year.
360i’s CEO Bryan Wiener said that it’s still mainly client test budgets being allocated to FBX, as well as custom audiences. But he expects the floodgates to open and for Facebook to cannibalize performance-display budgets that are currently allocated to the likes of Yahoo and AOL.
“If Facebook is successful here, it’ll pop open a huge bucket of ad dollars that have historically been off limits to it,” he said.
Meanwhile, Facebook’s quest to innovate in pursuit of the next big thing could have implications for its profitability down the road.
As Facebook grows its head count, it’s also making deep investments in new products, and it remains to be seen whether those bets will pan out or fall flat. Graph Search — a search tool designed to let users mine their social graph to learn which local restaurants their friends have been to and what bands they like — was launched with fanfare in January but is rolling out slowly. It’s to be determined whether users will take to it and how Facebook would profit from it if they do.
And Facebook Home, an Android app that lets the social network take over the home and lock screens of someone’s phone, thus far hasn’t resonated with consumers, though Mr. Zuckerberg said today that Facebook still hasn’t promoted it much within Facebook’s own apps. Despite a major marketing campaign that includes Facebook’s first TV ads to support it, Home thus far has an average rating of two stars out of five in Google Play.
Mr. Zuckerberg alluded to the resources being invested in these two products.
“I want to be clear that we’re making these big investments because I think these are important areas for us to focus on,” he said.
The company’s acquisition of the ad server Atlas from Microsoft also closed this week. Ms. Sandberg reiterated Facebook’s position that the goal is to build out its measurement architecture and help it prove that impressions matter, not just clicks.
“We believe the Atlas platform will help us demonstrate even more clearly the connection between ad impressions and purchases,” she said. “Not just on Facebook but across the Internet.”
Advertising Age – Cotton Delo