Oh Wall Street, you silly beast. Facebook has yet to figure out mobile advertising – and perhaps they never will.
I’m not surprised at the almost global sigh of relief that came from Facebook’s quarterly numbers. The adulation was in stark contrast to their IPO and, well, a little over the top:
Facebook’s Earnings Results Deliver the Likes (Motley Fool)
Facebook Booms, Merck, Pfizer Earnings Loom (TheStreet.com)
Facebook Shares Soar After Earnings Blow the Bears Away (Yahoo Finance)
There is still a long road ahead for Facebook when it comes to really “getting” mobile – let alone turning their users into dollars through mobile. This is a very unique beast, not borne of the web but destined to surpass it in the very very near future.
Understanding that mobile is a contextual part of all our lives – one that changes based on time, day, location, mood, weather, socio-economic bracket, with the potential for many more inputs it becomes obvious how this is so different from the world Facebook emerged from. Today, Facebook does none of that and they are 2 years into their transformation. Incidentally they are not alone. Om Malik laments the lack of mobile knowledge at Yahoo in this Twitter post:
Fair point @MikeIsaac though you have to agree — Yahoo is still clueless about mobile, much like others.
— Om Malik (@om) August 2, 2013
Can Facebook make this transition? Is the uplift we’ve seen this past quarter just a result of the global shift happening right now?
Here are the things that Facebook needs to overcome in order to really move their business into the mobile revenue elite. Keep an eye on how they handle these for an indication of where their future lies.
#1. Forget mobile users, think average revenue per mobile user.
Facebook is by far the most used mobile application on the planet: Daily active users (DAU) were 469 million this quarter, up from 293 million in Q2 2012. Monthly active users (MAU) were 819 million (up from 543M) and mobile-only users soared to 219 million (up from 102M). The growth is there.
Mobile revenue was also up significantly to $656m or 41% of total revenue. As expected, North America makes up the vast majority of that revenue while most new growth is coming from Europe and Asia.
That 819 million users accessed Facebook through mobile (with 219 million accessing it solely via mobile), the majority of the revenue is generated through the roughly 515 million users that use the web and mobile combined. That leaves $944M in advertising revenue from the 515 million monthly active users that use Facebook from the web and mobile. While mobile use is growing at a considerable rate, mobile revenue is harder to earn and requires almost double the number of users to generate close to the revenue from the web.
Average revenue per user for the web/mobile customers is $1.83 while average revenue per mobile user is close to $0.80. As more and more users shift to mobile from traditional desktop access, Facebook will be in an interesting position – sacrificing almost $1 for every user converted to a mobile user in ARPU.
#2 The very real threat from Google.
Google’s attack on Facebook is on 3 fronts: Google +, Android and native mobile applications on all platforms.
Google+ has emerged as a fierce competitor for Facebook – especially on the mobile side. Recent moves by Google to consolidate popular offerings such as Latitude into Google+ on the web and in mobile have made it next to impossible to be a part of the Google ecosystem and not participate in their social network.
The pervasiveness of the Android OS leaves Google in control of the mobile world. Facebook’s first attempt to create a Facebook landing screen (called Facebook Home) reached 1,000,000 users and faltered. Their first foray into a smartphone – dubbed the Facebook phone and produced by HTC for AT&T – is no longer for sale. The ease with which Google has taken over control of our mobile identity has left Facebook reeling. All a user has to do to activate all their current Google services is log in to their Android phone with their Google user name and password.
The third front for Google is their dominance in the mobile apps running on all phones – not just their own Android platform. Google Maps, Gmail, Google+, etc, are all the staples for fresh phones with Google Maps being downloaded over 10,000,000 times in the first 48 hours of availability on iOS alone.
Super apps like Google Now on Android and iOS are also poised to take some market share away from Facebook due to their always on, contextual nature.
The last, and perhaps most important threat is what Google is doing today. 9 of every 10 dollars Google earns is from advertising however their vision is much grander than ads. Google is thinking connected hardware according to Sundar Pichai, head of Android and Chrome. He says Google’s goal is “to put computing everywhere.” As Christopher Mims wrote this “indicates, among other things, that creating hardware, or at least partnering with companies that do, is now an essential part of gathering, processing and distributing that information.”
The significance is that Google understands the need to move beyond advertising as a primary source of revenue – this coming from the company that generates the most of it from that very means.
#3. The failure to purchase Waze.
Location and destination is the unique value proposition for mobile. It unlocks the ability to target advertising based on a consumers location. Every single one of the dominant mobile ecosystems have a location and destination component: Apple has Apple Maps, Google has Google Maps and Microsoft purchased Navteq for almost $8billion in 2007. Clearly this is a market one needs to be in if there is hope of competing – so much so that Apple famously bumped Google Maps as their default mapping software on iOS and replaced it with a homegrown, lower quality app instead.
Owning destination is crucial and Facebook let Google outmanoeuvre them and acquire the social mapping upstart Waze for just shy of $1billion. Had Facebook acquired Waze it would have pushed them into a platform status – one poised for a potential exploration of the Facebook OS that was, perhaps, started with Facebook Home.
Look for Facebook to try to find a suitable replacement for Waze or risk being left even further behind in this market.
#4. The threat of inference.
Mobile is clearly about a combination of powerful contextual inputs – location, time and destination to name a few. A considerable amount of information can be gleaned from those simple inputs and used in lieu of search. Facebook is lacking in this arena compared to offerings from Google (Google Now) and Apple (Siri). Both of these offerings remove the need to search in their own way: Google Now uses location and context to display information that is relevant while Siri allows users to search and interact with the device via voice completely obfuscating the actual search engines.
Facebook’s Graph Search – currently only available on the web – is an attempt to bring the power of the Facebook data to the user but by omitting mobile it has limited value as more and more people access the service through mobile.
If I were a betting man.
Facebook is clearly the most dominant mobile and social application on the planet. Growth is not limited to the developed countries – they are truly global. The perilous place they play – only on software – is their competitive disadvantage as they only have certain revenue pools they can pull from. Unlike Apple and Google and Microsoft who have many $billion business lines, Facebook relies heavily on growing their monthly active users and a deep current data set to attract advertising dollars and a small amount of other revenue through products and digital products.
Mobile advertising has not been solved – and certainly not by Facebook yet or perhaps ever. For them to succeed, the focus on context is necessary but currently lacking. Mobile serves a different requirement than desktop yet Facebook is currently treating them as one and the same. Social is an important piece to the advertising game however location, time of day and personal proclivities round out the four key pieces to this puzzle. No one is poised to combine these four things more than Facebook, the question is do they see this and can they do it quickly.