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Facebook's exceptional mobile ad revenue surge silences critics

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Facebook's exceptional mobile ad revenue surge silences critics

Facebook’s Q2 2014 earnings were remarkable even by the company’s standards. On the back of the football World Cup, the social networking giant posted its best quarter results ever, in terms of both revenues and users. In the quarter ending June 30, 2014, Facebook reported daily active users (DAU) increased at 19 per cent year-on-year to stand at 829 million with monthly active users (MAU) at 1.32 billion users (up 14 per cent y-o-y)

Advertising revenue was up an incredible 67 per cent over the same quarter last year to stand at $2.68 billion. However, the most interesting numbers came from the area of mobile.

Mobile advertising revenue now constitutes approximately 62 per cent of advertising revenue for the second quarter of 2014, up from approximately 41 per cent of advertising revenue in the second quarter of 2013. Mobile DAUs were 654 million on average for June 2014, an increase of 39 per cent year-over-year, while mobile MAUs numbered 1.07 billion; an increase of 31 per cent year-over-year.

Just over two years ago, when Facebook announced its IPO, one of the concerns analysts had was that Facebook was woefully behind the curve when it came to mobile advertising. With a clunky app and its decision not to use intrusive banner advertisements, many felt that Facebook had made a wrong call back in 2012, even though nearly 488 million users were accessing Facebook through their mobile. The potential was present but Facebook lacked a clear strategy and a compelling inventory for advertisers; or that is what analysts felt. Since then, Mark Zuckerberg and Co. have pursued a ‘mobile-first’ strategy with a vengeance and Facebook Q2 earnings seems to have vindicated them.

What Facebook did right
Since 2012 and the IPO debacle, Facebook has been single-mindedly focused on improving its mobile experience. The biggest indication of Facebook’s mobile ambitions was the 2012 launch of mobile-only ads. Prior to this advertisers had to buy ads in conjunction with desktop, but now advertisers who wanted to target only mobile users had that option. Since then, the company has worked hard to come out with innovative products that help advertisers while still not intruding on the user experience.

It introduced new inventory opportunities for advertisers like newsfeed ads, sponsored stories, app install ads, etc. Over the past year, Facebook has also been tinkering with its ad network which allows advertisers to place their advertisements across other mobile properties and not just Facebook.

“The opening up of newsfeed ads as well as promoted posts meant that a completely new ad property got created, which has delivered far greater impact to advertisers. Facebook has also been extremely innovative in tapping into completely new ad units like the app install ads for mobile,” explained Sabyasachi Mitter, MD, ibs.

On the user experience front, the Facebook mobile app has been undergoing near-constant revamps, with improvement in user interface (UI), ease of use, new functionalities, etc.

Of course, it is not just organic development that Facebook has been busy with. Over the last two years Facebook has acquired a number of firms with a clear mobile strategy in mind. The much publicized $19 billion acquisition of WhatsApp is the most prominent but there have been other more strategic takeovers too. Instagram’s acquisition in 2012 gave Facebook the edge in photo sharing on mobile. Last month’s buy-out of video ad-tech firm LiveRail was a coup since it gave the company expertise and experience in two of the biggest trends in the digital world today ---- programmatic ad buying and video content. Is Facebook's acquisition of LiveRail a strategic masterstroke?

Adobe’s Social Intelligence report for Q4 2013 states that clickthrough rates (CTR) for Facebook ads increased 41 per cent over last quarter and 365 per cent y-o-y while ad impressions increased just 10 per cent y-o-y. What this means is that though Facebook is serving less ads, these are ads that people are interested enough to click on. This could be attributed to Facebook’s great targeting capabilities and the mobile platform gives it even more opportunities to better target ads and thus improve ROI for advertisers.

Does Facebook still need desktop?
There is no reason why Facebook should not concentrate on desktop. Converting the percentages to figures, Facebook still earned a substantial amount through the desktop. Comparing the growth rates of mobile and desktop do show that desktop revenue is not growing as quickly as mobile revenue but this is true for most digital publishers and online properties. The stagnation of the desktop as compared to the explosion of the mobile is more a symptom of user preferences than a lack of advertiser interest. That Facebook has managed to turn around its mobile strategy in just around two years is the story that deserves our attention.

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