Three major obstacles to Facebook's mobile advertising business: slowing growth
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August 25 (UPI) -- Concerns about Facebook's ability to generate revenue through its vast mobile user base have eased after it posted record mobile advertising revenue and grew faster than the most optimistic forecasts, foreign media reported.
Facebook's mobile advertising business generated $1.66 billion in revenue in the second quarter, accounting for 62 percent of the company's total revenue. More than 81 percent of Facebook's 1.32 billion users access the company's services through mobile devices.
eMarketer, a market research firm, estimates that global mobile advertising revenues will grow 75 per cent to nearly $32bn this year, with Facebook and Google leading the pack.
Facebook will lose more than Google if it lags behind in the mobile advertising war. Although the mobile business accounts for a significant share of both companies, Facebook relies nearly twice as much on mobile advertising as Google does. eMarketer estimates that mobile's share of Facebook and Google's revenues this year is 63.4 percent and 33.8 percent, respectively.
Given that mobile advertising is an important part of Facebook's long-term strategy, Facebook needs to "go through some pitfalls."
1, growth slowed down
As more vendors enter the mobile advertising market, Google continues to grow and the market space is getting smaller and smaller.
"The mobile advertising market is expanding and growing at a slower pace," said Martin Utreras, an analyst at eMarketer. Growth in the mobile advertising market will slow to 22.2 per cent in four years, when it will reach $94.9bn.
eMarketer forecasts revenue growth of 56.4 per cent in Facebook's advertising business, which includes mobile and desktop, this year, down from 63.3 per cent in 2013. Although the growth rate is not low, the potential to make money is shrinking.
Jay Hallberg, co-founder and chief operating officer of THE social network SpiesWorks, points out that this is just an early ups and downs in the mobile advertising industry. "
Facebook's current products are not perfect. "Mobile users are growing faster than desktop users, and Facebook is continuing to improve its products," Jason Helfstein and Jed Kelly, analysts at Oppenheimer, an investment firm, said in an investment report. "
2, point-in rate
The point-in rate for mobile ads is quite low. eMarketer's survey found that 70 percent of U.S. adults have seen mobile ads in the past month, with only 30.5 percent of them clicking on them. In France, Germany, the UK and other countries, the proportion is even lower.
Two of the reasons why U.S. adults don't click on mobile ads are that they're unattractive or that users are not interested in the content of mobile ads. Of course, the problem isn't limited to Facebook. Low conversion rates may affect future demand for mobile advertising.
Facebook is increasingly targeting its ads, indicating that it wants to address the problem. Mr Halberg said the market would help address the problem, with "a strong impression of advertising on mobile devices, so the point-in rate is relatively low".
3, the application installation ads
The long-term robustness of Facebook's mobile advertising business is also limited by the type of advertiser. In the long run, for example, a lot of app-installed ads can hurt Facebook.
But Facebook has previously allayed that concern. Sheryl Sandberg, Facebook's chief operating officer, said on a second-quarter earnings analyst conference call that "it's not just developers, it's big companies, and app install ads are growing." However, our opportunities in mobile advertising are not limited to app-installed ads. "
Doug Anmuth, an analyst at JPMorgan Chase, said in a recent investment report that app-installed advertising now accounts for between a fifth and a quarter of mobile advertising revenue, although not a large proportion, but still important for mobile advertising revenue.
There's no doubt that Facebook's mobile app install ads are doing pretty well. Mark Zuckerberg, Facebook's chief executive, said on a conference call with first-quarter financial analysts, "App-installed ads are one of our best-performing advertising products, with 350 million app installs so far." More than 60 per cent of the apps with the most downloads in the Apple App Store and Google Play are advertised through app installs. "
However, the "lifespan" of this app frenzy has been called into question. "The question is, how big is this market?" says Mr Halberg. Among app developers, only a few earn fairly much, and most have limited income. "Even big hits like Candy Crush are starting to see a decline in demand because of the "aesthetic fatigue" of users with the growing number of mobile games.
Arvind Dixit, CEO of Bubblews, a paid social platform, said: "There is a concern in the industry that there is an app bubble. If there is an app bubble, Facebook's mobile advertising business will really suffer. "
In addition to app installation and digital goods, Dixit notes that a focus on mobile-friendly e-commerce limited the range of brands and advertisers Facebook attracts, and that "from a mobile perspective, Facebook's biggest disadvantage is that it doesn't drive a large number of users to buy anything other than digital goods."
To address this problem, Facebook recently unveiled a tool that tracks ad conversion rates across multiple platforms, meaning that if people see ads on their mobile devices and buy items from ads on their desktop systems, the credit is on mobile ads.
Analysts are optimistic that Facebook will address these challenges. Facebook had these problems before it went public in mid-2012, when mobile revenues were negligible and now it's its biggest cash tree.
"We see Facebook as an emerging advertising giant with several short- and long-term growth catalysts, including ad networks, video advertising, e-commerce, and so on," Baird, an investment firm, said in an investment report released in late July. "
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