Facebook Home & Mobile Advertising

facebook-home-via-cnetThe battle for mobile advertising is heating up. While Google has a sustained business model for mobile advertising, Facebook is still testing the waters. Google’s mobile ad revenues are 4 times that of Facebook’s. Furthermore, ad metrics comparison between GOOG & FB is not necessarily straightforward. There is a simple underlying distinction – Google indexes the web and FB indexes relationships. Using that perspective its apparent how mobile ad revenues can balloon on either side – depending on the exponential growth rates of relationships or simply the future expanse of the “web universe”.

One thing is absolutely clear – content consumption on mobile devices is increasing at breathtaking speeds and it’s unlikely to slow down. FB alluded to dedicating more resources on the mobile front in its 2012 MD&A – Payroll and benefits expense also increased due to a 73% growth in employee headcount in engineering, design, product management, and other technical functions. This investment supported our efforts to improve existing products and build new products for users, developers, and marketers.” According to data in its 10-K, FB has seen significant growth in Mobile MAUs (Monthly Average Users). This growth is even more pronounced in the US, Indian and Brazilian markets. The composition of BRICSA countries and other developing nations in FB’s mobile revenue stream will definitely be key to offsetting decline in ad growth on the PC front.

This brings me to Facebook Home. Some of that increase in R&D from 10% of revenues to 27% (increase of approximately $1.01B) over previous fiscal year (2011) can be attributed towards mobile strategy & development. The strategy is astoundingly simple but there are risk potholes (security, privacy and user apprehension) which could backfire. The strategy is to increase mobile monetization via an increase in ad impressions and click rates. While click rates can vary dramatically, ad impressions can somewhat stabilize as the underlying driver is simply content consumption via a platform like Facebook. The more times you access Newsfeed, the more ad impressions without the hesitancy of clicking on an ad. I think it’s a good strategy; however degree of user adoption will dictate that. Facebook home will act as a wallpaper displaying stories, pictures and other tales of interest based on your relationships. It a deeper, more personal experience than a simple rendering of your apps on your most recent picture from a trip to the tropics. It acts as a cross between an OS and an app. It allows you to chat, interact seamlessly and view shared content from your network.

What’s unaccounted for is what this will mean for businesses – i.e. FB Business Pages, their content and how that could add to the already existing mobile revenue streams. Furthermore it’s interesting that Facebook Home is going to run on Android, Google’s turf – a big, ambitious move for FB. In my opinion – FB is going about it the right way. They’re focusing on growth. Yes, paying attention to cash flows and burn rates are incredibly important, but considering the infancy of the market and companies’ naivety in the mobile space, it’s the right tactic for FB.

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