Facebook offers the dummy’s guide to mobile advertising? What advertisers like about news feed are the ads, with colorful photos, are hard to miss, right in the middle of the scroll of updates

July 25, 2013, 8:19 p.m. ET

Why Advertisers Are Warming to Facebook

Shares Soar 30% After Social Network Posts Better-Than-Expected Results

SUZANNE VRANICA and EVELYN RUSLI

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Facebook Inc. is winning more friends on Madison Avenue. The social-media giant’s better-than-expected second-quarter results, driven in part by a big increase in mobile advertising revenue, signaled that after a rough start, the company has made marketers feel more comfortable with spending money on the social network. “The service has improved and the company is a more attentive to advertisers now,” said Adam Shlachter, senior vice president of media for DigitasLBI, a digital ad agency owned by Publicis Groupe  SA. “A year or two ago, the company was a little difficult to work with because they were growing so fast and there was inconsistencies with its service.”Facebook didn’t have much presence in mobile advertising a year ago, a concern that contributed to the stock-price slide after its initial public offering price. Then, in the latest quarter, mobile accounted for 41% of Facebook’s ad sales–and investor attitudes have recovered with Facebook’s ad revenue: the shares skyrocketed 30% Thursday.

“Everything worked this quarter,” said Brian Wieser, an analyst with Pivotal Research Group.

In part, Facebook is benefiting simply because it is one of the few online outlets with a big enough audience for the rapidly expanding group of marketers wanting to put money into mobile.

Mobile ad spending in the U.S. is expected to jump 75% this year to $7.7 billion, according to eMarketer, out of total U.S. online ad spending of $41.9 billion.

“There is not an advertiser on the planet that doesn’t want to have a mobile strategy,” said Rob Norman, chief digital officer of GroupM, a unit of WPP PLC.And Facebook has one of “the largest mobile advertising platforms that offers scale.”

American consumers spent 225.4 billion minutes on Facebook’s mobile app and mobile Web pages in the second quarter, about double the year ago period, according to comScore. Americans spent about 18.4 billion minutes on Twitter’s mobile app and Web pages, by comparison.

What advertisers particularly like about Facebook mobile is the ability to advertise on the news feed—the spot on member’s pages where they post their own news and read what their friends are posting. The ads, with colorful photos, are hard to miss, right in the middle of the scroll of updates.

“They have been restless about finding better ways to reach and engage the Facebook audience especially on mobile,” said Tony Pace, chief marketing for the Subway sandwich chain, which advertises on Facebook.

Over the past year, Facebook has put some of its top engineers to work on ad problems and encouraged engineers—a group usually confined to Facebook’s offices—to spend more time with marketers and visit the headquarters of big clients to better understand their objectives and how they approach advertising.

More broadly, Facebook is trying to demonstrate its effectiveness as an advertising platform. For example, Facebook now works with Datalogix, which identifies people who have been exposed to an ad on Facebook and then mines credit-card and retailer purchase data to determine whether those people bought the product.

Facebook’s “focus on measurement” has helped advertisers get the data they need to prove placing ads on the site helps their business, said Vik Kathuria, managing partner at MediaCom, an ad-buying firm owned by WPP.

To be sure, advertisers have some concerns, particularly about the potential for ad overload.

This fall, Facebook plans to offer video advertising to run in the news feed, according to people familiar with the matter. Ad buyers and advertisers are worried that the ads could turn consumers off. People familiar with Facebook’s plan said that the company is going to limit the number of video ads that consumers will see daily.

Facebook “must balance the users experience with making money,” said Sean Corcoran, directors of digital media at Mullen, an ad agency owned by Interpublic Group of Cos.

During Wednesday’s call with analyst, Facebook Chief Executive Mark Zuckerbergsaid the company closely watches people’s sentiment around ads.

“We haven’t measured a meaningful drop in satisfaction when we ask people about their experience with Facebook,” Mr. Zuckerberg said. “We’re comparing that to the result we get when we ask the same question to people using a version of Facebook with no feed ads at all.”

The company said that on average ads make up about 5% or 1 in 20 stories in the news feed.

Facebook offers the dummy’s guide to mobile advertising

8:05pm EDT

By Alexei Oreskovic and Jennifer Saba

SAN FRANCISCO/NEW YORK (Reuters) – Facebook Inc’s mobile advertising success offers a ray of hope for Internet companies trying to make money within the confines of the smartphone’s small screen.

The social network’s 75 percent surge in mobile ad revenue in a span of just three months not only doused skepticism on Wall Street and Madison Avenue about Facebook’s business prospects, some say it could serve as a how-to guide for other Web companies navigating a world where the phone and tablet have fast become the screens of choice.

Facebook’s “Newsfeed” ads, which inject marketing messages straight into a user’s content stream and are tailored for mobile devices, were the stars behind the social network’s stunning numbers on Wednesday.

“You’re going to see a lot of companies transitioning and trying to emulate this model because it’s working so well. That’s why last night was a true watershed moment,” said Ben Schachter, an analyst at Macquarie Research.

Internet company executives have long been concerned that mobile advertising is inherently less lucrative than traditional desktop PC advertising, due to the smartphone’s limited screen size and possible consumer resistance to a flood of ads on their devices.

Companies from Google Inc and Yahoo Inc to upstarts such as Snapchat are searching for the right formula to monetize mobile services. While Google has developed a mobile ad business generating an estimated $10 billion a year in revenue, it remains much smaller and less lucrative than Google’s desktop search advertising. Analysts expect Google to generate $60 billion in annual revenue this year.

That wholesale exploration of “native ads” – or marketing messages intended to blend with a users’ personal content, rather than stand out as an ad – has met with varying success.

Twitter, which pioneered the concept of the in-stream ad even before Facebook, may also be well-positioned to benefit from mobile ads. “Sponsored” messages now pop up abruptly in the middle of streams of tweets, but analysts say the frequency is much lower on Facebook newsfeeds.

More than half of the privately held company’s revenue will come from mobile ads this year, reckons Clark Fredricksen, at industry research firm eMarketer.

Some are just getting into the game. This week, LinkedIn Corp, the network for business professionals, rolled out in-stream ads on mobile and PC versions of its service. Yahoo has experimented with similar types of ads, and acquired blogging hub Tumblr for $1.1 billion in May, in part to jumpstart efforts at developing new formats.

But it’s Facebook, which a year ago had zero mobile revenue, that has most aggressively promoted its mobile advertising business to Madison Avenue – with seeming success.

“Compared to other companies, nobody has come right out and said mobile is our sole focus now,” said Angela Steele, CEO of Ansible, part of advertising holding company IPG. “Facebook put all their eggs in one basket.”

FOLLOWING SUIT

One longstanding question has been how much tolerance consumers have for ads that disrupt their stream of content. Facebook said it has steadily increased the number of ads in the news stream without noticing a drop in user satisfaction.

Facebook Chief Executive Mark Zuckerberg said on Wednesday that, on average, ads now account for 5 percent or one in 20 “stories” in the newsfeed. That ratio could now provide a baseline for calculating success, prompting other Web companies to raise the frequency of ads in their streams.

“It wouldn’t surprise me if other companies would look at that and follow suit,” said Ansible’s Steele.

Hussein Fazal, the CEO of AdParlor, which manages advertising campaigns on Facebook, guesses that the social network must have gradually opened the spigot, gauging user reaction and adjusting the stream all the while.

They seemed to have hit on the right formula, but it’s one that differs across platforms, he said.

“The reason Facebook can do it is, the rest of the content that’s there is so engaging that you don’t mind one out of every 20 ads,” he said. “If you have a newsfeed that’s not so engaging, and you keep seeing ads, then it doesn’t work.”

Plus, the more ads in the stream, the less users will click on them, which can dampen ad prices, he added.

Facebook’s seeming success on mobile devices contrasts with Google’s more gradual improvement in that area. The No. 1 Internet search engine has gradually managed to narrow declines in its overall ad rates from the mobile effect, but last quarter they reversed and went down again, disappointing investors.

Google has avoided news stream ads entirely in its Google+ social network. Instead, its mix of mobile search ads, video ads and innovative formats such as “click-to-call” have delivered what RBC Capital Markets analyst Mark Mahaney estimates is a $10 billion annualized run rate for its mobile business, about four times as much as Facebook.

But mobile has driven down the average cost of Google ads, and some industry watchers consider the transition a long-term threat to the search giant. But other analysts say recent changes to the way it sells ads to marketers, blurring the distinction between the mobile and PC, could help bolster rates.

“The advantage Facebook had is that it’s monetization on desktop was pretty immature to begin with,” says Mahaney.

Google, by contrast, “had a very mature, sophisticated monetization, and then along comes mobile.”

(Reporting By Alexei Oreskovic; Editing by Ken Wills)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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