Facebook's mobile problem

Guillermo Escofet/Informa Telecoms & Media
25 Jun 2012

Facebook has been at the forefront of the big growth in mobile data usage in recent years. It is indisputably one of the big stars of mobile; one that most operators have wanted to ally themselves with to drive the sale of data plans on their networks.

Yet, by Facebook's own admission, mobile could be its Achilles heel. That's because, although more and more of its traffic is derived from mobile phones, it has yet to properly enable its mobile properties with advertising - Facebook's main revenue stream. As it said in a revision of its S-1 filing with the US Securities and Exchange Commission, ahead of the its IPO last month, "We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven."

More than half of Facebook's users (488 million as of March) are already accessing the social network via mobile and that proportion is constantly growing, especially now that most of its new members are coming from emerging markets, where PC penetration is low. And the more traffic gets diverted to mobile the fewer Facebook's chances of monetizing its service. As it reported in its filing, its daily active users have been increasing recently at a faster rate than the number of ads delivered on its network, a trend it blames on the increased usage of Facebook on mobile devices.

"If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected," Facebook said in its revised filing in mid May.

And Facebook is not alone in finding that mobile can hold back its revenue-earning potential. The biggest online advertising business of all, Google, has seen its ad rates go down as more and more of its traffic goes mobile. In 1Q the search giant reported slower than expected revenue growth. Although paid clicks on its network had grown by 39%, the average cost per click had fallen by 12%. That's because the huge growth in the number of ads being served on mobile browsers and apps is pushing down mobile-ad prices. Also, there are simply more advertisers bidding to get their sponsored links on PC screens than on mobile screens.

Mobile is adding to the overall digital pie, but is also increasingly cannibalizing other digital channels. And while advertising is a well established medium on PCs, it has still a long way to go to find its full potential on mobile.

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