Considering all the attention it gets, mobile advertising is still a pipsqueak in the industry, accounting for just $1.6 billion globally in 2011.
Compare that to the overall $498 billion global ad market and you might wonder what all the fuss is about. Even newspaper revenues, which hit their lowest mark in 60 years in 2011 were 129 times higher than those for mobile. True, mobile advertising is a fast-growing category -- that 2011 figure is triple what it was in 2009 -- but even if the category nearly doubles, as it's projected to do by 2014, we're still talking about a $3 billion market.
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At the moment, though, the mobile advertising segment is known for its destructive power -- it's a vampire, sucking the net worth out of Facebook and, to a lesser extent, Google. Investors, who calculate the value of a company based on how they think it will do down the road, see a future in which users are accessing Google and Facebook products and services more via mobile devices. In that scenario, falling ad revenues are inevitable.
Of the two, Google is doing the best; CEO Larry Page claimed a $2.5 billion run rate for mobile ads last October, which appears to give the company more than 100% of the global market. However, even that's not enough for investors, who fret that Google's cost-per-click keeps falling as mobile ads become more prominent.
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Facebook, meanwhile, has only offered mobile advertising for a little more than a month. During the company's second-quarter earnings call with analysts, the company claimed it was making about $500,000 a day off its mobile ads, which would amount to $182.5 million over the course of a year. However, you'd assume that the figure would increase as adoption rises.
This did nothing to please investors, who pummeled Facebook's stock price until it hit a new sub-$24 low on Thursday. Is Facebook really screwing things up that much?
Led by Mark Zuckerberg, Facebook appears to be giving mobile the single-minded focus that you would expect. The company has some of the best minds in the business attacking the problem and it's solution so far -- Sponsored Stories on mobile -- isn't bad. Multiple reports have found that the ads perform much better than standard desktop ads. David Williams, CEO of Blinq Media, says he's seeing click-through-rates as high as 8.5% on mobile Sponsored Stories ads "which is pretty much unheard of." The only problem with the ads, in Williams's view is scale: The ads depend on an interaction with the brand by someone in your network. If none of your Facebook friends has interacted with a brand, then you won't see the ad.
Of course, novelty might account for much of the ads' efficacy. "New ad units always perform better," says Nate Elliott, a Forrester Research analyst. "That will decline over time."
But even if the ads are the silver bullet that Facebook hopes, the company has to grapple with a situation that's affecting everyone in digital media: The transition to mobile, which, so far, is much less lucrative. How much less? Michael Wolff of The Guardian estimates that media companies that used to make $4 on advertising on a webpage only make $0.25 on the equivalent mobile page.
Shrinking screen size is a major reason: You simply can't cram as many ads on a 3.5-inch iPhone screen as you can on a the 15-4-inch MacBook Pro screen. That means saying goodbye to Facebook's unloved, but lucrative Marketplace ads (the direct-response ones that run in the right column.)
Some investors believe that Facebook can only solve the problem by making its own mobile devices -- as Google does now -- to better control the experience. However, Facebook put the kibosh on such speculation on Thursday.
But, as we've seen, even Google's not immune to the trend. In its most-recent quarter, the search giant disclosed that the price advertisers pay for clicks on Google ads fell 16% year over year. Yet Google is less threatened by mobile since it has a lock on search advertising. Facebook doesn't have the equivalent.
That's too bad. Without a mobile device of its own or a proven method of maintaining its overall ad revenues despite the transition to mobile, Facebook is in a tight spot. Unfortunately, Facebook's not the only one
1. The Facebook Phone
A Facebook smartphone concept on Yanko Design -- and created by designer Michal Bonikowski -- gives us a look into what the device could potentially look like.
Image via Yanko Design
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This story originally published on Mashable here.