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Facebook drives mobile ad revenue - but at what cost?

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26th Jul 2013
Contributor MyCustomer.com
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Facebook’s Q2 figures may have shown a promising future for mobile advertising but with consumers demonstrating an appetite for an ad-free Facebook, will ramping up ads alienate users?

Facebook Q2 2013 earnings, posted earlier this week, recorded profits of $333m (£217m) and a 18% price share that reached $31.81 with stronger than expected mobile sales. The social network said that 41% of its $1.6bn total advertising revenue came from mobile – compared with 30% from the same period last year.

Forrester analyst Thomas Husson said of the figures: "There are a couple of reasons for this sharp increase. Time spent on Facebook is meaningful. Facebook’s mobile ads integrate well in the natural flow of Facebook’s news feeds. They are quite visible and are increasingly successful at driving mobile app installs.

“According to our European Technographics Consumer Technology Online Survey, Q4 2012, 16% of online adult smartphone owners (ages 16-plus) who use apps report that they first learned about an app via social networking websites such as Facebook. No wonder why the likes of Fiksu and other app boosters spent a lot of money on Facebook mobile ads. Cost per click increased despite a lot more clicks and ads shown.”

Given the rise in share price, adopting an aggresive mobile advertising strategy may appease advertisers but alienate users with research earlier this year showing that consumers are becoming increasingly dissatisfied with ads and would even be willing to pay for an ad-free Facebook. 

Greenlight’s survey of 500 consumers worldwide revealed that 15% would be willing to pay to see no ads on the social network – with the majority (8%) saying that they would be willing to spend anywhere between $5 and $10, and plus, per month.

Twitter’s Biz Stone recently suggested that Facebook could earn at least $12bn per year by offering users the option of signing up for an ads-free experience at a cost of $10 per month.

Husson added that to be successful in the long-term, Facebook must consider how its ads are perceived by users: "While Facebook reported that user satisfaction had not been significantly impacted and that ads only represent one in 20 stories on the newsfeed (5%), there is risk Facebook is “pulling the mobile ad lever too hard” as my colleague Nate Elliott said to AFP.

"Nate also worried “that Facebook seems to have taken the affront of not being able to monetize on mobile a little too much to heart". Following the IPO, I think Facebook had no choice but to demonstrate their ability to monetize. The toughest challenge will be to balance shareholders' pressure with consumers' ability to receive ads and make sure they don't consider them irrelevant or intrusive."

In March earlier this year, Facebook unveiled the redesign of its News Feed. Andreas Pouros, COO at Greenlight, said at the time that Facebook had taken the success of advertising in peoples’ newsfeeds on mobile and based its News Feed redesign on mirroring that format (or close to it) on all devices, which, in his view would help to boost revenues.

And with the recently posted Q2 earnings, that certainly appears to be the case.

Pouros added: “Facebook may need to pace itself a little less aggressively when it comes to cashing in on its advertising sweet spot. Alongside showing that 15% of users would pay Facebook to see no ads at all, Greenlight’s survey also showed that close to 70% say they ‘never’ or ‘rarely’ click on advertisements or sponsored listings in Facebook, indicative that consumer apathy is very real.”

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