We all love good “Facebook will die” theories. Trouble is, the numbers don't support them
Eighteen months ago, in the grips of a disastrous IPO and with Facebook reporting no mobile revenue, there was an explosion of commentary about how the mobile platform was going to kill Facebook and possibly put an end to digital advertising as we know it.
What a difference a year and a half makes. For the last quarter of 2013, the company reported $1.25 billion in mobile advertising revenue, its new primary source of profit. Throughout last year, in each quarter its net income increased by roughly $100 million more than during the one preceding it.
Still, these numbers should be taken with a grain of salt. While impressive, 2013 mobile growth is easy, since there was no mobile ad revenue the year before -- and comparisons between 2013 and 2014 will also be difficult. After all, torrential revenue growth inevitably slows. Look at Apple, which experienced 80 percent growth quarter after quarter in the wake of the iPhone and the iPad. Now it's below 10 percent, which has investors concerned. There's no guarantee that Facebook can keep up this much momentum with its transition to mobile.
Still, I like its chances, despite the gripes that many users have. During the early months of 2013, as the company began remaking its offering and ads started showing up everywhere, there was talk that ads were ruining Facebook and was time to unplug. Yet, for all that talk, 1.23 billion people use Facebook each month worldwide, and the company added 139 million daily active users in 2013. As Mark Zuckerberg proclaimed in yesterday’s earnings call there were 6 billion likes on the site in December 2013, a 59 percent increase from a year prior.
We’re engaged. And even if we hate the ads, we’re clicking on them, too. A study from Adobe and Kanshoo Social found that 29 percent more Facebook ads were clicked on in 2013.
Still, not enough. Post-announcement yesterday, the New York Times joined a chorus of other media sites from over the past months in referencing Facebook’s Snapchat problem and pondering whether it was losing teenagers. This in spite of all estimates putting teenage participation in Facebook a few percentage points either side of 90 percent.
No wonder junk science took off on the Internet recently foretelling an 80 percent crash in Facebook users by 2017. We all seem to love a good “Facebook will die” theory.
Having turned its mobile platform around in the last half of 2012, Facebook reaped the benefits of that in 2013 and is now clogged up in advertising dollars. The company begins in 2014 in a position of total strength.
There hasn’t been one simple way that they’ve done it. At the biggest picture level, Facebook improved its product and made the app easier to use. 2013 was also the first year that people in the US spent more time on the Internet on mobile than desktop. The prevailing winds accentuated the growth you're now seeing in Facebook.
Facebook’s native advertising -- brand posts that come from one part of the site but which can be promoted into your news feed -- have been a goldmine for mobile. If a brand doesn’t have a mobile-optimized website to send you to, it only needs to redirect you its own Facebook page where it can engage you. There’s no difference in appearance between desktop and mobile ads, which cuts down on the amount of formatting and design work required, while Facebook prices advertising on desktop and mobile similarly.
The company made it easy for people to advertise on mobile, right as we all started using our phones for bigger things last year. The company didn’t create the demand, but it did cash in, bringing its vast audience and cache of first-party data to with them.
There were several other tweaks Facebook made: it added ads for mobile apps, simplified its ad offerings and improved its audience targeting.
The ascendancy of Facebook’s mobile advertising, as shown off in yesterday’s announcement, should silence all talk forever that the company is a fad that got out of hand. But 63 percent year-on-year growth in revenue and 800 percent spikes in profit won’t be a regular thing.
After Facebook’s golden run with mobile advertising in 2013, much like Apple’s return to earth in a post-iPad world, its current momentum is probably untenable.
Still, it does have a few follow up acts in the wings. There’s growth to be gained from the fact that as social advertising becomes better at targeting valuable audiences, the ads themselves become more valuable.
Last year, Facebook delivered eight percent fewer ad impressions because there’s just less space to put ads on a phone. But each of these impressions cost, on average, 92 percent more. The company can grow profits just by improving the formula.
Instagram doubled its user base last year to over 150 million. The short videos that it supports now can be commandeered to mimic TV spots. Barron’s called it “ripe for monetization,” while some kooks have predicted that its revenue could go as high as $340 million in 2014.
Facebook has things to try. It launched a new ad exchange in October to help marketers retarget consumers in the Facebook app based off mobile web browsing. It has expressed a desire to put its ads into third-party websites and apps.
All of which expands the real estate that Facebook has to sell ads in, which could spur growth.
Will we see the same numbers this time next year? Probably not. But Facebook is not a company that is out of ideas. The least we can do is knock it off with the fall of Facebook talk. The rumors of its demise, as always, remain greatly exaggerated.