I must say that I have been a little bit disappointed recently in the many, many, many analysts who have been knocking the Facebook valuation with very limited insight into what is going on with their advertising business. Their revenue potential is as strong as it has ever been and the social network continues to grow its users and roll-out innovative advertising products.
While there are many things that Facebook can do to drive revenue related to display, search, and mobile – let’s take a look at three immediate steps Facebook could take to ramp up revenues from its 500 Million+ monthly active users on mobile devices.
1. Show more Sponsored Stories in the mobile news feed
A sponsored story is a piece of news that you would see in your news feed anyways – turned into an ad. It is relevant, social and most people who see a sponsored story wouldn’t even recognize it as an ad. Simply put – sponsored stories work. Looking at campaigns AdParlor has run across numerous verticals show that on average, sponsored stories have a 17% higher click-through-rate and a 38% higher conversion-rate than regular marketplace ads.
When sponsored stories were first introduced they were only shown on the right-hand column. They were then rolled out into the news feed on the web version of Facebook. At fmc they announced that they would begin to serve sponsored stories on mobile, and on April 26th it seems to have gone live. However, most users have seen few if any sponsored stories in their mobile news feed as Facebook is slowly rolling this out while monitoring user experience. Facebook can easily flip the switch on this, increasing the volume of sponsored stories it shows in the mobile news feed and increase their mobile revenues.
2- Combining Location & Offers
A while back Facebook attempted to compete with Groupon and other daily deal sites by creating a deals product. They quickly shut that down for multiple reasons – and then re-emerged recently with an offers product. These offers are coupons which any page owner can create for free – and will begin to appear in a user’s news feed on the web. The real benefit will start to roll in when Facebook begins to serve these offers in the news feed on mobile devices to users who are near the store providing the offer. Even though an offer is free to create – if Facebook can leverage location-based mobile offers – page owners will begin to see the ROI and will purchase ads and sponsored stories against these offers to get more distribution beyond what is given for free. Additionally, brands will now have a very clear path to seeing ROI when buying fans. The investment question around the value of growing your fan base – at least for physical location retailers – will be answered. This is sure to increase the ad spend these companies will make on growing their fan base.
3 – Open up mobile device-specific targeting
There is currently a Facebook broad category targeting option for mobile devices. Advertisers can choose between Android, iPhone, BlackBerry, and Windows Phone. However – this targeting simply means that a user has accessed Facebook through one of these devices. Creating an ad and selecting this targeting will show ads to these users – however they could be accessing Facebook via the web or even a different device. If Facebook were to tweak this and allow advertisers who select iPhone to have ads show specifically ON the iPhone to a user accessing Facebook from their iPhone – this would mark a significant opportunity. Specifically – one of the largest advertising categories on mobile devices is for apps – and the massive gaming subcategory. If Facebook were to enable actual mobile device-specific targeting – iPhone, Android, and BlackBerry application developers could then leverage Facebook advertising to drive application installs – taking the user right from the click of the ad into the corresponding app store. It seems that right now Facebook wants to limit mobile ads to be sponsored stories in the news feed for many reasons – to maintain user experience, to keep users within Facebook, and an effort to make it not feel like advertising. Given this – it is unlikely that Facebook would allow ads from the mobile news feed to direct users anywhere outside of Facebook. However – the opportunity is there – and the revenue potential is huge.