Facebook has made billions of dollars selling mobile ads within its social network. Now, it hopes to make billions more by selling mobile ads elsewhere, too.
On Wednesday, Facebook (FB) unveiled a mobile ad network that coordinates and places ads for publishers of other mobile applications. The system taps the vast trove of data that Facebook collects about its users to help to help marketers better target their messages.
"This is really the first time that we're going to help you monetize seriously on mobile," founder and CEO Mark Zuckerberg told the audience of developers at his company's F8 conference in San Francisco.
Facebook's mobile ad network, called Audience Network, opens a potentially huge new business for the company by letting it make money even when people use applications other than its own. The push also directly challenges Google (GOOG), which has had a similar ad network for five years and currently dominates mobile advertising.
Facebook has proven that it can sell mobile ads on its own social network. In just a few years, mobile revenue has gone from being an insignificant part of its business to being the cornerstone. In the latest quarter, Facebook took in $1.3 billion in revenue from mobile advertising, or nearly 60% of the company's overall revenue. A year ago, mobile accounted for $377 million, or 30% of total revenue.
The iron grip of Google, long the largest player in mobile advertising, is slipping as Facebook ramps up. Google will grab a 47% share of the $31 billion mobile ad market this year, down from 52% two years ago, according to eMarketer. Facebook's share is expected to approach 22%, or nearly four times greater than in 2012.
Earlier this month, Twitter (TWTR) also started selling ads on behalf of mobile publishers. A number of smaller companies also compete in the space, such as Millennial Media, which faces a tough challenge competing against such giants.
Success in mobile ads is critical because people are spending less time on their desktop computers and more time staring at their smartphones and tablets to shop, play games, and follow the latest news headlines. U.S. adults will spend close to three hours daily on their mobile devices this year, up close to half an hour from 2013, according to eMarketer. Time spent on desktop and laptop computers will drop to two hours and 12 minutes, seven minutes less than last year.
Facebook's decision to sell mobile ads for others had been expected for some time, but questions remained about whether the company would take a gradual approach or move in quickly. Facebook says it first will only sell mobile ads that encourage people to install an app or to use an app more frequently. In the future, marketers will be able to buy other kinds of marketing messages (such as banner ads) that are more difficult to measure in terms of a campaign's success.
Zuckerberg's grandiose plans haven't always panned out, and over the years, he has appeared onstage to pitch a number of new products that, in the end, turned out to be duds. For example, people have yet to warm up to Facebook Home, a smartphone larded with social networking services. Nor did they flock to Facebook e-mail, which the company introduced in 2010 and then recently decided to shut down.
This time may be different. Zuckerberg's focus on revenue at F8 is a big departure from his previous outings, in which he announced immense purchases of startups that make little or no money (the mobile messaging company WhatsApp for $19 billion; the virtual reality pioneer Oculus VR for $2 billion).
During his relatively brief appearance on the F8 stage, Zuckerberg never mentioned the spending spree. Instead, he and his colleagues tried to hammer home the message that Facebook wants to better serve the developers who build products around its social network and to create a better overall experience for users. To counter concerns about privacy, Facebook revealed that it is testing a form of "anonymous login" for people to try out third-party apps without leaving a trail.
"People want more control over how they share their information, especially with apps," Zuckerberg said. In other words, not giving people sufficient control over data they consider to be semi-private is bad for business.
Like many of its announcements, it's all still a work in progress.