The Biggest Caveat in Facebook's S1 -- Or, Let's Go Bananas!

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It’s been a while since I’ve spent so much quality time with an S1. But after cozying up to Facebook’s yesterday at the Starbucks deep within the Stop ‘ n’ Shop on the border of New Rochelle and Larchmont, I came to two conclusions:

1.  Our family unit is critically low on bananas. (This was subsequently remedied.)

2.  The biggest caveat in Facebook’s S1 is that it needs to ripen its mobile revenue plans. (This is a little more complicated than going to the produce section of the supermarket.)

Clearly, I’ve been playing a little too much Fruit Ninja.

Seriously though, here’s how the numbers from the S1 break out:

• Facebook currently has 845 million monthly active users (a 39% increase from a year ago, when it had 608 million).
• 425 million monthly active users, or just slightly more than half, use mobile devices to access Facebook. (This does not mean exclusively, but it’s still obviously a well-ingrained habit. It does include iPad users.)
• Much of the 48% increase in daily active users between 2011 and 2010 is attributable to mobile.
• And lastly: “Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.”

Ouch.

The numbers present no real surprise, but it’s always a little, well, different, when they are placed directly in front of you. The S1 is chock full of indications that mobile is increasingly where it’s at, revenue plan or no. While not mentioning specific countries, it says: “We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs [monthly active users] for the foreseeable future.”

The other potential problem I see is how little is really known about how big the market opportunity for mobile ads is, once Facebook, and the rest of the market, gets truly up and running. Quoting “an industry source,” the S1 puts 2010 spending for the entire global mobile ad market at $1.5 billion, or 25% less than all of Facebook’s almost $2 billion revenue for that year. (IDC, for one, sees most of the mobile ad market being in search.)

While it quotes the same industry source as predicting that the mobile ad market will be at $17.6 billion by 2015, it would be wise for everyone to take this with a big grain of salt, not only because the prediction is three years out, but also because advertisers are (still!) notorious in their slowness to adapt new technologies. If mobile is moving towards 4G, advertisers are on 1x.

But if you’re looking for the S1 to provide answers about how this is to be resolved, you won’t really find them -- other than some mentions about sponsored stories potentially showing up in the news feed. Facebook has to be cautious here -- and it may indeed have some mobile ad plan in the works that it was just dying to include in the S1 -- but the S1 is not a document made for wild-eyed predictions. For all of the positives it outlines, its purpose, no matter who the prospective public company is, is almost to dampen expectations.

That said, my big takeaway from Facebook’s -- other than that Mark Zuckerberg really wants to rehabilitate the word “hacker” -- is that if I were an investor, I’d want to know a whole lot more about the future of the mobile ad market, and Facebook’s role in it.

When it comes to a mobile ad plan, Facebook really needs to start going -- wait for it -- bananas.

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3 comments on "The Biggest Caveat in Facebook's S1 -- Or, Let's Go Bananas!".

1. Jeff Judge from Signal
   

   commented on: February 2, 2012 at 4:47 p.m.
   That first list item made me chuckle, bananas have taken such a prominent role in our kitchen now that we have a 1 and 3 year old sitting at the table with us. It does feel like this is a great problem to have for Facebook, and that given their ability to pinpoint advertising with extreme precision based on all of the data they have about us, that they'll be able to execute on solving that problem. Contrast this with anyone else that has that scale of eyeballs and you'll find that it's pretty tough for them to solve that problem. For example, here's a URL (http://bit.ly/yxzWUa) that contains a data representation of every band I've liked on Facebook (100+). Knowing this much about me, I'd appreciate the heads up about an album release or that a band is going to be in my area. Those are the type of ads I think they'll work with partners on, and make a killing.
2. George Parker from Parker Consultants
   

   commented on: February 2, 2012 at 6:09 p.m.
   Cathy... Best thing I've read all day on this subject. To paraphrase my George Orwell quote intro to AdScam... "Facebook is the rattling of a stick inside a swill pail"... Being long enough in the tooth to have been around this track a few times, I have a feeling this is not going to end well, particularly for anyone who buys in on the opening day of the launch. Cheers/George
3. Jeff Judge from Signal
   

   commented on: February 9, 2012 at 11:04 a.m.
   Your colleague Steve just wrote about some interesting news on this front: http://www.mediapost.com/publications/article/167536/facebook-taps-bango-keeps-ad-model-a-mystery.html

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