From the time Facebook proposed its IPO, mobile has been seen as a weak link in the social network’s monetization model. The company went public before it seemed to have a strategy in place for recapturing revenue on all of that traffic that was migrating from the more lucrative desktop to a platform that only started carrying sponsor messages months later.
Well, now the sheer number of ads on Facebook’s smartphone experience is helping some financial analysts to paint a rosier -- although possibly short-lived -- picture of its future. BTIG analyst Rich Greenfield revised his estimates and stock rating for Facebook this week, citing a substantial increase in mobile ad load as evidence that the company was finding a path to mobile monetization. “It is now common for 25% of the first 20-25 posts within a user’s news feed to be sponsored ads,” he writes. “It feels as if the load has increased by 50% to 100% since mid-late Q3 2012.”
He demonstrated the clutter of ads on Facebook in a video posted to BTIG and YouTube.
Greenfield raised his rating for the stock from Sell to Neutral. He predicted Facebook would see an overall revenue rise of 37% in the last quarter of the year, with 42% in advertising revenue.
Nevertheless, Greenfield warns that there is a price to be paid for the overall increase in ad loads both online and on mobile. The decline of big transactional revenue sources such as Zynga moves Facebook to rely too quickly and aggressively on the ad model. BTIG had reduced estimates for Facebook initially because the analysts felt the social network could not ramp up ad loads beyond what it had already done in Q3 2012.
Greenfield says the radical uptick in mobile ads will have goosed immediate earnings but at a longer-term cost. “While we still feel we know ‘how this movie will end’ from cluttering the user experience with ads, Facebook has accelerated ad units (and likely revenues) even further on mobile devices in recent weeks.”
In early October BTIG and Greenfield warned that a conflict was developing between monetizing pages and user experience, especially on mobile platforms. “While mobile ads perform significantly better than desktop ads, the outperformance is driven by how much of the screen they occupy (more annoying) and ‘fat-fingers’ (accidental clicks).
While my own newsfeed is not as ad-rich as Greenfield’s, the appearance of ads has become both noticeable and pronounced in recent weeks. Mine tend to get top-loaded and then peter out further down the scroll, which seems to me a reasonable compromise if indeed Facebook was doing this by design. At the very least this will be an interesting test case for the tolerance of consumers for mobile advertising on a social network and a device they generally regard as deeply personal. Is this the price one pays for going public, where your fundamental relationship with your core consumer is so profoundly influenced by the need to make your quarters?
Greenfield says there is no evidence yet from usage metrics that people are turned off by the increased mobile ad load. But this also is the kind of effect that is subtle and is hard to prove with any certainty. As a user sometimes subconsciously comes to feel an online or mobile experience has deteriorated, they likely just pull back on their use or session times incrementally over long stretches of time. Whether this is the pattern with a network that some find an essential resource is another matter.
But Facebook clearly is pressing quickly into new territory. While most digital users are accustomed to trading free service for some level of ad intrusiveness, inserting so many ads into streams of personal data on the most personal of all platforms surely degrades the experience at least incrementally, if not alienating some users altogether. In my newsfeed the screen can be virtually filled at some points with a large block of sponsored posts.
One almost wishes at times for a good old-fashioned persistent banner instead. For all the love gushing toward the native ad formats, let’s not kid ourselves about the real relevance of in-stream promotions. More often than not they stick out like sore thumbs because they are not especially smooth insertions. A publisher or advertiser’s notion of contextual relevance is often more liberal than a user’s. And we can tell ourselves the comfy bedtime story about how “advertising becomes content” when it is relevant and well-targeted and compatible with the flow of use. Sure, that is true in Vogue or enthusiast and hobby content where consumer interest in the specific category is extremely high. But in many cases, an ad is still an ad, even in these supposedly “native” formats. I suspect most consumers’ level of annoyance with the ad is determined more by their intrusiveness than meliorated by their relevance.