Facebook Ads Becoming (A Little) More Valuable; Mobile May Be Next

6 Feb

In the S-1 filing for Facebook’s IPO, the company offers a little more insight into its advertising business, which it describes as “the substantial majority” of its revenue (and that’s an understatement).

In 2009, advertising accounted for 98 percent of Facebook’s revenue. The count reduced to 95 percent in 2010 and to 85 percent last year because of the growth of revenue from payments. Even though the growth of advertising revenue has come down, it is climbing and it grew 69 percent in 2011, to $3.2 billion, but it grew 145 percent in 2010. (As one point of comparison, our corporate masters at AOL reported $1.3 billion in ad revenue last year.)

What is propelling the growth? Facebook’s increasing traffic, which led to a 42 percent increase in ads served. In addition to that, the company says that the average price advertisers pay per ad increased by 18 percent. There is also another factor that is to be considered. Facebook has raised the minimum bid price for per ad, “to reduce the frequency with which low quality ads are displayed to users.”  (Hat tip to Inside Facebook for catching that last bit.)

As testimony of the effectiveness of  its socially driven ad strategy, the filing points to a Nielsen study, which found that Facebook ads wrapped in social data (i.e., including “Friend X liked Brand Y” above an ad) did 50 percent better in ad recall than Facebook ads without that data.The filing also makes some of Facebook’s advertising success stories prominent, and it talks about the advertising ad spend from specific companies —  namely, the ones whose executives are also on Facebook’s board. The Washington Post company spent $4.2 million on Facebook ads in 2011. Netflix spent $3.8 million.

There is, however, one big gap in Facebook’s monetization strategy. Despite the fact that mobile makes up about half of Facebook’s traffic, the company doesn’t currently serve ads in its smartphone apps, something the filing brings up multiple times. However, Facebook says, “We believe that we may have potential future monetization opportunities such as the inclusion of sponsored stories in users’ mobile News Feeds.”

Source: techcrunch

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