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Facebook faces mobile revenue challenge as IPO looms

Facebook didn't offer advertising for mobile devices until two months ago and hasn't figured out a way to make big money on the 500 million people who log in with smartphones and tablets.

May 16, 2012|By W.J. Hennigan, Los Angeles Times

In a world that's gone mobile, Facebook Inc. has a lot of catching up to do.

Facebook pocketed a cool $3.1 billion last year from ads viewed from laptop and desktop computer screens, but it hasn't figured out a way to make big money on the 500 million people — more than half its users — who log in with smartphones and tablets.

An iPad application for Facebook wasn't released until last fall. And Facebook didn't offer advertising for mobile devices until two months ago, when it began showing mobile users "sponsored stories" ads in their news feeds.

The absence of a strong mobile advertising platform could prove to be the social network's Achilles' heel, some believe, despite the investor frenzy that is likely to accompany its initial public stock offering that's expected Friday.

"There's no doubt this is a weak spot for Facebook," said Debra Aho Williamson, an analyst with EMarketer Inc., a company that analyzes digital marketing. "Up until a few months ago the company had no revenue from mobile at all."

The Menlo Park, Calif., company acknowledges the problem.

"Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results," Facebook said in its IPO filing with the Securities and Exchange Commission.

Mobile experts say it's not a simple fix. The most obvious problem is that advertisements on mobile devices are smaller and difficult to read. On a PC, a third of the screen's real estate can be dedicated to ads.

That won't happen on a hand-held device, Silicon Valley entrepreneur Matt Brezina said. He said Facebook's No. 1 goal should be integrating ads and other money-making tools without disturbing users' experience.

He should know. Brezina is founder and chief executive of Sincerely Inc., a company that operates solely off mobile devices. His Sincerely Ink app enables users to design and send a card to someone in their mobile device's address book.

"Mobile is everything these days," Brezina said. "People check their phones before they go to bed, when they wake up and while they're waiting for the bus to go to work."

Facebook has begun to make inroads into the mobile market. Last month, it bought photo-sharing app Instagram for $1 billion, and this week the company unveiled a new mobile redesign aimed at making news feed photos as much as three times larger.

The company has also unveiled plans for its App Center service, which will allow developers to offer their applications to Facebook users on mobile platforms.

Facebook's success on mobile devices is important not only in the U.S. but also in countries such as India and Indonesia, where more people rely on hand-held devices for Internet connectivity, she said.

Overall, people are spending more time on Facebook on their mobile devices than they are while using desktop computers, according to research firm ComScore Inc. The study revealed that the average time people spent on Facebook on smartphones jumped to seven hours and 21 minutes in March compared with six hours and 31 minutes on personal computers.

Rather than depend on big bold ads that would turn off cellphone Facebook users, the company will benefit from new revenue streams such as the mobile App Center, where users can browse apps that are compatible with their device and pay to run the app on Facebook.

Mobile devices also provide an opportunity for advertisers to pinpoint ads to Facebook users whose phones have GPS devices. For example, if a Facebook user is walking through a mall and is hungry, an advertisement for a nearby restaurant might pop up in the person's news feed.

But that could run the risk of looking too intrusive, said Melissa Parrish, interactive marketing analyst atForrester Research Inc.Facebook will be sensitive to that opportunity because it has typically taken users into consideration before advertisers, she said.

But now, with the IPO set for this week, experts say investors may want to be certain that Facebook has a robust future in mobile users.

"It's critical that Facebook figures out the mobile market," Parrish said. "If you look at Internet behaviors, customers are connected all of the time now.

"But if there's a revenue stream that's out there, you can bet Facebook has a team of geniuses trying to tap into it."

william.hennigan@latimes.com

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