Facebook's Mobile Ad Machine is Getting Even Smarter

By Markets Fool.com

Image source: Facebookbrand.com.

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Earlier this year, Facebook (NASDAQ: FB) and Twitter(NYSE: TWTR) revealed that they were conducting research into how people process video -- particularly the videos that we see as we scroll through our feeds on our smartphones. This quarter gave us the first real look at how their findings are shaping video ads and how advertisers are already having success by adopting their recommendations.

While anecdotal at this stage, the developments highlight Facebook's strengthening position in an important area of ad growth: mobile video.

The researchers found that we process video much faster when we see it on small screens than we do when we watch TV. When it appears in our feeds, however, we process things at hyper speed; nearly half of the "cumulative impact" of ad recollection takes place within just the first three seconds of viewing. Even more remarkable, research showed that the recollection of messages can occur even in the first second of a video.

Captions, interactives drive interest

Based on what it's learned, Facebook has been helping companies create shorter video ads for their products and services and ads that are effective even when a viewer's phone is silent. Executives noted some success stories in April.

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They pointed to Nestle, which took an existing video ad for its Natural Bliss coffee creamer, and "in less than a day," edited it for a mobile feed, creating a new intro and adding text so that it would be effective even without sound playing.

The results were significant increases in both ad recollection and product awareness, Facebook said.

Adding captions alone increases view time by 12%, according to the company. Using a combination of video, photos, and call-to-action buttons -- like Facebook's Canvas platform allows -- can offer even bigger benefits, it said.

Lowe's created a Canvas ad targeting millennial do-it-yourselfers that "were so engaging that people spent an average of 28 seconds interacting with them, and Lowe's saw a 6.7 times return on ad spend," COO Sheryl Sandberg told analysts on April 27.

Smartphone video is exploding...

The video advertising front is a significant one for investors to watch, and especially the mobile video market. Mobile video ads made up just $1.5 billion of total ad spending in the U.S. in 2014, but that number is expected to ring in at nearly $7 billion by 2019, eMarketer forecasts. The U.S. generally comprises around a third of digital ad spending worldwide, so that gives us some idea of how large a market there is to be had for companies such as Facebook, which generated some $18 billion in total revenue last year, and Twitter, which generated $2.2 billion.

The increasing interest in video ads appears to be a result of the shift from desktop computing to mobile, a transition Facebook aggressively looked to capitalize on. Both Facebook and Twitter now generate the lion's share of their respective revenue from mobile ads.

For Facebook, some 82% of its $5.2 billion in advertising revenue last quarter came through mobile. That was up from 73% a year ago. For Twitter, that share was even higher, with mobile making up some 88% of its $531 million in ad revenue for the quarter. As a percentage of Twitter's total revenue, however, mobile was down by a point from a year ago.

Now that people are spending more time consuming media from their phones, the types of media they are sharing -- and expecting to see -- are also changing.

"On mobile, it's easier to take videos, so we see more videos," CEO Mark Zuckerberg told analysts.

In fact, Facebook users are now sharing more than three times the amount of video on the platform as they were just a year ago, the company said.

Sandberg called the trend "a big opportunity for marketers," but it also presents a big opportunity for Facebook and Twitter.

...and Facebook is continuing to capitalize

Facebook executives are cautious to note that as interest in video ads increases, it's not all incremental revenue-wise. Many of the video ads will be replacing more traditional News Feed ads.

"But as consumer engagement with video has continued to grow, that creates more and more of an opportunity for video ads," Sandberg said.

Facebook's position in mobile makes these advances even more significant. Not only can Facebook deliver advertisers the targeted audiences they are seeking, but it can help them to develop the most effective ads based on scientific research. Combine that with the continually improving ability for companies to measure the effectiveness of ads on Facebook, and it becomes clear the social network is building a serious competitive advantage in mobile video advertising at a time when mobile video is exploding.

The company will continue to invest on this front, Sandberg said. But it appears to have already put itself into an enviable position.

The article Facebook's Mobile Ad Machine is Getting Even Smarter originally appeared on Fool.com.

John-Erik Koslosky owns shares of Facebook and Twitter. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.