How Facebook Inc. Succeeds Where Others Fail


People are reading a lot more on their smartphones these days, but that hasn't been translating to more advertising dollars for the publications producing the content they're reading.

Online publications saw traffic to their mobile offerings surge over the past year, rising more than 40% from July 2014 to July 2015. It's nearly doubled over just two years. What's more, mobile traffic to publications now accounts for more than half of all traffic to online publications.

But publishers have failed to convert that growing mobile readership into revenue. A recent piece in The Wall Street Journal noted that despite the fast-growing mobile views, some of the larger news publications are generating just 15%-20% of their digital ad dollars from mobile.

More than 50% of traffic. Less than 20% of revenue. That's not a winning set of numbers.

But there are clear winners emerging in mobile. Perhaps the biggest of those to date is Facebook , and there are good reasons for that.

Mobile advertising is proving especially difficult for publications. With such limited screen space to use, there aren't many options for ads, and traditional display ads -- what most online publications rely on -- aren't very effective. With advertisers often paying on a cost-per-click basis, that makes for diminishing returns. On a desktop screen, a publisher can make up for some of that ineffectiveness with volume. On a 4.5-inch screen, that's not possible.

Right ad to the right eyesThat makes ad targeting crucial. And Facebook is one of really just two companies, along with Google, that stand tall over all the competition in that department.

Facebook has a treasure trove of information about each of its active users, and it collects more of that every day. Nearly a billion people use Facebook daily, so it can offer advertisers just about any target audience on mobile.

COO Sheryl Sandberg offered comments on that front in July, saying that "marketers are looking to connect with people in a really deep way, connect with the right people. And our targeting, we think, is really strong compared to any other platform."

Publishers, on the other hand, offer mostly a broad audience, which is much less effective for advertisers. Facebook is also continuing to improve on ways of measuring the effectiveness of ads on its properties. The better it can demonstrate to advertisers that they're getting a good return on their investment, the more likely they are to spend money on Facebook ads.

Big share of a growing market Facebook accounted for 37% of all U.S. mobile display advertising revenue in 2014, according to eMarketer. That's an amazing number, given how many mobile sites are vying for our attention.

Even better for Facebook: The mobile ad market is expected to continue growing fast. Next year, eMarketer expects mobile ad spending to top $100 billion, already up some 430% over 2013. And it expects that number to double again by 2019, to just a hair under $200 billion.

Power playerFacebook's ability to effectively target ads has some news outlets rethinking their roles, working with Facebook in the social network's "Instant Articles" program. The platform lets news sites publish directly to Facebook and split the ad revenue. If Facebook sold the ad, the outlets keep 70%. Facebook does not take a share of revenue from any ads sold directly by the news outlet.

That publishers are willing to let Facebook take a share of their ad revenue speaks not only to Facebook's reach, but also to the power of the social network's ad program.

"We're hopeful these platforms can monetize our content at a higher rate than we can because they have more data on users," Jon Steinberg, the Daily Mail's North America chief executive, told The Wall Street Journal in August.

Facebook has quickly emerged as the dominant player in mobile. The average person spends more than 45 minutes a day on one of the company's properties -- Facebook, Messenger, or Instagram, according to the company, and that doesn't include time spent messaging on WhatsApp.

And Facebook has been converting that use into revenue very well. Mobile ad revenue was up 74%, year over year, last quarter. It now makes up 76% of the company's $3.8 billion in quarterly ad revenue

Three years ago, Facebook generated zero dollars from mobile.

Changing landscape still bodes well for FacebookThe mobile ad landscape is evolving, and eMarketer expects Facebook's share of the overall pie to decrease in the coming years, as more sites focus on mobile monetization. But that overall pie is expected to nearly triple between 2015 and 2019. So even if Facebook loses share, it should still grow mobile revenue at an impressive pace. And Facebook will continue to maintain advantages in targeting and measurement that should keep it in a strong position moving forward.

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John-Erik Koslosky owns shares of Facebook and Google (A shares). The Motley Fool owns and recommends FB, GOOG, and GOOGL. 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.

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