Facebook, Google, Twitter in new scrum over mobile app ad gold rush

What once was Facebook's private mine has created a gold-rush effect with Google and Twitter also now seeking more mobile riches. But there's only so much money to go around.

Jennifer Van Grove Former Senior Writer / News
Jennifer Van Grove covered the social beat for CNET. She loves Boo the dog, CrossFit, and eating vegan. Her jokes are often in poor taste, but her articles are not.
Jennifer Van Grove
5 min read

facebook flag
The Facebook icon flag at the social network's Menlo Park campus. Facebook

At its F8 developer conference next week, Facebook is expected to present plans for a mobile advertising network, and in so doing turn on an additional revenue stream that could mint it billions more in mobile advertising revenue -- but not if Google and Twitter have a say in the matter.

A mobile ad network marries ad-serving technology to distribute inventory provided by advertisers across placements provided by publishers. Little is known about how Facebook's ad network will work -- the company declined to comment -- but presumably the product would pull from Facebook's unique and established strengths in mobile app advertising, which most certainly include the mobile app ad, the once unique-to-Facebook unit now being copied by both Twitter and Google.

Placing ads off the social network is a major undertaking that pits the 10-year-old company more squarely against rival Google, and, to a lesser extent, Twitter, which has a newly created ad network of its own powered by MoPub, a company it purchased for $350 million. But expectations should be tempered, especially now that digital advertising's buzziest companies are circling around the same honey pot.

A Google app ad promotes HotelTonight in mobile search results. Google

Facebook's opportunity is limited by the size of the app market, Gartner analyst Brian Blau cautioned in an interview with CNET. "I just sort of see this as [Facebook] filling in the holes of their ad platform as they march forward," Blau said. "The app business overall is not super gigantic."

Blau references the app business, or the market encompassing money spent on app downloads and in-app content, because this is the area Facebook, Google, and Twitter are targeting with a relatively new unit called the mobile app ad.

Facebook gave birth to the unit in August of 2012 as the "mobile app install ad" and offered mobile developers a way to promote app installs in Facebook's mobile News Feed. Just last week, Twitter followed suit with a "mobile app promotion suite" that developers can use to pitch downloads of their mobile apps on Twitter or via the mobile apps that use MoPub to serve their ads. Tuesday, Google entered the fray and announced plans to offer app install ads of its own in mobile search and YouTube.

Meanwhile, Gartner measured the total app store marketplace at $26.7 billion in 2013; it anticipates the market to grow to $35 billion in 2014, Blau said.

In essence, the bunch will fighting over developers who collectively advertised against a market of $26 billion last year. "How much advertising are you going to spend to make $26 billion?," Blau said. "You can spend a lot but it's going to start to eat into profit margins if you're looking at the market as a whole."

Facebook will be going after more of this market once it goes live with its rumored ad network, which will open up ad placement beyond its own properties for the first time.

In January, Facebook first confessed a tangible desire to show Facebook ads in third-party apps. The company said that it had started a test of a mobile ad network that would extend "Facebook's rich targeting to improve the relevancy of the ads people see, provide even greater reach for Facebook advertisers, and help developers better monetize their apps."

If the social network sticks with the mobile app ad as the unit it delivers to partners who turn to Facebook to monetize their apps, the company can significantly expand its mobile app ad audience beyond the 945 million people who use Facebook's mobile apps on a monthly basis. The ads already work in Facebook's mobile apps, so presumably they'll work elsewhere too.

Facebook said the ad type drove more than 145 million installs from Apple's App Store and the Google Play store in the first nine months of 2013. In October, Facebook changed the unit's name to the "mobile app ad" and expanded its purpose so that developers could target their existing users in Facebook's mobile News Feed and encourage them to take specific actions such a listen to a playlist, watch a video, or play a game.

Facebook mobile app ads Facebook

Mobile app ads are matched with Facebook's custom audiences tool, giving developers a precise way to find people who have downloaded their apps. If you've already downloaded the booking app HotelTonight, for instance, HotelTonight can run an add in your mobile News Feed nudging you to book a last-minute stay at a bed-and-breakfast within driving distance.

"I was skeptical of Facebook getting into mobile app install ads in the beginning, but it seems to be a really big source of revenue," he said. "I didn't imagine that people would respond to those types of ads as they have."

But even if they do work off the social network, Facebook is going head-to-head with the likes of Google and Twitter for just one sliver of the mobile advertising pie. And it would seem like Google's battle to lose. Though Google doesn't break out mobile ad sales, the search giant has a solid grip on the overall mobile ad market thanks to its AdMob ad platform. Google's portion of the worldwide mobile advertising market came in at nearly 50 percent in 2013, according to eMarketer.

Really, the mobile app ad, once Facebook's secret golden ticket, has created a gold-rush effect, but there's only so much money to go around.

Facebook has a massive advertising business that is growing and mobile is key to its continued success. The business ballooned by 76 percent in one year to bring in $2.34 billion in the fourth quarter of 2013 alone, with ads running in the mobile News Feed accounting for 53 percent of the pie. As Blau said, the mobile ad network would help fill in gaps in Facebook's platform and strengthen the mobile side of its business, but it's certainly not a smoking gun.

"Mobile app ads ... can't be their only target," Blau said. "They've got to move into location. That's the other holy grail of mobile; location, the connection between people and where they are."

Perhaps that's where Nearby Friends fits in.

Update, 7:59 p.m. PT: With no comment from Facebook.