Why Facebook's mobile business blew everyone away

Surprise! Advertisers, particularly those that want eyeballs on mobile, don't just like Facebook, they love it. And, as it turns out, you're totally cool with more ads in your stream.

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
3 min read
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Facebook's "fail harder" and "think wrong" philosophies could pay off in the long run. Facebook

In its second-quarter earnings report Wednesday, Facebook revealed that, on mobile, its business is healthier and stronger than anyone could have predicted.

The social network said that it made 41 percent of its $1.6 billion second-quarter advertising revenue, or roughly $656 million, from mobile. Heading into the report, even the most bullish of analysts were only predicting that mobile would account for a third of advertising revenue. Most were about $200 million off the mark.

How did Facebook manufacture such a surprising feat on mobile? Just like some relationships on Facebook: it's complicated.

Part of the surprise can be attributed to Facebook's continued desire to hold its future financials close to the vest and not, like other public companies, share guidance ahead of the time. And Facebook's mobile business, just one year old, is far more mysterious than its desktop or payments business.

The unsexy reality, though, is that the company was able to do what it has been talking about all along: connect the dots between its improved mobile apps, targeting technology and mobile ad units. Listen to any of the company's earnings call and you've heard this we're-getting-better story over and over again. Apparently everybody just tuned out those parts -- or more likely got lost in the skepticism of the market that was weighing down Facebook's stock.

When asked for clarity on why mobile ad revenue was so strong this quarter, Facebook executives provided a variety of answers with one underlying theme: demand is insanely high.

CEO Mark Zuckerberg said that Facebook's investment in building better apps was starting to pay off. COO Sheryl Sandberg talked about mobile app install ads as being a totally new, Facebook-owned market that was picking up steam. Even CFO David Ebersman weighed in with some insight.

"In terms of the progression of mobile, we're really pleased overall that News Feed ads, in general, and on mobile in particular, are working so well in terms of the performance they're providing to marketers and how users are engaging with them," Ebersman said. "As the investments we've made really started to come together, we had a lot more demand in our system that met the quality bar that we set for feed, so we're able to place that demand intelligently in a manner where it performed well and didn't have a meaningful impact on user experience."

Translation: Facebook can show more ads to users (about 5 percent of total stories) in mobile News Feed and people will put up with them.

Of course, it helps that Facebook's mobile audience has ballooned to 819 million people each month and around 500 million people each day. Attention is also higher than most probably realized. The social network shared, for the first time, that time spent on Facebook is up to more than 20 billion minutes each day, which means that the average daily Facebook user is putting in close to 29 solid minutes of social-networking time per day. Clearly, Facebook has a lot of captive eyeballs to offer advertisers.

"The fact is that Facebook has a very large audience, and with that brings power," Gartner analyst Brian Blau told CNET. "They alone control the ad experience in their apps and on Facebook.com. I believe this is one of the reasons why Facebook is doing well, it's their level of control and the large audience. It basically forces brand advertisers to include Facebook in their ad spend as they know their customers and fans are using Facebook and they can reach them with an enticing selection of ad types."

One extra juicy nugget is that Facebook can help advertisers reach people in developing markets with a feature-phone targeting option it released in April, which means it can monetize the attention of the 100 million people using the not-so-smart phone app. More ads are being shown in developing markets, Ebersman said.

Don't expect mobile to fly under the radar again. Zuck said that he "soon" expects to see mobile revenue surpass desktop revenue.