Breakout

Facebook’s Imaginary Mobile Ad Strategy

Jeff Macke
Breakout

Facebook (FB) reported a mixed bag of a quarter last night raising as many questions as it answered regarding the company's long-term growth. The definitive social networking site reported earnings of 12 cents a share, missing Wall Street estimates by a penny, though revenues were slightly ahead of expectations.

The top and bottom lines are less important to Facebook investors than the company's progress towards transitioning from desktop to mobile. FB says 30% of ad revenues are coming from mobile, up from 23% last quarter and 14% six months ago. It looks good but FB's relative growth on mobile actually lags the migration of its user base and the industry as a whole. More than half of FB users have left the desktop, and the mobile ad market is expected to grow nearly 80% this year.

Related: Two-Thirds of Our Business Will Come From Digital & Emerging Markets, Says Sir Martin Sorrell

How is Facebook going to pick up the pace? A hint at the answer was buried in the conference call after results were released. Speaking on the call, CFO Sheryl Sandberg dismissed the traditional idea of using clicks to measure the efficacy of online ads. Instead, FB suggests that the mere existence of the ad on FB leads to sales. Citing a DataLogix study, Sandberg noted that "99% of people who saw Facebook ads and then bought a product in a store never clicked on an ad at all."

Hmm...

Sandberg has done two things there. First she's dismissing the industry standard for measuring the success or failure of an online advertisement. In other words, because you don't click an ad doesn't mean it didn't work. As an alternative to measuring clicks, FB is following users' off-line purchases.

This suggests Facebook is working to cross-reference the influence of ads not only on users' online purchases, but on their in-store purchases, as well.

Here's a real-life example. The link below goes to McDonald's (MCD) homepage. I don't get paid by MCD, though I have owned the stock. I not only don't endorse MCD, but I suggest you not go there to eat — choose something healthier.

Here's the link; please don't click it: McDonald's Homepage.

Using Facebook's logic, I will be partially responsible for anything you happen to buy at MCD for the rest of the day or perhaps week. I linked to the site and you bought an Egg White Delight McMuffin. How you felt about my link matters not at all in FB's world. I linked, you bought, McDonald's owes me a dollar.

When companies have to start inventing new metrics or methods for keeping score, it's generally a bad sign. MAU, sharing, reach. These aren't financial metrics, yet they're things FB is pointing towards as evidence of the company's growth and progress.

History hasn't been kind to companies reduced to inventing their own way of keeping score.

Rates

View Comments (41)