Facebook, Google Lead Way Cracking Mobile-Ad Code

Investor's Business Daily

It took awhile, but Internet companies are finally cracking the mobile-ad code.

No. 1 social network Facebook (FB) last month said mobile ads accounted for 41% of its total ad revenue in Q2, up from just 3% in the year-earlier quarter.

No. 1 search engine Google (GOOG), meanwhile, is nearly done transferring its millions of ad buyers to a new system that combines mobile and desktop, which the company expects will boost its mobile ad sales.

"The mobile market is still very new, and what Facebook has managed to do, in a manner similar to Google, is to develop ad products that can follow users no matter what device they're using," said Clark Fredricksen, an analyst at research firm eMarketer.

Other tech companies also say they're breaking through to much bigger mobile ad sales.

More people are using mobile devices, but the small screens of smartphones makes using that limited real estate for ads a challenge. Displaying useful ads that don't irritate users already is tough enough.

With such uncertainties, advertisers have been unwilling to pay as much for mobile ads as for desktop ads. Google, Facebook and others expect mobile ad rates to start rising faster once more users get comfortable clicking on ads and buying products on their phones.

EMarketer forecasts Facebook's mobile ad revenue to jump 334% this year to $2.4 billion. It sees Google's mobile ad revenue rising 92% to $8.85 billion, and microblog Twitter's soaring 121% to $310 million.

For Q2, Facebook reported $656 million in mobile ad revenue. Wall Street expected just $455 million, says Piper Jaffray analyst Gene Munster, who wrote in a research note that mobile will comprise most of Facebook's ad revenue by Q4. A key has been putting ads in users' key Newsfeeds. Also, Facebook is set to roll out its first video ads.

Google's mobile ads have risen in part by improving their quality and placement. A Google Shopping advertiser now can buy display ads for a product across all devices, and Google says mobile ads are being positioned in mobile search results in a way that increases ad clicks.

"We're in very early stages, but ultimately Google is in a very good position," Wedge Partners analyst Martin Pyykkonen told IBD.

Online real estate sites Trulia (TRLA) and Zillow (Z), which offer services geared to house hunters on-the-go, have enjoyed gains in selling mobile ads to real estate agent customers — and not at lower rates.

Trulia CEO Pete Flint told IBD his company has capitalized on mobile growth by offering agents an option to buy ads solely for mobile devices.

"We see this (business) being ultimately a mobile category," he said. "We monetize mobile agent subscribers at a rate higher than our Web users, so we have a mobile premium.

When a user is standing in front of a home, looking at its description on Trulia, they're more motivated to click on agents' ads than someone at home using a desktop computer.

In its Q2 earnings report last month, Trulia said its monthly mobile visitors doubled vs. Q2 2012, to 30 million.

Business-focused social network LinkedIn (LNKD) is testing ways to monetize mobile. Mobile has not been a big growth driver for the company, though in Q2 LinkedIn said 23% of users visited via a handset, up from 10% in the year-earlier period.

LinkedIn launched its first mobile ad campaign, with Shell (RDSA) and others, in June. "Early indicators are positive," CEO Jeff Weiner told analysts on Aug. 1.

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