If there's one company that has proved mobile ads work, it's Facebook. Less than two years ago, its newly public shares were languishing thanks to its lack of presence on mobile devices. Today, thanks to CEO Mark Zuckerberg's late but all-out push into the app world, mobile ads constitute a stunning two-thirds of its advertising revenues.
But while the upside of mobile advertising for Facebook is obvious, there's also a downside that means the perennially lower prices of mobile ads relative to ads shown on computer browsers aren't going to change anytime soon: People just don't buy as much online in response to seeing or clicking on ads they see on Facebook's mobile app as they do when they're on their computers.
That persistent problem is apparent once again in a new report out today from Marin Software, which helps big marketers do search and social advertising. According to Marin, while 63% of clicks on Facebook ads came from mobile devices in the fourth quarter, only 34% of "conversions"--purchases and other actions a marketer aims to prompt--happened on smartphones and tablets. That's noticeably worse than search ads, for instance, which displayed a much closer parity betweens clicks and conversions on mobile devices--39% of clicks and 31% of conversions.
The reasons aren't really a mystery. For one, mobile screens remain small despite the growing popularity of larger phones such as the iPhone 6 Plus. People still don't buy stuff, download a white paper, or fill out a mortgage form nearly as much on their mobile devices as they do on their computer browsers, says Matt Ackley, Marin's chief marketing officer.
That doesn't necessarily mean those mobile ads are ineffective, just that it's tough to tell if they prompted people to buy later, on their computer or in a store. And that's the second problem. Until marketers--especially traditional advertisers accustomed to more direct measures of ad effectiveness--can be convinced that a Facebook ad did in fact result in a conversion elsewhere, mobile ad prices are going to stay depressed, or at least not improve enough to match desktop ad prices anytime soon. "The mobile conversion path continues to be less efficient than on the desktop," says Ackley.
For now, it's debatable how much of a downside this relative lack of conversions is for Facebook. For one thing, mobile ad spending is growing so fast that even with lower conversion rates and resulting prices, it's still adding up to healthy revenue growth.
More important, with the notable exception of app install ads, most of Facebook's mobile ads are intended not to spur an immediate purchase but to build awareness for future purchases of everything from steaks to cars. And unless mobile user interfaces improve a heckuva lot, you're never going to buy a car on your phone. That doesn't mean the ads didn't work, just that most commerce continues to happen in the physical world.
All this is why Facebook has insisted for a long time that clicks aren't the point. Not everyone has accepted that argument, but the company has a point: If marketers are looking for branding impact, as they are on television where they spend the majority of their ad dollars, clicks aren't as meaningful as they are with performance-oriented search ads. This is also why Facebook has strived, in particular with a partnership with Datalogix, to prove the impact of its ads on getting consumers into stores and purchasing stuff there.
Still, as obvious as these challenges may be, Facebook hasn't managed to overcome them, and it's going to take awhile, and a lot more research and case studies, to persuade conservative marketers that it's worth paying more for mobile ads. The upshot is that if the growth of mobile ad revenues starts to slow, these issues could come to hurt Facebook. That's why investors will be watching that growth rate very closely when Facebook reports its fourth-quarter earnings on Jan. 28.
