It's no secret by now that Facebook has completely figured out how to make money on ads running on mobile devices--a big turnaround from just two years ago when the lack of mobile ads tanked its initial public offering. To date, it's believed that many of those ads are aimed at driving people to install mobile apps.
But surely app install ads can't keep growing like crazy forever, especially with new competition from the likes of Twitter and Google. So as Facebook today announced second-quarter earnings that easily beat analysts' expectations, one overriding question is: What's going to keep Facebook's mobile ad revenues moving rapidly up and to the right?
One likely answer: video ads. Facebook just started testing them in December, but by some accounts, they could soon become the key driver for ad revenue growth on the social network. They might even start to steal ad dollars from television that Facebook long hoped to capture. Facebook didn't get specific on numbers on mobile video ads, and Chief Financial Officer David Wehner said the fledgling format isn't producing significant revenues yet, not least because the company hasn't fully opened up these ads to all advertisers.
But CEO Mark Zuckerberg called out video ads in his initial comments on the earnings call. And companies that help advertisers market on Facebook say video ads are already getting a lot more interest recently. "We're starting to see a lot of video ads coming into mobile" on Facebook, says James Borow, CEO of social marketing technology firm SHIFT.
Some of those video ads are also aimed at those same app installs. But an increasing number are more TV-like spots aimed at branding rather than immediate installs or other "conversions" such as sending people to a website to view content or make a purchase. "Branding is still in the early stages" in video ads, says Borow, "but it's coming."
And not just on Facebook's app and website. Recently, Facebook has laid the foundation to jumpstart its video ad business well beyond its own blue borders. One is the recent acquisition of LiveRail, a company that helps advertisers run ads (in particular video ads) throughout the Web. The other is Facebook's own Audience Network, a system announced in April that makes it easy for advertisers to distribute ads in other apps. Then there's Instagram, on which Facebook has been testing ads as well. All of those are in test mode, so when Facebook opens them up widely, advertisers will be primed.
All those developments could even make Facebook the prime place for advertisers to do TV-like advertising on the Web, says Borow. "They're going to become the dominant way brands distribute video ads across lots of apps," he says. Why would Facebook have an advantage over other large companies already enabling video ads, such as Google and its YouTube video service or even Yahoo? "Facebook has the identity advantage," says Borow, meaning that it has better knowledge of users' actual identities and even serves as the defacto sign-in for many other services and apps. That allows it to track and target people across the Web and inside apps.
All this is not to say that video ads are driving much mobile ad revenue yet, despite Facebook asking as much as $1 million a day for them. Chief Operating Officer Sheryl Sandberg said the company has run about a dozen campaigns in a "slow but careful" rollout, but said "early data is promising."
Zuckerberg explained why the rollout is relatively slow. "We want to make sure quality is really good when we roll it out," he said. "There are still a number of things we want to prove." One of them is getting more non-ad video posted--presumably meaning more than your kid's first steps--so that people get used to videos running automatically and thus, the thinking goes, won't be unduly annoyed when they see video ads doing the same thing. Craig Elimeliah, senior VP and director of creative technology at the ad agency RAPP, said he thinks media companies so far are responsible for much of the pro video content on the site, so that seems likely to be one of the main targets for both organic video and video ads.
Sandberg said Facebook is talking more with big TV advertisers. She called out an example in Progressive's "Baby Man" video ads (shown below), that are among the first video ads to run on Facebook. "We're seeing people approach Facebook the way they're approaching television," she said, in the sense of telling stories like the best TV ads do.
