Mobile Advertising Boosts Facebook's Revenue
Facebook is reporting strong earnings — shares have gone up more than 50 percent this past month, thanks in part to mobile advertising.
Facebook had no mobile revenue in the first quarter of 2012. But just last quarter, 41 percent of Facebook’s revenue came from mobile.
ROBIN YOUNG, HOST:
From NPR and WBUR Boston, I'm Robin Young. It's HERE AND NOW.
And investors are liking Facebook. The company stock topped its initial public offering price of $38 yesterday. It ended at $38.86. Derek Thompson of The Atlantic joins us from the NPR studios in Washington. And Derek, people could be forgiven for thinking, wait a minute, wasn't the thinking at that initial offering that Facebook wasn't worth the buy? Angry investors were suing. What happened?
DEREK THOMPSON: Right. Hi, Robin. Well, there isn't really anything special about the number 38. It's just a psychological threshold. But at the end of the day, Wall Street is just one big psychological game anyway. So these thresholds do tell a story. And I guess here's the story that number 38 tells for Facebook. It's a company that when it went public last year, in May, like you said, it had people, you know, at first talking about the first trillion-dollar company in American history, and then it goes public. And rather than go pop, the stock goes splat. And for a year, Facebook just feels like one big fat disappointment.
But in the last month, the stock is up 50 percent and the resurgence has been led by this thing, mobile advertising, that Facebook wasn't even trying a year ago. So that's a good story, an impressive story to tell about a company that sophisticated investors had basically written off.
YOUNG: Well - and remind us because when you say mobile advertising, this is on smartphones. And the problem was getting advertising onto those little frames and trying to get some revenue from this, what, 1.5 billion users, most of them using their smartphones. So how did Facebook figure out to get some advertising revenue off of that?
THOMPSON: Right. Facebook saw that all of its eyeballs were moving from desktops, where it had just built this advertising infrastructure, to mobile devices where they had nobody working on advertising. But you know, in the last year they've really made a lot of progress. And I think Facebook has two things going for it - simplicity and scale. With scale, you know, the company has 1.15 billion users worldwide, something like 700 million who log in onto the site every single day. I mean, that's just incredible. And if you're a company or an agency looking to buy an ad campaign online, and what you want is scale, it's really hard to compete with Facebook.
On the other hand, there's simplicity. And Facebook has an elegant answer to the complex problem that you just mentioned - how do you fit ads on a tiny 3-inch screen and get people's attention? And, you know, mobile ads tend to be ugly. They tend to be little boxes at the bottom of the screen or awful little pop-ups. And Facebook solved this problem with the newsfeed, that column of boxes that you scroll down when you log into the Facebook app. Some of those boxes are stuff from your friends, and some of those boxes are stuff from companies.
THOMPSON: And Facebook has basically figured out a way to get just enough of those boxes in front of peoples' eyeballs that now 41 percent of their overall revenue - overall advertising revenue - comes from mobile.
YOUNG: Well, I'm looking at my colleague Kevin's stream, and there's his friend Tom with a posting, and there's his friend Sarah. But right in the middle is an advertisement...
YOUNG: ...Kindle reading app. Now, just briefly, might Facebook users get angry at that though? They have been known to push back on what Facebook does. Maybe they don't want to see an ad in between their friends' postings.
THOMPSON: Right. Well, the first law of advertising is that nobody likes advertising. Nobody watches TV for the ads. Nobody goes to Facebook for the ads. Facebook is going to tell you, we're showing you companies that your friends like. And that's better than TV showing Viagra ads to young women or showing beef ads to people who are staunched vegans. And so they are saying, we're giving you contextual ads that feel like you are seeing something that you are likely to enjoy.
At the same time, nobody likes ads. Nobody likes feeling like they're flipping through their friends' pictures of babies and, you know, new husbands and wives, then all of a sudden, boom, there's something from Kindle or a shoe company. And so it's attention, and they're going to try to find, I think, a Goldilocks solution.
YOUNG: Derek Thompson - not too hot, not too cold. Derek Thompson, business editor of The Atlantic with a look at what Facebook is doing right in mobile advertising. Their stock just gone up. Derek, thanks so much.
THOMPSON: Thank you.
YOUNG: OK. When we come back, a city in California that's using eminent domain to keep people in their houses. That's in one minute. HERE AND NOW. Transcript provided by NPR, Copyright NPR.