All that chatter from people decrying an increase in ads when they visit Facebook may not be exaggerations from an agitated few. Facebook CFO David Ebersman said during the company’s first-quarter earnings call on Wednesday that the social network served up 39 percent more ad impressions in the most recent period than Q1 2012.
That impression increase likely has as much to do with Facebook’s daily active user base growing by 26 percent year-over-year to 665 million people as it does any efforts to further boost its advertising revenue—up 43 percent year-over-year to $1.25 billion, or 85 percent of the company’s $1.46 billion in total Q1 revenue.
Even more likely, the rise in ads served has to do with Facebook’s mobile user base and corresponding mobile ad business growing like Baby Huey. Not only did Facebook’s mobile monthly active user base climb 54 percent to 751 million people (including 189 million people who only check Facebook from their mobile devices, up 128 percent year-over-year), but once again mobile jumped as a percentage of Facebook’s ad revenue, having gone from 0 percent in Q1 2012 to 14 percent in Q3 to 23 percent in Q4 to 30 percent in Q1 2013. Desktop ad revenue “stayed flat,” Ebersman said, before qualifying the stagnation. “Flat desktop revenue does not reflect a particular trend relative to desktop demand. Instead, more inventory is being shown on mobile because that’s where people are spending more time,” he said.
Increasingly that mobile inventory is being snatched up by mobile app developers. Facebook CEO Mark Zuckerberg called mobile app install ads “one of the more important new ad products” Facebook has introduced in the last year, and COO Sheryl Sandberg said that 3,800 developers, including 40 of the top 100 grossing apps in the Apple App Store and Google Play, have used mobile app install ads to drive nearly 25 million app downloads. However, the future focus will be less on adding new ad products and more on new ways to target Facebook’s existing ad products.
“The strategy is not to have a ton of ad units,” Zuckerberg said.
New ad products could come to Instagram’s 100 million monthly users, but Zuckerberg played coy on that question during Wednesday’s earnings call, saying only that ads in the Facebook-owned photo-sharing service is “something we’re thinking about.”
“The place you will see the most from us [in the future] is more around targeting to take the formats we have and make the ads better within those formats,” explained Sandberg, before adding that the company won’t rule out any future changes to ad formats. She did, however, rule out any intentions to target ads outside of Facebook. The company has “no plans to launch an [off-Facebook] ad network,” she said, even though the company beta-tested a mobile ad network last fall before “pausing” that test after a few months.
An emphasis on targeting isn’t all that new for Facebook, particularly of late. Since last summer Facebook has most notably rolled out Custom Audiences and Partner Categories as ways for advertisers to be able to target users based on marketers’ customer databases and people’s offline purchase behavior. Sandberg said the first quarter saw more than twice as many marketers using Custom Audiences as used it in fourth quarter '12.
More targeting options should quicken the growth in how much each ad costs, given that typically the more targeted an ad is, the higher its price. In the first quarter, the average price per ad ticked up by 3 percent, and Ebersman attributed the small growth rate to Facebook lowering the price floors for how much advertisers must minimally bid in its auctions.
Whatever happens with Facebook’s ad rates, advertisers aren’t expected to go anywhere anytime soon. The ratio of Facebook’s monthly users that return to the platform daily continued to creep up, hitting 60 percent in the first quarter. While some may scrutinize the one percentage point quarter-over-quarter uptick as indicative of Facebook’s daily user base beginning to stagnate, 360i’s vp of emerging media David Berkowitz said that any publisher that sees more than 50 percent of its monthly user base returning daily is “pretty phenomenal.”
“It’s hard to comprehend any publisher having the kind of loyalty Facebook does, especially a publisher at a scale like that,” Berkowitz said. He added, “Facebook keeps growing and nailed one of the most important metrics [for marketers] as far as its user base goes.”