As smartphones proliferate across the world, mobile advertising is fast becoming the preferred medium for corporations to communicate with consumers. According to a report from research firm eMarketer released earlier this year, mobile ads will account for more than half of all digital advertising ad spend in 2016. In numerical terms, this means that mobile ad spend will surpass $100 billion. The same firm also reported by mobile advertising will account for 55% of total ad spend by 2017. Digital advertising, which is where Google Inc. (GOOG) dominates currently, will have a 33.5% share.
Google Vs. Facebook
Two technology companies are at the forefront of the mobile revolution: Google and Facebook (FB). Together, both accounted for more than 55% of mobile advertising budgets last year. Given the scope and breadth of their reach on smartphones, they are also expected to dominate the market in coming years.
Although Google is the front runner, Facebook is snapping at its heels. And, unlike the online advertising market where it has a commanding lead, the Mountain View-based company may not hold the pole position for long in the mobile space. This is because mobile advertising is a completely different beast as compared to online advertising. (For more, see Why Facebook Is The Biggest Threat To Google's Ad Revenue Throne.)
How Mobile Advertising Works
For starters, mobile advertising is constrained by ad space. Because mobile screens are relatively small (as compared to desktops), advertisers have less real estate to display their ads. As a result, banner ads and display advertising, which are popular in Google's desktop search results, degrade the search engine's mobile interface by occupying too much real estate.
The mobile experience is also splintered across multiple apps and websites. On a desktop search, Google "infers" your interest based on the search term and serves up ads (linking to specific websites or services) based on that interest.
Mobile apps fragment this centralized approach through an app ecosystem of services and information. A central gateway, such as Google, is absent. Thus, Google Maps becomes an app with independent access in the mobile ecosystem. The metrics used to measure the effectiveness of an ad on mobile are also different. For example, cost per thousand impressions or CPM is a commonly used metric in online advertising. But, mobile ads use time spent inside an app is used as a metric. (For more, see How Smartphones Are Changing Advertising & Marketing.)
Facebook's Mobile Ad Competition
The changed metrics benefit Facebook, a closed system whose pitch to advertisers is the amount of time users spend on its site or in its app. But, it is contrary to Google's design philosophy, which, given the simplicity of its site, is focused on navigating users to destination sites.
The natural fit has propelled Facebook's growth in the mobile ecosystem. In 2012, the company had zero revenue from mobile in its first earnings call. However, mobile accounted for 69% of Facebook's total revenues this year. The company's share of the mobile advertising market also jumped from 5.4% in 2012 to 17.5% in 2013.
In contrast, Google's share of the mobile advertising market, estimated to be worth $8.75 billion, declined from 81% in 2012 to 68% in 2014. The decline occurred despite mobile searches on its search engine outpacing those on desktop.
This is because Google is still searching for ways to monetize the closed mobile experience. The company belatedly added "mobile friendliness" to its criteria for evaluating sites earlier this year. Its popular Android platform is yet to make a serious impact on its bottom line. Earlier this year, the company announced plans to partner with delivery apps to display their services for mobile searches. That strategy seems like a replication of its web approach. Whether it is successful in mobile's fragmented ecosystem, however, remains to be seen.
On the other hand, Facebook has adopted a mobile-first theme since 2012. It's strategy encompasses a wide swathe of devices, apps, ad formats (such as video and display) and geographies. Even as it becomes a hub for people of all ages, the social network has acquired apps, such as Instagram and messaging app Whatsapp, to broaden its audience and services on mobile. (For more, see: Google Ads Vs. Facebook Ads.)
The Bottom Line
Facebook has also ramped up video advertising capabilities and, in a broadside aimed directly at Google's Youtube, announced revenue-sharing terms that are more attractive than the Google site. The company's tie-up with major news organizations to launch the Instant Articles feature is designed to increase the user time inside its ecosystem.
The moves are aimed at leveraging Facebook's direct connection to users. In a presentation deck leaked to the press, the company boasted that its ad targeting campaigns had an accuracy of 89%, as opposed to 39% for similar narrowly targeted campaigns.
Given its current moves, Facebook may overtake Google in the mobile advertising market sooner rather than later.