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By Adam Gale Thursday, 28 April 2016

Credit: Brian Solis/Flickr

Credit: Brian Solis/Flickr

Mark Zuckerberg's mobile-first strategy pays off for Facebook

Facebook's mobile revenues increase 82% year on year. Does this give the social network the edge over Google?

When Facebook went public in May 2012, it didn’t have a single ad on mobile. Six months later, CEO and founder Mark Zuckerberg gave Tech Crunch Disrupt three reasons why mobile was his company’s future. ‘For one, there’s more mobile users. Second, they’re spending more time on it... third, we can have better advertising on mobile, make more money.’

It turns out he may just have been on to something. Mobile overtook desktop as an advertising platform in the US last year, according to research by eMarketer, and it’s predicted to be well over twice as big by 2019 (at $65bn) as desktop sales stay flat. And, thanks to Zuckerberg, Facebook  -and not Google - is the firm best positioned to exploit this huge growth market, with three times its rival’s share of mobile display spend.

Indeed, Facebook (which includes WhatsApp and Instagram) is essentially a mobile company. Revenues on the platform jumped 70% year on year in the first quarter of 2016 (to $4.4bn, out of $5.4bn total revenues), having grown 82% the previous quarter. Mobile income now represents 82% of the business.

Crucially, Facebook is also starting to make money out of mobile, long feared to be less profitable than desktop. Profits nearly tripled to $1.5bn in the first quarter this year, helped by the fact that users now spend 50 minutes a day on Facebook, Messenger and Instagram. All the talk at Google may be about mobile, but actions speak louder than words.

So if mobile’s the future and Facebook beats Google on mobile, does this mean Facebook is the future? It certainly seems to be catching up, growing year on year at around 50% compared to Google's 20%, but there’s some way to go. By revenues from this quarter, it’s still barely a quarter of the size of its rival and well under half the size by profits.

Google isn’t entirely ill-equipped to deal with mobile either, commanding an estimated 90% of the smart phone search market, in part thanks to the conditions attached to using its ‘open source’ Android operating system. But is does have a much more fundamental problem with mobile ads than Facebook does.


Can Google keep growing forever?


Google users want to search for something else quickly and then leave as soon as they do. Ads get in their way. Facebook users on the other hand want to be on Facebook. They stay on the site for much longer, which means the ads can blend in. On desktop, this difference isn’t so great, but on small mobile screens it’s huge. Google’s business model (YouTube aside) is therefore less lucrative on mobile, whereas Facebook’s isn’t.

Google could of course figure it out (it is rather smart), buy its way into mobile (Twitter’s going cheap) or diversify into a new sector entirely (driverless cars, anyone?). But if it doesn’t do any of these successfully, it wouldn’t be inconceivable that in ten years time Facebook could be the bigger company. Zuckerberg is already looming large in the rear view mirror.

FACEBOOK'S 2015 RESULTS BY THE NUMBERS:

Revenue: $17.9bn (up 43.6%)

Profit: $3.7bn (up 27.6%)

Daily unique users: 1.04 billion (up 17%)

Mobile daily active users: 934 million (up 25%)

 

FACEBOOK’s 2016 Q1 RESULTS:

Revenue: $5.4bn (up 52%)

Profit: $1.5bn (up 196.6%)

Daily unique users: 1.09 billion (up 16%)

Mobile daily active users: 989 million (up 24%)

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