Display Ads To Eclipse Search As Mobile Revenues Take Off

gartnermobileFrom my Forbes.com blog The New Persuaders:

All that worry about how the lack of mobile ad revenues will hurt Facebook, Google, and a raft of startups? Fuhgeddaboudit.

Researcher Gartner today upped its forecastalready pretty heady, for mobile ad sales to $11.4 billion this year, up 19% from 2012. Gartner research director Stephanie Baghdassarian says that’s because of the rapid rise in the purchase and use of smartphones and tablets like the iPhone and the iPad.

It’s not the first such positive report we’ve seen in recent months. And already Facebook, for one, is putting up impressive numbers on mobile ads, helping buoy its shares in recent weeks.

But Gartner’s report has some interesting detail about the changing mix of mobile ad types and which parts of the world growth is coming from. Display ads will grow faster than search ads, overtaking them by 2016. That could be a challenge for Google, though it also has been investing heavily in display ads in recent years to become No. 1 or 2 with Facebook depending on who’s measuring.

Delving deeper into the details, here’s what Gartner’s expecting to see:

* Mobile search will continue to do well, but eventually display will lead the way:

Mobile search — including paid positioning on maps and various forms of augmented reality, all of which can be informed by location — will contribute to drive mobile ad spending across the forecast period, although it will diminish in strength as the period progresses. Gartner believes that mobile display ad spending will grow and take over from mobile search. It will initially remain divided between in-app and mobile Web (in-browser) placements — reflecting consumer usage — although after several years of in-app dominance, Web display spending will take over in-app display from 2015. 

* Mobile ad prices will fall:

The rapidly growing share of time that consumers spend on mobile devices is generating ad inventory at a pace considerably faster than most advertisers can shift their spending to the medium. This creates a surplus condition that is driving down unit ad prices which in turn has led to a situation in which a significant portion of mobile ad inventory is taken up by app developers paying for ads to promote their apps and get them more downloads, a category known as “paid discovery.”

Here comes another bubble:

While the revenue basis of paid-for app store downloads provides some economic justification for this category, for many developers the outlay for ads is close to their maximum ad income or even exceeds it. This creates a circumstance, reminiscent of the early days of Web advertising, in which cyclical advertising arrangements among websites produced an inflated picture of revenue that may ultimately prove to be a bubble. “Some correction in the growth rate must occur before demand from brand and local advertisers catches up with supply, and more sustainable economics support a faster growth rate commensurate with consumer adoption,” said Ms. Baghdassarian.

Overall mobile ad revenues are forecast to hit $24.5 billion in 2016–about the same as Gartner’s earlier forecast, but with faster near-term growth than expected. And where is all this mobile ad money coming from? Not surprisingly, print–especially newspapers–as well as radio.

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Ad Tech Startup Rocket Fuel’s Revenues Take Off

Display-LUMAscape

Illustration: Luma Partners

From my Forbes.com blog The New Persuaders:

There’s a gazillion little ad tech companies out there, as you can see in the well-traveled chart called the Display Lumascape on the right. Conventional (and probably correct) wisdom is that eventually many of them will get snapped up by bigger fish, whether that’s giants like Google, Oracle, and Facebook or rivals that just did a better job.

Since that process has happened a little more slowly than many people expected, though, a few of those fish are getting pretty big. One of them is Rocket Fuel, a Redwood City (Calif.)-based startup that despite its name has flown under the radar of the general public. While it started out as an ad network, it might be better seen today as a so-called demand-side platform, or DSP. It buys ad space for marketers and uses its rocket-science technology to target ads precisely in real time to the most receptive prospects, a process that goes by the industry shorthand “programmatic buying.”

Today, Rocket Fuel is announcing with unusual candor for a startup that its gross revenues rose 238% last year to $107 million. Notice I said gross revenues; a good chunk of that goes back to publishers from which it bought ad inventory. The company won’t reveal net revenues.

But the growth is real. And that includes growth in customers, nearly a doubling of new advertisers. On their behalf, Rocket Fuel’s system deals with more than 26 billion ad impressions a day. Not least, the company has more than doubled its staff, to 289 employees, including a new chief marketing officer and a couple of VPs.

CEO George John says the company isn’t profitable yet, though he says it’s close. “The playbook is to invest,” he says, so plans are not for near-term profits.

You might wonder, as I did, whether revealing revenues is an indication that the company aims to go public soon. Actually, it has been just as forthcoming previously, and John won’t say what his plans are.

But given that it had made noises back in 2011 about an IPO in 2012, instead raising a huge $50 million round last June, it’s not out of the realm of possibility this year, market gods willing. Or, to mix a metaphor, it might continue to swim around the Lumascape and try to figure out whether to eat or be eaten.

With Graph Search, Can Facebook Kill LinkedIn, Yelp–Even Google?

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Facebook CEO Mark Zuckerberg introduces Graph Search (Photo: Robert Hof)

From my Forbes.com blog The New Persuaders:

Facebook took pains today to tell the world that its new social search serviceGraph Search, is only a very limited tool that it will roll out very slowly over a period of months and years.

But CEO Mark Zuckerberg and his search staff couldn’t help but reveal their enthusiasm for the vast possibilities. For all their professed modesty, what struck me at the company’s press event introducing the service was how specific and broad-ranging Zuckerberg and his Graph Search leaders were about what it could provide: just about everything, potentially, that every company from LinkedIn to Yelp to Foursquare to Match.com to … yes, even Google provides today.

That’s an exaggeration, of course, that even Facebook folks surely didn’t intend. All of those companies have distinct, well-developed services with extensive user bases that are unlikely to shrivel up no matter how good Graph Search turns out to be. In most cases, they will probably retain a durable advantage for years to come. And as Zuckerberg said, it’s very, very early for Facebook search, and search is a devilishly complex discipline to do well.

Still, to hear it from Facebook itself, Graph Search will offers ways to provide similar services, sometimes in potentially easier and more effective ways:

* Recruiting: One of the first examples Facebook provided today was that Graph Search could help in finding qualified candidates for jobs. For instance, Lars Rasmussen, the Facebook director of engineering who heads the Graph Search team, mentioned that he could find people from NASA Ames Research Center who are friends of Facebook employees.

As investors, who bid up LinkedIn’s share a fraction today, no doubt recognize, that company has a pretty good if not exclusive hold on recruiters. And given that finding friends who worked somewhere is a rather specific subset of qualified candidates for a position, there’s not much chance recruiters will abandon LinkedIn for Facebook anytime soon. But Facebook, already used in various ways by recruiters, could siphon off activities that might otherwise have gone to LinkedIn. … Read more at The New Persuaders. But to conclude …

So, to answer the question in the headline: No, Facebook won’t kill any of these companies, certainly not anytime soon. They’re too strong, Facebook has too much still to build and then to prove, and rarely does a company kill another healthy company no matter how good its products are.

Investors may be thinking as much, as they sold Facebook shares to the tune of a 2.7% drop in price today. But if anyone doubted Facebook’s ability to keep disrupting the status quo, they surely shouldn’t doubt it anymore. Even with its baby steps into the search business, Facebook has again set new terms of engagement in the battle for the soul, or at least the cash register, of the Internet.

LIVE: Facebook Unveils Graph Search–Its Long-Awaited Internal Search Engine

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Facebook CEO Mark Zuckerberg at the introduction of Graph Search (Photo: Robert Hof)

Ever since Facebook invited piles of press people to an event this morning to “come see what we are building,” speculation about what it will reveal has reached a fever pitch.

Update: It’s all about search! See below for details. But for what it’s worth, investors are not impressed. Facebook shares are down 2% in midday trading. No doubt that’s a short-sighted view–this socially infused search service is a big deal, if only to show how Facebook will keep engaging people more and more deeply, not to mention provide a foundation for the kind of search ads that made Google king of the Web–but that’s the market for you.

There must be a couple hundred press here, plus a crowd of Facebook employees standing in the back of the room–a sure indication that Facebook considers this a big deal.

And now we are underway, with CEO Mark Zuckerberg introducing us once again to Facebook’s mission and the social graph. First he goes into Facebook’s early history, before the news feed that now dominates the service.

Now he’s introducing the third pillar of Facebook’s service beyond the news feed and Timeline. What’s most interesting is graph search.

So what is graph search? It’s not Web search. We’re not indexing the Web. We’re indexing our map of the graph. There are more than a trillion connections in this graph, with billions more added every day–likes, comments, photos, etc. Indexing this is a really hard problem and we’ve been working on it a long time.

Graph Search is privacy-aware, he says. Every piece of content has its own audience, and most is not public. You can only search for content that has been shared with you–a very tough problem to solve.

Let’s say you do a Web search for hip hop. You get links. Graph Search is different–it’s intended to provide answers: Which of my friends are in San Francisco?

One of the big design problems we had to solve was how to make this natural. We’ve come up with an interface we think works. The answer is filters–not! That’s a joke–he shows a screen full of filters that look ridiculous, of course, because they can’t scale up.

He shows a video of queries that show how they come up with answers as you type in words.

For this first beta version, he says, Facebook focused on four use cases: people, photos, interests, and places. There’s a lot more, but these are especially useful. …

Read about the rest of the event at The New Persuaders.

5 Reasons Why Facebook Shares Have Soared Past $30

Mark Zuckerberg, founder and CEO, shows off th...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After languishing ever since Facebook’s mostly botched initial public offering last May, the social network’s shares are up more than 5% today, moving past $30 a share for the first time since July. Why the sudden investor interest in what was one of last year’s biggest disappointments in the business world?

* Something new is coming: I and a crowd of other journalists have been invited to a press event on Jan. 15 to “come see what we are building.” That could be anything, from new kinds of ads (though that’s not the usual thing Facebook engineers mean when they talk about what they’re building) or a mobile phone (very unlikely, since CEO Mark Zuckerberg put the kibosh on the idea awhile ago) to a search engine, a music service, or an expanded e-commerce initiative.

Or, the most likely of all, something entirely different–possibly several things, to read probably too much into the invitation’s wording. In any case, it’s enough of an event that investors are likely intrigued and want to get in ahead of an announcement that at the least will get a lot of coverage.

* Ad revenue growth is accelerating again. In its third quarter, Facebook surprised investors with a 36% jump in ad revenues, sending its shares up 20% the next day. Although mobile ad revenues are a big part, a new ad exchange and an ad targeting program called Custom Audiences also appear to be getting traction.

* In particular, Facebook appears to have a good start on solving a key issue during the IPO: mobile advertising. …

Read the complete post at The New Persuaders.

5 Reasons Why Facebook Shares Have Soared Past $30

Mark Zuckerberg, founder and CEO, shows off th...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After languishing ever since Facebook’s mostly botched initial public offering last May, the social network’s shares are up more than 5% today, moving past $30 a share for the first time since July. Why the sudden investor interest in what was one of last year’s biggest disappointments in the business world?

* Something new is coming: I and a crowd of other journalists have been invited to a press event on Jan. 15 to “come see what we are building.” That could be anything, from new kinds of ads (though that’s not the usual thing Facebook engineers mean when they talk about what they’re building) or a mobile phone (very unlikely, since CEO Mark Zuckerberg put the kibosh on the idea awhile ago) to a search engine, a music service, or an expanded e-commerce initiative.

Or, the most likely of all, something entirely different–possibly several things, to read probably too much into the invitation’s wording. In any case, it’s enough of an event that investors are likely intrigued and want to get in ahead of an announcement that at the least will get a lot of coverage.

* Ad revenue growth is accelerating again. In its third quarter, Facebook surprised investors with a 36% jump in ad revenues, sending its shares up 20% the next day. Although mobile ad revenues are a big part, a new ad exchange and an ad targeting program called Custom Audiences also appear to be getting traction.

* In particular, Facebook appears to have a good start on solving a key issue during the IPO: mobile advertising. The big kicker in that third quarter was mobile ad revenues, which hit $150 million, or 14% of revenues, from almost zero just six months earlier. As Zuckerberg said during the third-quarter earnings call, “I want to dispel this myth that Facebook can’t make money on mobile.” In particular, ads in mobile news feeds are working for advertisers because they look more like a natural part of what people are already looking at. …

Read the complete post at The New Persuaders.

Online Ad Spending Tops $100 Billion in 2012

digitaladspendFrom my Forbes.com blog The New Persuaders:

Spending on online advertising topped $100 billion for the first time last year, according to a report out today from eMarketer.

The $102 billion in worldwide digital ad revenues doesn’t mean much on an absolute basis, of course, but the round number points up how fast online ads have reached the century mark: Fewer than 20 years ago, they were virtually nil.

Digital now commands nearly one in five ad dollars, the market researcher notes. What’s more, it’s continuing to grow at a rapid clip, forecast to stay at double-digit increases through at least 2015. This year, eMarketer reckons online ad sales will rise 15.1%, to $118.4 billion. And by 2016, digital ad spending will pass a quarter of all ad dollars.

Most of that, not surprisingly, will be spent in North America and Western Europe, which currently have the highest levels of digital advertising spend per Internet user–$168 and $112 this year, respectively. North America commands 39% of digital ad spending, and that’s not going to decline much in coming years despite more rapid growth in Asia and Latin America, particularly Indonesia, India, and Mexico.

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