Smartphones and tablets have been seen as the Achilles' heel of social media giant Facebook (Nasdaq: FB ) . The company hasn't shown that it can make money from mobile page views, and its users are getting more and more addicted to their mobile sidearms. Ergo, the long-term business model is falling apart.
CEO Mark Zuckerberg wants to change that state of affairs in a hurry. In Tuesday night's third-quarter report, Facebook derived 14% of its ad revenue from mobile ads -- up from absolutely zero six months ago.
Zuckerberg thinks that this is just the beginning of his love affair with smartphones. He sees three factors working together to make it happen:
"First, mobile will give us the opportunity to reach way more people than desktop; second, people on mobile use Facebook more often; and third, long term, I think we're going to monetize better for amount of time spent on mobile than desktop."
Two of these points are pretty obviously true: Mobile computing reaches more users than any desktop-based from of communication ever could, and Facebook's social sharing is a natural fit for camera-equipped gadgets that are always by your side.
But what about the third idea? Are mobile eyeballs inherently worth more per glance than the ones that are parked in front of a desktop?
Close, but no cigar
Zuckerberg's explanation almost makes sense: "On desktop, we've built a multibillion-dollar business with ads on the side, separated from people's primary experience. But on mobile, we believe ads will be more like TV, high-quality and integrated into the experience rather than off to the side."
This seems reasonable on the surface. Infuse Facebook's mobile experience with high-quality advertising content, and you'll duplicate the money-making powers of traditional TV broadcasters. Easy, right?
But then you're overlooking a simple fact: TV viewers don't really enjoy their commercial breaks, except perhaps the occasional Super Bowl extravaganza. They will actually fight to avoid 'em.
DISH Network (Nasdaq: DISH ) was recently sued by a gaggle of TV networks because the satellite broadcaster had the temerity to give its users an easy way to skip commercials in stuff they've recorded on their DVR boxes. It's not a new idea -- satellite rival DIRECTV (Nasdaq: DTV ) owns what's left of ad-skipping pioneer ReplayTV, which tried a similar tactic a decade ago but was sued out of house and home.
DISH sees this as a big, juicy selling point because nobody wants to watch commercials; the networks see a huge threat to their ad revenues because, you know, nobody wants to watch commercials. It seems obvious that most people would use that commercial-skipping feature all the time, if given the choice.
So why would Facebook's users accept a larger and more intrusive ad presence on their mobile devices, when all they really wanted to do was update their status with a picture of little Lisa's adorable haircut? Anything that slows down or complicates that simple action only makes you think twice about doing it at all.
Show me the money!
Let me give an example or two from Facebook's best friend. Social gaming titan Zynga (Nasdaq: ZNGA ) has this knack for buying the makers of whatever games I happen to enjoy on my Android phone. And every time they do, I lose all interest in playing the game. Why? Because Zynga insists on destroying the experience with a metric ton of annoying ads.
Words With Friends used to be a fun little Scrabble alternative with a light sprinkling of commercial messages. Now, there's almost always a large ad in my face. I'm always being pushed to spend money on in-game bonus items. I feel like I just walked into a used car dealership, and every employee is giving me the hard sell.
And that's the least offensive example I could come up with. The ad blitz never, ever stops in Draw Something, to the point of making the game unplayable. Every turn is broken up by at least one full-screen video or banner ad, sometimes more. The videos often can't be skipped, which makes me just put the phone down until the intrusion goes away.
Zynga is clearly suffering from these terrible design choices, which are driving users away and reducing ad revenue rather than growing it.
Do that to the Facebook app, and I might never log in again. And I can't be alone.
Mark Zuckerberg's mobile-money-making scheme hinges on that third point. If Facebook can't monetize mobile views better than the desktop version, then the growth of mobile usage becomes an anchor around the company's neck rather than a springboard under its feet. As nice and cheerful as it sounds, I don't think that the idea is plausible in the real world. So my bearish CAPScall on Facebook stands until further notice -- Zuckerberg needs to show me that he can pull off what looks like an impossible trick.
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