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Advertising ROI Soars at Facebook. Should Google Investors Worry?

Publishers and retailers want the best return on investment possible for their advertising. New data from ad platform and market research firm Nanigans suggests that Facebook's (NASDAQ: FB  ) value proposition for advertisers is looking better than ever. Should Google (NASDAQ: GOOGL  ) worry?

Competitors or not?
In 2011, Google boasted 57% of U.S. mobile Internet ad revenue. Today, that number has fallen to 48%. Who is responsible for Google's shrinking market share? Facebook, mostly.

Facebook's share of Internet ad revenue soared from virtually zero in 2011 to a 9.4% in 2012 and will reach an estimated 15.3% in 2013, according to eMarketer. Worldwide, Google's share of mobile ad revenue hasn't declined, but eMarketer estimates it will only increase its share from 52.36% in 2012 to 53.17% in 2013 while Facebook's will grow from 5.35% to 15.8% in the same period.

But Facebook hasn't necessarily stolen Google's ad dollars. Instead, it has largely found ways to capture a large share of new ad dollars spent in mobile. Google's total ad revenue is still seeing double-digit gains. In the company's third quarter, ad revenue rose by 19.3% compared to the year-ago quarter.

However, this doesn't mean there isn't some overlap. While Facebook isn't necessarily stealing existing ad dollars from Google, it may be stealing a small portion of its prospective ad dollars. For instance, marketers with limited budgets may sometimes be forced to choose between Google's ad networks and Facebook's ad products -- especially as Facebook's value proposition for advertisers continues to grow.

Facebook's stunning ROI
The latest stats from Nanigans are a big win for Facebook, giving advertisers more reasons to shift ad budgets toward Facebook. Consider some of these items:

  • Retailer click-through rates on Facebook are up 3.75 times in the first nine months of 2013 from the same period last year.
  • Return on investment -- or ROI -- for the same period is up 152% from the year-ago period.
  • Facebook Exchange ads in the newsfeed are getting click-through rates 28 times higher than right-hand-side ads.

No wonder Facebook's ad revenue is soaring. In the company's most recent quarter, ad revenue (88% of total revenue) was up 61% from the year-ago quarter.

When Facebook initially went public, critics downplayed the importance of advertising on Facebook. But if Facebook keeps improving its value proposition for advertisers so dramatically and so rapidly, it may become a stronger competitor to Google.

This doesn't necessarily mean that investors should worry about Google, however. The company has unparalleled dominance in online search and its ad network has unquestionable scale in digital advertising. It's perfectly fine that Google isn't growing its top line as fast as Facebook -- the company's most recent quarterly ad revenue of $13.8 billion is more than eight times Facebook's second-quarter ad revenue. It's arguably much harder to grow such a significantly larger number. In fact, Google is doing quite well. This year "Google will increase revenues faster than the overall market thanks to continued monetization of YouTube and growing adoption of mobile advertising," according to eMarketer. 

So, it's not time for Google investors to worry about Facebook (yet). But Facebook's growing share of mobile ad revenue is certainly something Google investors should keep tabs on, especially considering reports of impressive retailer ROI like this one from Nanigans.

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