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This Trend Is Great for Facebook Inc, Not for Google Inc

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Mobile web usage fell from 20% of time spent on smartphones in 2012 to 14% in 2013, according to new data from Flurry. Native apps dominated over two hours of the average smartphone owner's time every day, and Facebook (NASDAQ: FB  ) was chief among them. The company's apps (including Instagram) overtook mobile browsers with 17% of time spent on smartphones.

This trend is great for Facebook as average use time on its apps continues to climb, and it has recently entered the growing social messaging market, which took a 9.5% share last year. It's not so great for Google (NASDAQ: GOOGL  ) which relies on mobile browsing on Android and Apple (NASDAQ: AAPL  ) devices to generate revenue.

The value of the mobile market
It's no secret that PC sales are declining and smartphone and tablet sales are growing. As a result, the weight of mobile advertising on businesses like Google and Facebook is becoming increasingly heavy.

Facebook derived over half of its ad revenue from mobile in the fourth quarter. The company saw mobile users surpass desktop users in 2013, now outnumbering them by 200 million. Mark Zuckerberg commented on the fourth quarter conference call that "If 2012 was the year we turned our core product into a mobile product, then 2013 was the year when we turned our business into a mobile business."

Meanwhile, Google captured about half of the mobile ad spend last year, but took a much smaller share of time spent on mobile. This speaks to two things. First, Google is really good at what it does. Second, it's unlikely Google will be able outpace the rest of the market in growing mobile ad revenue.

Lucky for Google, mobile ad spend is expected to grow significantly over the next few years. eMarketer expects the market to grow 75% next year and more than quintuple over the next five years.

Investing in mobile
Facebook is investing heavily in mobile. Every update it makes, every new ad product it rolls out, and most every acquisition is with mobile in mind. It bought Instagram a couple years ago, and it has grown the platform's audience significantly. More recently, it purchased WhatsApp, which is part of a rapidly growing segment of smartphone apps.

Its this willingness to outspend the competition that is keeping it ahead of the competition on mobile. Facebook has taken some criticism for the high price tags it puts on mobile, but it's allowed it to take advantage of the trend that favors native apps over the mobile web.

Google, for its part, hasn't shied away from investing in mobile either. Obviously, it bought Android in its infancy and has dispersed it to OEMs to proliferate Google's services on mobile devices. It's also bought native apps like Waze and Bump in the past, but hasn't heavily invested in either since, completely shuttering the latter.

Waze was seemingly acquired to get rid of competition for Google Maps, a similar approach Facebook took with its acquisition of Instagram. But where Facebook has successfully grown Instagram and turned it into another ad platform, Google hasn't done as much with Waze.

Despite the popularity of Facebook, it still takes up just half the time of the plethora of mobile games that come out every month. Games accounted for 32% of time spent on smartphones last year.

Google has capitalized on this market with its advertising products, offering developers an easy way to monetize their creation. Facebook has worked closely with game developers in the past to process in-app purchases and login using Facebook. If the company develops its own mobile ad network, it could take share from Google. It started testing such a network in January.

Additionally, Google faces competition from Apple. The iPhone maker's iAd product allows developers to take full advantage of iOS features. With developers still mostly choosing to develop for Apple first, Apple stands to continue raking in the advertising revenue from popular games and other native apps.

The trend is your friend
Facebook already has a huge portion of the mind-share on mobile. Google, for its part, is ingrained in the mobile experience as well. The trend, however, favors faster growth in Facebook's mobile ad revenue compared to Google's. eMarketer agrees -- it sees Facebook growing its share of mobile ad revenue to 21.7% while Google's falls to 46.8%. Still, Google's position is enviable.

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  • Report this Comment On April 02, 2014, at 9:37 PM, annaarron wrote:

    The smartphone users now make up 73% of Facebook’s total monthly active user base, and their share looks set to continue growing as smartphones and tablets proliferate in the market for further detail

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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