If there were any doubts remaining that Facebook (NASDAQ:FB) could make the transition to mobile, those questions have been answered.
Facebook reported Wednesday that mobile advertising revenue represented approximately 59% of the $2.2 billion it sold in ads in the first quarter of 2014. That's an 82% increase from the same quarter last year and a huge jump in percentage coming from mobile (up from 30% in the same quarter last year).
Those numbers are huge and show that Facebook has successfully transitioned from being a computer-based business to being a mobile-first company. The company has done such an impressive job that along with Google (NASDAQ:GOOG) it dominates the overall mobile ad market.
"Facebook and Google accounted for a majority of mobile ad market growth worldwide last year," research firm eMarketer reported. "Combined, the two companies saw net mobile ad revenues increase by $6.92 billion, claiming 75.2% of the additional $9.2 billion that went toward mobile in 2013. The two companies are consolidating their places at the top of the market, accounting for more than two-thirds of mobile ad spending last year -- a figure that will increase slightly this year."
How big is the mobile ad market?
According to eMarketer, global digital ad spending (traditional and mobile combined) rose 14.6% to $119.8 billion in 2013. The researcher estimates the overall digital ad market will grow another 14.8% in 2014 to $137.5 billion, the BBC reported. Mobile is still a relatively small chunk of the overall market as companies have struggled with what types of ads work on mobile platforms. Still global mobile advertising grew in 2013 by 105% to about $18 billion and is projected to grow another 75.1% this year to $31.45 billion.
The biggest challenge in growing the mobile market is that the traditional banner ads that have been a staple of digital advertising are not as effective on mobile. What has been working well for Facebook are ads that prompt users to install apps. After the release of the company's Q1 2014 results, Facebook CEO Mark Zuckerberg revealed that the company's mobile app install ads have resulted in 350 million total app installs since the feature was introduced in June 2012, VentureBeat reported.
Mobile app install ads were an afterthought for Facebook, but they took off and became a key revenue driver. Their success shows Facebook's willingness to use what works, make changes when plans don't work out, and not be married to old models.
Google plans to copy Facebook
Google has done well in mobile advertising -- specifically on its YouTube platform -- but the company has clearly seen Facebook's growth and has announced its own plans to ramp up its ability to sell ads to the app community.
The company has offered app-install ads in mobile search since 2011 but in the just-announced latest update to AdWords , Google's search-based ad network, the company said it now allows app developers to buy ads promoting installed apps in paid mobile search and YouTube. That means that search results can lead to paid ads that offer users the opportunity to open apps they already have. Coupled with app-install ads this gives Google multiple ad types to sell to app creators desperate to first get their products installed and then actually remind people to use them.
The addition of YouTube to the mix is also important -- the video platform has been an increasing source of revenue for Google with the video platform taking in nearly $2 billion in net revenue in 2013, accounting for 5.6% of Google's overall net ad revenue, according to eMarketer. By the end of this year, eMarketer predicts YouTube will represent 7.2% of its parent company's ad intake, AdAge reported.
"It's clear in mobile, the future for Google is with YouTube, not search," said Simon Khalaf, president and CEO of mobile analytics firm Flurry.
For Google moving forward the biggest problem it faces is the drop in relevance of search. Facebook now owns multiple platforms based on social interaction, which brings it a strong connection with users. Google has been rapidly expanding its mobile services -- like its popular map product and its suite of productivity tools -- which the company needs to do if it's going to keep this a two-company race.
The other players are struggling to stay relevant
While Google is the No. 1 provider of mobile ads, its share of the projected $31.45 billion market is slipping. The Internet-search company looks to take 47% of the market this year, down from 49% in 2013, according to EMarketer. Facebook should come in around 22% in 2014, compared with 18% last year, while Twitter (NYSE:TWTR) should take 2.7% this year, up from 2.4%. Yahoo! is also making moves to grow it mobile ad share but the company barely registers as a competitor now with CEO Marissa Mayer calling the company's mobile advertising revenue "not material" on a January earnings call, CNET reported.
Apple (NASDAQ: AAPL) is of course the other big player in mobile, but because its market share and ad sales rely on its ability to keep customers using iPhones and iPads, it's playing a different game than everyone else.
Yahoo and Twitter are currently also-rans in a market that will become more and more important. If those companies can't find a way to change things they risk becoming increasingly irrelevant.
Will there be a winner?
Google has led the market but Facebook has rapidly gained ground. The social media network also has the wild card of WhatsApp, the messenging service it recently paid $19 billion for. That app carries no ads and only makes money by charging users $1 a year after they have used the service free for a year. With Zuckerberg believing WhatsApp will eventually have over a billion users (it has around 500 million now) even a tiny bit of advertising added to the platform could massively shake up the industry.
Facebook is gaining ground and looks to be the more progressive of the two companies with a more cohesive strategy. Google is moving forward and trying to protect its market share but if the company continues to follow Facebook's lead rather than innovating on its own, it could fall into second place in the mobile ad race. Facebook still has a lot of road to cover but the gains it has made over the last 15 months are truly stunning and suggest that Google should be very concerned.
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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Facebook, and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.