Please ensure Javascript is enabled for purposes of website accessibility

The Mobile-Ad Gap Is Shrinking

By Adam Levy - Jun 6, 2017 at 8:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The difference between time spent and ad dollars spent on mobile is getting smaller.

The amount of time people spend on mobile is still growing quickly. Last year, average time spent on mobile devices in the U.S. increased another 10% or so, to 3.1 hours per day, while time spent on desktop computers remained steady at 2.2 hours per day, according to Mary Meeker's 2017 Internet Trends presentation. The amount businesses are spending on mobile ads is growing even faster, up a whopping 76% from 2015, according to Meeker's data. As a result, the gap between the share of time spent on mobile and the share of ad money spent on mobile is shrinking.

Still, the gap is huge. Meeker says it's a $16 billion opportunity. That's quite a bit smaller than the $30 billion gap of just four years ago, but sizable enough to make a significant impact on companies well positioned to take advantage. There are really only two such companies: Facebook (META 7.19%) and Google, the Alphabet (GOOG 5.20%) (GOOGL 5.11%) subsidiary.

A man touches the screen of a smartphone cradled in his hand.

Image source: Getty Images.

Dominating the advertising market

Google and Facebook accounted for 85% of all advertising revenue growth in the U.S. last year. That's up from 76% in 2015. That number may fall back down to that level again this year as Facebook faces ad load saturation challenges, but both are still completely dominate the digital advertising market.

And that mostly has to do with their dominance of time spent on mobile.

As time spent on mobile grows but desktop usage stays the same, the apps users spend the most time in stand to gain a lot of ad revenue as the "dollars shift with eyeballs," as Facebook COO Sheryl Sandberg is fond of saying. Facebook is far and away the big winner, with daily users spending an average of over 50 minutes per day across its family of apps.

There are a couple of things worth noting about that number. First, it's a global average. The average in the U.S. may be even higher, as there's better internet infrastructure. Second, Facebook said that number is still rising, even as the number of daily average users continues to increase, indicating that newer users are just as engaged as older users.

Snap's (SNAP 5.45%) Snapchat users are also very engaged, averaging over 30 minutes per day in the app. But with significantly fewer users than Facebook and much lower ad inventory, it's not making a huge dent in the market. Analysts expect its revenue this year to increase two and half times, but that's only an additional $600 million. By comparison, Facebook's revenue is expected to climb about $11 billion this year.

Google, meanwhile, is a bit different. It's not a platform designed for users to spend a lot of time on; it's designed to send them elsewhere. Nonetheless, Google is benefiting greatly from an increase in mobile searches and an improving ability to monetize them. Mobile search queries surpassed desktop queries in 2015 and have only continued to grow as a percentage of searches since then.

Don't expect the gap to close entirely

While Meeker says there's a $16 billion opportunity for businesses like Google and Facebook (or even Snap), that may be overstating the case. A minute spent on mobile may not be as valuable as a minute spent on a desktop computer. That's because U.S. consumers still prefer to do their online shopping on desktops.

This past holiday season, just 21% of e-commerce sales took place over mobile. Importantly, growth in mobile's share of e-commerce is in line with the growth in the share of time spent on mobile, which indicates that consumers' willingness to shop on mobile isn't improving. So Sandberg's thesis that ad dollars will follow the eyeballs may not be entirely correct.

That said, mobile users may not need to make a purchase on mobile for a mobile ad to be effective. A slide in Meeker's presentation shows that 26% of Facebook users that clicked on an ad ended up buying a product they saw on the social network.

Notably, 7% of users who didn't click also bought a product they saw on Facebook. In other words, merely exposing consumers to products on mobile could lead to purchases on desktop or in stores later. That remains a measurement challenge for Facebook and advertisers, but it should help support closing the gap between time spent and money spent on mobile.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$170.16 (7.19%) $11.41
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,359.50 (5.11%) $114.66
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,370.76 (5.20%) $117.07
Snap Inc. Stock Quote
Snap Inc.
$14.70 (5.45%) $0.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.