Facebook (NASDAQ:FB) is gaining momentum with native video uploads, and 2015 is looking like the year Facebook will finally see significant revenue from video advertising. Earlier this week, the company announced that it's adding video capabilities to mobile app ads.
Mobile app ads have been a huge growth driver for Facebook's mobile advertising revenue, and the addition of video is sure to keep the growth coming for a while still. This development will not only help Facebook increase revenues on its own platform, but will allow it to further extend its reach with app-install ads on third-party apps through its Facebook Audience Network.
App ads are going mainstream
Advertising apps is no longer relegated to websites like Facebook, Twitter (NYSE:TWTR), or Google (NASDAQ:GOOG) (NASDAQ:GOOGL). Big app companies are now advertising during NFL broadcasts and other television programming (I assume, because I pretty much only watch NFL broadcasts these days).
With app developers spending to produce video ads already, Facebook is in a position to help those developers distribute their video advertisements. Many developers already have a relationship with Facebook and actively use its static app-install ads, so it's an easy sell for Facebook.
Facebook also has its Facebook Audience Network that will allow it to extend ads to third-party apps. Many developers use interstitial video ads to monetize their apps, and often times those interstitials are for other apps. Facebook can also help connect developers and publishers with its newly acquired LiveRail property, which helps video publishers monetize their content.
App-install ads have grown to become a huge part of Facebook's overall ad revenue. While the company doesn't break down what ad units perform the best, the impact of app-install ads is evident in the company's mobile ad revenue growth. Since app-install ads' introduction in the third quarter of 2012, Facebook's mobile ad revenue grew from $155 million that quarter to $1.95 billion last quarter.
Competing with Admob and MoPub
Google is leading the way in video app-install ads as it leverages YouTube and its Admob network to drive app installs. In August, Google introduced YouTube for App Promotion. Now, app developers can create a YouTube video ad and buy an app install ad that appears below the YouTube video.
Google is able to factor in previously watched videos, demographics, and interests. On Android, Google has even more data, and likely uses Play Store downloads in ad targeting as well.
Twitter is slowly building its own app-install ad business as well. The company purchased mobile ad exchange MoPub last year, and later added TapCommerce, which specializes in app re-engagement ads. In October, the company unveiled a suite of developer tools called Fabric to draw developers into its product ecosystem, making it more likely that if developers use one Twitter tool, they'll use many more.
Twitter started rolling out app-install ads last year, and it added video ads this year. Additionally, the company recently announced it would start tracking which apps you've already installed on your phone or tablet. All of these tools combined put it in an excellent position to compete for video app-install ads in the future.
Meanwhile, Facebook seems to be one step ahead of Twitter. It introduced app-install ads before the rival social network, but still well behind AdMob, which Google bought in 2009. But it's been quick to leap on the idea of video app-installs after Google rolled out its video app-install product in August.
Why investors should like video app-install ads
When Google introduced its YouTube app promotion product, the company noted that the video aspect of YouTube makes users more than twice as likely to download an app, according to its own study. As a result, Google is likely charging a premium for these app-install ads on YouTube compared to other platforms. Assuming videos will result in a similar engagement increase on Facebook, the company will be able to charge a premium for video ads as well.
Moreover, there's already a built in market for this ad inventory with publishers already pushing out video ads for television and other video platforms. The timing couldn't be any more perfect for Facebook to roll out video capabilities for app-install ads.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. 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.