When it comes to spending time on our mobile devices, nobody dominates our attention like Facebook (NASDAQ:FB). The company says 20% of all time spent on mobile devices is dedicated to browsing Facebook and Instagram. As a result, Facebook has taken a huge share of the mobile display ad market.
But smartphone and tablet owners spend nearly as much time using a mobile Web browser to see what's out there beyond the walled gardens of Facebook and Instagram. That leaves a lot of room for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google to compete. eMarketer expects Google to increase its U.S. mobile display ad revenue 28% this year and 26% next year. But Facebook has a plan to take a bite out of that growth.
The Audience Network for mobile Web
Facebook launched its Audience Network at the end of 2014 to allow its advertisers to reach its users even when they weren't on Facebook. It also originally acted as a way to attract app developers to its software development kit and app promotion products.
Facebook is now expanding the Audience Network to the mobile Web, and it's already working with several major publishing partners. Over the past few months, Facebook has worked with Hearst, Elite Daily, USA Today Sports Media Group, Time and more, to test the Audience Network for mobile web in a closed beta. Answers.com says Facebook has quickly become one of its top monetization partners on mobile web, capitalizing on its targeting capabilities and massive reach.
Extending the Audience Network to the mobile web opens up a large number of opportunities for Facebook in an area that's been dominated by Google. With Facebook's rapid success growing its own ad business on mobile and its native ad format, it could take a sizable share of Google's business.
The Audience Network went from $0 to a $1 billion annual run rate in about one year. That speaks to the power of Facebook's ad targeting, and how its product fits into other publishers' and developers' apps.
Mobile Web publishers have had an even harder time monetizing their websites to their full potential, finding it difficult to display relevant ads. Facebook's "people-based" advertising -- which targets its users across devices based on interests instead of tracking users with cookies -- aims to solve the problem of relevancy. Additionally, the company is extending its native ad format -- which allows publishers to customize the look and feel, size, and location of their ads -- to the mobile Web, which has performed seven times better than standard banner ads (like Google's) in apps.
Mobile display advertising is huge
U.S. mobile display advertising surpassed desktop display ads in 2015. In 2016, mobile display advertising revenue is expected to surpass mobile search ad revenue, according to eMarketer. The gap is only expected to widen with mobile display advertising experiencing much more growth than search ads and its desktop counterpart.
While much of that growth will come from increased and improved in-app advertisements, there's a lot of potential to improve the efficacy and prices of ads on the mobile Web. If Facebook's in-app ad solution works as well on the mobile Web as it does in apps, it could find itself not only taking share of the market, but dramatically increasing its size as well.
Google, meanwhile, is attempting to take share of the market with its Accelerated Mobile Pages. AMP caches websites on Google's servers, allowing websites to load significantly faster on the mobile Web. Many are framing AMP as a response to Facebook's Instant Articles, which hosts content on Facebook's servers and allows for a reading experience similar to native apps. In reality, AMP seems designed to proliferate Google's advertising solutions for the mobile Web, not necessarily to compete with Instant Articles.
While search advertising makes up the majority of Google's revenue, Alphabet investors should be concerned that Facebook is building an ad network that will cut into the company's potential revenue growth in display advertising. Meanwhile, Facebook investors are seeing progress down yet another avenue for growth.