Facebook Finally Figured Out How to Make Money Off of Your Phone

Mark Zuckerberg.  Ariel Zambelich/WIRED

Two years ago, you didn't want to be Mark #Zuckerberg. Sure, there’s the whole billionaire thing, but no personal fortune was going to buy the young CEO out of his first earnings call. The Wall Street skeptics were circling, and within little more than a month, the value of the #Facebook shares on which that fortune was built bottomed out at half their opening-day value.

Despite the pressure, Zuckerberg sounded confident enough on that first call with analysts, and it turned out he had good reason. Back then, doubtful investors were battering Facebook’s stock on the fear its business couldn’t make the transition from desktop to smartphone and tablet. Now a grizzled 30-year-old with a decade of experience running Facebook, the world’s most famous founder oversees a company that appears to have cracked the code for making money in the mobile era.

FACEBOOK IS SHOWING THAT MOBILE WAS THE MOST NATURAL MEDIUM FOR ITS BUSINESS ALL ALONG.

With Facebook shares hitting an all-time high in after-hours trading, it’s easy to forget how close the company was to being written off after its bungled IPO in May 2012. “As Facebook gluts an already glutted market, the fallacy of the Web as a profitable ad medium will become hard to ignore,” media pundit Michael Wolff wrote that year. “The crash will come. And Facebook—that putative transformer of worlds, which is, in reality, only an ad-driven site—will fall with everybody else.”

The Web Was Never Really the Future

Wolff’s mistake—and he was far from alone—was to assume that the web held the key to Facebook’s, or anyone’s, future. And he really can’t be faulted too much for that assumption. No one at the time had really figured out how to make mobile ads work—if anyone had, they’d be the billionaires now. Facebook hadn’t figured it out, either. In its second earnings call after going public, the company reported that mobile accounted for 14 percent of its ad revenue. With smartphones quickly becoming the first screen, that wasn’t good enough.

Fast-forward to yesterday. The company reported that nearly 400 million users access Facebook only via mobile devices—a fatal number if the company hadn’t figured out how to make mobile ads work. But apparently it has. Mobile ads now account for 62 percent of Facebook’s overall ad revenue, which is up by two-thirds compared to the same time last year. To put that in context, mobile ad revenue alone this past quarter was nearly $500 million greater than the company’s total revenue two years ago. Facebook’s approach of targeting users with mobile ads right in their News Feeds hasn’t been the alienating turn-off skeptics feared.

Instead, Facebook seems to be succeeding by creating more immediate, intimate connections between mobile users and advertisers than any desktop-browser sidebar could ever hope to do. (Or at least, Facebook has convinced advertisers that it has.) From the “Install Now” option on app ads to experiments with a “Buy” button that effectively turns the News Feed into a storefront, the company is creating ads that shorten the distance between seeing and buying, all while slotting smoothly into the stream. You don’t have to search for anything; your show isn’t interrupted. Far from failing to make the transition away from the web, Facebook is showing that mobile was the most natural medium for its business all along. --Wired