Are Facebook Mobile Ads Doomed to Fail?

As things stand right now, Facebook has a pretty firm grip on social advertising. The social graph gives them access to any info users offer in their profile, from age to education to interests. Facebook ads also wield a significant advantage in terms of angle: Sponsored Stories let brands switch messaging from “our product rules” to “hey look, your friend thinks our product rules.” This will change, or rather is changing, the way we market to consumers.

And these are the reasons Facebook currently leads the pack in terms of online display ads. As of January 2012, Facebook had claim on 28% of the online display ad market while Yahoo trailed behind with 11% and Google held on with less than 5%.

But will Facebook’s display ad domination last?

Despite their current reign, several figures hint that Facebook’s domination is waning. eMarketer, for one, predicts that Google will pass Facebook in display ad revenues as early as next year.

Display Ad Revenue Forecast

The (mobile) elephant in the room

Predictions like the one above are just that – predictions, and should thus be taken with a grain of salt. But Facebook has a few other woes, most notably that giant mobile-shaped one.

The most recent earnings report from Facebook proves equally foreboding. In Q2 2012, 23% more mobile users opted for a strictly-mobile Facebook experience as compared to Q1. Why is this dramatic mobile shift bad news for Facebook? Two reasons:

1) Facebook can’t serve as many ads on mobile devices

Facebook released mobile ads earlier this year. It was exciting news at time, but the fact of the matter is that Facebook simply can’t serve as many ads on mobile. It’s a matter of space – less screen real estate means fewer adds, which in turn means less moulah.

Facebook’s CFO, David Ebersman, put it like this:

“The overall number of ads delivered in the U.S. this quarter decreased two percent year-over-year despite a 10 percent increase in daily users and despite the increase in ads per page as daily web users in the U.S. declined in favor of mobile users.”

2) The ads that Facebook does serve are often ignored by users

A July study from EyeTrackShop shows that smartphone ads are less likely to be seen and recalled by Facebook users than tablet or web ads. If a Sponsored Story does not appear very early in the newsfeed, users are unlikely to take notice. This isn’t a problem on the web, where ads always appear above the fold (in the righthand column), making it much more likely that users actually see them.

Facebook Mobile Ads

Facebook seems to be performing a balancing act between reigning ad king and mobile ad flop. What do you think – will Zuckerberg and company find a solution to the mobile issue, and thus revenue? Or are they set for post-IPO doom?