Why Facebook Turns a Cold Shoulder to Mobile Ads

Mobile ad spending is expected to balloon by nearly 50 percent in 2011 to about $1.1 billion. A nice number to be sure, but small in the grand scheme of the media business, even in the digital space. How much bigger would the mobile ad market be if one of the biggest players in mobile media actually starting showing an interest in advertising?

Sure, Apple and Google have gone after the nascent mobile market in an aggressive fashion. But Facebook, the most popular mobile app in the world, is resolutely sitting on the sideline, carrying nary a banner ad or text link. Sources inside the company have said mobile advertising doesn’t even generate much discussion within the mobile team.

What gives? Facebook’s ad business is soaring, according to most analysts’ accounts. Surely advertisers would love to glom onto Facebook’s clean mobile app, with its massive reach and high engagement. According to Facebook, more than 250 million users access the site through mobile devices, and those folks are twice as active as non-mobile users.

Facebook doesn’t say how many folks have downloaded its smartphone app, but with 108 million iPhones and 60 million iPod touches sold, and another 100 million Android devices activated, even if 10 percent of those folks have grabbed the Facebook app, that’s a lot of potential impressions.

Executives at the company, which declined to comment, have said mobile is one of its biggest priorities. In fact, executive Erick Tseng went so far last July to say, “We really see mobile as the future.” But for the present, it doesn’t see much use in jeapordizing its fast growth in mobile with pesky mobile ads.

The decision could be dismissed as one that Facebook has the enviable luxury to make. It already has a booming ad sales business and a raft of revenue opportunities in everything from virtual currency transactions to daily deals. But the decision to turn its back on the current mobile ad offerings could also speak to how much they’re lacking. After all, Facebook has wiped its site clean of standard banner ads in favor of its own custom ad system, a clear rebuke of cramming the old ways of doing things onto a new medium.

Indeed, the raw mobile impressions on Facebook’s app likely wouldn’t command much higher prices than other bulk mobile inventory, according to Michael Burke, co-founder and president of Appssavvy, a mobile app ad network.

Per Burke, Facebook is making a tradeoff. Sure, it could pull in several extra million a year by slapping a mobile banner or even iAd onto its mobile site and app. Or it could develop something revolutionary, something that might result in a few hundred million in incremental ad revenue. Clearly, Facebook is betting on the latter.

“With Facebook’s current ad model, which is [primarily] boxes and links on its site, the only way to translate that to mobile is smaller ads on the bottom of an app,” said Burke. “They probably don’t want to just translate that without thinking it through. If Apple hasn’t figured it out, why is Facebook going to follow through on that model. They know they have something special with that app.”

Alexandre Mars, CEO of Publicis’ mobile agency Phonevalley, agrees. “Our brands would love to be there, but not just while users are just checking their feeds,” he said. “What they want are the localization features, where they know who a user is and where he is.”

Indeed, for years, Facebook CEO Mark Zuckerberg knew he had something special with Facebook itself, and purposefully resisted the urge to moneitzie every single page view and action on the site, despite outside criticism. Now, given Facebook’s position as one of the core online display outlet, that approach looks really smart.

“Facebook has iterated in a very deliberate fashion, and they’ve focused on getting the user experience right,” said eMarketer analyst Noah Elkin. “They haven’t always gone for the easy solution. They’ve been very Google-like.”

Like Google, Facebook is likely planning something big in mobile, said Elkin — probably in the local deals arena. “That seems to be the most logical,” he said.

“Facebook on the phone is different than Facebook on the PC,” added Burke. “It’s mobile, so they want to incorporate what people are doing differently on those devices…that’s how you get from a $2.50 CPM for its whole audience to a $20 CPM for relevant campaigns.”