Behind the top mobile ad publishers: Facebook, Google, Pandora and Twitter

Publishers like Facebook, Google’s YouTube, and Twitter are reporting an explosion in mobile advertising this year. After years of false starts, 2013 has become the year of mobile advertising.

Notably, these publishers are doing better than some big ad platform companies, such as Millennial Media, that devote themselves exclusively to ads. Millennial itself is growing at a 50 percent clip. But its results pale to the doubling or tripling of annual revenues being reported by Facebook and YouTube. The emergence of the publishers as major ad platforms represents a major shakeup in the industry’s pecking order.

Above: Examples of mobile ads on Pandora.

This article is part of our effort to to create a “Mobile Advertising Index” of vendors providing the most value for advertisers and marketers. Our kickoff post two weeks ago explained that this is a qualitative effort, and we want your help. We’re soliciting feedback from users of these products. If you’ve used Facebook, or any other publisher, to advertise on mobile, we’d live to hear from you about your experience. In return, we’ll provide you our extensive report for free. We’re still working on that list; stay tuned for July. Our first piece focused on the top mobile platform companies — those like Millennial, Flurry, InMobi and more, that offer reach beyond a single publisher. If you’ve used those, we want to hear from you, too.

Now available: VentureBeat’s final report on the top 10 mobile ad networks is now available. More info here, and sign up to buy it here.

Incidentally, mobile advertising will be a major theme of our upcoming MobileBeat event in San Francisco, which is now just two week away (you can still get tickets here). See the action on the second day, which is jam-packed with thought leaders in the advertising area.

Publishers have a stronger hand right now than the networks, notes Greg Sterling, a digital media analyst. That’s because the big publishers have massive amounts of users, and they own important data about those users, including age, location, gender, and preference data. This helps them offer better targeting, and thus performance.

Here are the big four and where they stand in offering value. The Facebook ad platform requires some explanation, because it is by far the most developed and dynamic.

Facebook

Facebook’s reach is staggering. Some 751 million people accessed Facebook on mobile devices in March, up from 54 percent from last year, the company reported. As a publisher, that beats anyone. It dwarfs the next biggest player, YouTube, which has about 250 million users.

Overall, Facebook is second only to Google in mobile advertising. Google’s prowess in search will give it the lead for some time to come. But Facebook has rocketed into the world’s leader in mobile display advertising. It owns three in 10 mobile ad dollars, according to eMarketer. Facebook has various forms of successful display ad units in its mobile feed, which is the only place mobile users see advertising — and they’ve become very effective (see our story today about how news feed ads drive 49 times the number of clicks at 45 percent of the cost).

Above: Example of an “app install ad.”

Image Credit: Nanigans

Facebook also recently launched a very successful “mobile app install” ad program last October. App developers can use this program showcase links to their apps within a user’s news feed. With help from this added program, Facebook’s revenue on mobile shot up to $374 million in the first quarter. Put another way, that’s 30 percent of the company’s entire business, up from zero the year before. Some 3,800 developers used the app install program in the first quarter, and 40 percent of the top 100 grossing apps from both iOS and Android used it, the company reported.

We’ve corrobroated Facebook’s prowess with publishers. Manish Chandra, CEO of the online fashion company Poshmark, told VentureBeat his company’s growth exploded tenfold during the three months through February — on the back of app installs promoted on Facebook. Poshmark was an early mover on the app install program. When Poshmark saw its ad referrals more that double a month after launching with the program, it directed 90 percent of its promotion spending with Facebook toward the app install program.

However, Chandra confirmed this week what other publishers are seeing lately: advertising prices have been driven up by the frenzy of apps jumping in. “Costs fluctuate quite dramatically right now,” he said.  “We’re working through those areas.” He says the dynamic nature of the platform stems from its immaturity. Google’s Adsense program experienced similar volatility in its early days, he explained.

Still, for Chandra, Facebook is now in control of the app awareness ecosystem: “Facebook is feeling like the Google of mobile,” he says. He can use Facebook’s program to make his app do granular targeting of certain user demographics that just isn’t possible elsewhere. Ironically, he says, what used to the holy grail for developers — getting ranked highly on the Apple iOS App store — now brings inferior users, according to Chandra. That’s because an app store ranking draws less targeted users, who are less likely to remain long-term customers of an app. “The app store has become less valuable,” Chandra said. More details on the Poshmark case are here.

Moreover, Google’s intent-driven search model doesn’t work as well on mobile in many cases, developers say. Smartphone users tend to scan content within apps, and especially feeds in places like Facebook or Twitter, or image streams on Instagram or Pinterest, Chandra said. Of these, Facebook is in the most powerful position, he said.

Facebook’s preferred marketing developer program

Facebook’s fast-changing an complex ad ecosystem — Facebook had 27 ad units until recently — prompted Facebook to select a group of third-party ad companies to help advertisers sort through the maze. Notably, it endorsed 13 “strategic preferred marketing developers” (sPMDs) it said offered “outstanding positive impact” and which can fully access Facebook’s ad APIs. The pecking order among these players (full list here) is still taking shape. Though Deb Liu, who is in charge of Facebook platform monetization, tells us that Facebook leaves it to advertisers to decide whether to work directly with Facebook or not. Smaller developers may want to consider working with third-parties, if only because of the complexity involved in optimizing campaigns. Incidentally, Poshmark is still making that transition to third-party partners. Chandra said he won’t be able to comment on the experience until a few more weeks (we’ll drill him at our MobileBeat event, where Chandra will be speaking).

But there’s plenty of other evidence the sPMD system is working well. Facebook is doing what it can to give the power to advertisers. For example, Facebook introduced terms of service that forced third-party partners to publish their profit margins, presumably to promote transparency. However, this drove prices down, and several months ago hurt some sPMDs, including Spruce Media, according to sources we talked with. Spruce announced 20 layoffs early this year. At the time, Spruce said it had moved to a offer a stronger “self service” product, which it said required fewer employees. However, the reality is that a lot of the value-add from sPMDs still comes from managing these services for advertisers, according to other sources we’ve talked with. Yet Spruce continues to grow, founder Rob Jewell tells us. The company’s revenue is “somewhere between” $10 million and $100 million, though he wouldn’t be more specific. “We’re constntly have to realign ourselves,” he said. The company raised $15 million in debt at the end of last year.

One leader in the strategic PMD group is Nanigans. The company leads the strategic PMDs in overall volume, we’ve heard but not confirmed, in part because of its emphasis on serving fast-moving and popular gaming developers. (Nanigans also is fortunate to be a strategic partner on Facebook’s new real-time bidding exchange, FBX, although that isn’t working on mobile yet). Nanigan is doing something right, because Facebook boasts about its exploits in its marketing materials. For example, Nanigans helped one “unnamed e-commerce company” to move to the No. 5 spot in the App Store, from No. 253 at the end of ten-day campaign, something Facebook PR likes to talk about. The unnamed app ad reportedly won a click-through-rate of .74 percent, and acquired more than 24,300 installs for its app in that period, costing $325,000. The developer is believed to be Zynga or Wooga.

It’s not “cost per install,” stupid!

But get this. Do the math and the Nanigans campaign works out to $13 per install, or much higher than many campaigns. But price per install is already outdated. “If you can acquire a new customer for $13 that has a lifetime value that’s higher than someone you could acquire for $3, would you? Of course you would,” explains Dan Slagen, SVP of marketing for Nanigans.

Launched in 2010, Nanigans earned its chops by helping the big social game company Zynga enter mobile. Nanigans CEO Ric Calvillo was close with Zynga CEO Mark Pincus. Since then, Nanigans has forged leadership in performance-based marketing; it does not deal with brand advertising. As such, it has derived a model it calls “predictive lifetime value.” It goes beyond calculating the cost of acquiring a user, or even getting an install, but takes into account things like the likelihood the customer will remain engaged with the app or make repeat purchases. It tracks which customers are converting, and then goes after similar groups of people. This might steer it to spend more to reach those targets.

Nanigans offers its service as a S-as-a-Service tool that advertisers can use in-house (self-service) but also offers management services, charging a flat fee per project. This mix reflects the model of most of the Facebook’s preferred partners.

Nangians’ Slagen (see his firm’s post on VentureBeat yesterday) tells me the company has had its hands full with managing Facebook’s growth and hasn’t had time to support other mobile platforms such as Twitter. Nanigans plans to change that by the end of the year, Slagen tells me. But on YouTube, the capability to target on scale with advertising is “not there yet,” he noted. Nanigan’s customers also include eBay, Rosetta Stone, and Fab. It recently raised $5.8 million more in capital.

Another strategic PMD leader is Kenshoo, which services clients like Kayak, HP, Delta and Expedia, The company had its roots serving advertisers on Google’s Adwords program and so brings that experience to Facebook advertisers. Kenshoo says it works hard to make it easy for customers to create ads and do multivariate tests on ads, or optimizing quickly to target ads to users driving the best results, based on things like gender, age group, or location. And Salesforce.com’s Social.com is also considerd a leader on the branding side. Social.com is an entity that emerged from Salesforce.com’s acquisition of Facebook-marketing leader Buddy Media for $689 million.

Facebook gets serious — it’s the new shopping mall

Despite the successes, Facebook has its shares of challenges in mobile. There are some advertisers where Facebook’s value has been unclear. While e-commerce companies like Poshmark or 1-800-Flowers do well because they can track ROI directly by tracing click-throughs and more, companies like General Motors, where branding is more important, have a harder time.

Although even here, Facebook and its supporters say its time to change this perception. Take the analogy from Slagen: Facebook is the new shoping mall, where people have a place gather, socialize, and then occasionally browse for shopping. Facebook readers aren’t in search mode, per se. But if an advertiser can inject itself into a Facebook user’s reading stream, it can  foster brand affiliation, which can lead to a purchase down the road, even offline, especially if the product is targeted and relevant. Indeed, a DataLogix study performed internally for Facebook found that on average 99 percent of people who saw Facebook ads and then bought a product in a store never clicked on an ad at all. Facebook’s chief operating officer Sheryl Sandberg cited the study again during the company’s most recent earnings call last month. This all plays well to Facebook’s marketing messaging, though its unclear how reliable the study’s methodology was.

Facebook goes where no one else has trodden before

But take a look at Facebook’s recent moves and you’ll see how serious Facebook is getting here.

One powerful tool is Facebook’s “Custom Audience” targeting program. Here, advertisers can upload information from their CRM database, such as e-mail and phone numbers, and Facebook will match this data with user profiles containing the same information. The precision targeting can be lucrative, in some cases increasing the ROI of campaigns five fold, according to Nanigans. The program started last year, but “market has not adopted to it at the level it should,” said Zvika Goldstein, the director of product for Kenshoo Social. Most recently, Facebook announced it is working with data providers like Datalogix, Epsilon, and Acxiom so that advertisers don’t have to rely on retargeting just their own past users.

Facebook has several types of advertising in its mobile feed. Another popular one is the “unpublished post ad.” It is so named because it hasn’t been published yet anywhere else on Facebook (on a fan page, for example), and it’s designed to reach new users. In April, Facebook allowed these ads to start running in the news feed, and they take up the the whole screen. Facebook does not break down the revenue it gets from its various ad units. But Kenshoo’s Goldstein says he’d be “surprised if it’s not as big, if not bigger than app install.”

What’s next for Facebook? The social network’s expected to introduce video advertising into news feeds now that its Instagram service has launched video streaming. Some insiders expect this to happen later this summer, though there’s been no official word. Another thing Facebook can do, but hasn’t yet, is target ads to you based on your location: Say you’re shopping online, and see a table on Target.com. Facebook has the technology to target ads to your phone as you walk by a Target store, due to the cookies it has dropped on your browser. Privacy concerns have given Facebook pause on launching this, however. You can find out more about Facebook advertising here. Try it out and let us know what you think.

YouTube

YouTube is the next largest publisher in mobile advertising after Facebook, boasting an estimated $300 million to $350 million per quarter. YouTube is driving growth to Google’s mobile display business, and is a nice addition to Google’s overall strength in search.

YouTube has come on strong over the last six months, tripling revenue in that period alone. The activity stems from Apple’s decision last year to drop YouTube as a featured application in its iPhones and iPads. That drove Google to launch YouTube as a standalone app for iOS in September, which ironically paved the way for super advertising growth. Apple had prohibited YouTube from showing flash ads in the native iOS version of the app.

Only eight months after the release, YouTube is the fourth most popular free iPhone app. It’s the most popular nongaming app for iOS, according to analytics firm Distimo. On Google’s Android OS, YouTube is featured prominently, and the standalone app in the Google Play store has been downloaded more than 100 million times. Moreover, YouTube’s mobile future looks secure: Studies show that younger generations continuing to watch more video on their smartphones. You can find out more about YouTube advertising here. Try it out and let us know what you think.

Pandora

Pandora is third in the pecking order among publishers in mobile advertising. Pandora offers the most popular music sreaming service in the U.S. and has gained terrific mass by virtue of being the first player to market. Pandora launched in 2000, and so was already a mature company when the iOS and Android platforms emerged. It pounced, and instantly became a top-selling app on those platforms.

For context, Pandora’s annual mobile revenue last year of $256 million is well above the $177 million of the largest independent (non-publisher) mobile ad platform player, Millennial Media. It reaches more than 70 million users monthly. While it has been losing money overall in part because of the cost of paying for music royalties, the mobile ad side of its business is rocketing.

Mobile ad revenue grew 101 percent to $86.7 million in the quarter ending April 30 when compared to the same quarter a year ago. And that comes after the blistering 105 percent growth the year before. This growth outpaces the company’s listener growth, which grew 47 percent in the first quarter. Mobile ads makes up two-thirds of the company’s total revenue.

Pandora’s mobile advertising advantages are four-fold.

• Enagement is very high. Users interact with the app seven to eight times an hour, the company says, to do things like skip a song or give it a thumbs up. This presents multiple occasions for Pandora to reach customers, because Pandora dominates the full screen of the device while its listeners interact with the app.
• Pandora offers audio in its ads, something that is unique among the biggest publishers. Facebook, for example, isn’t able to access to the auditory senses of its users in the same way.
• Music radio is inherently mobile.
• Registered users give Pandora their age, their gender, and zip code. Moreover, Pandora has access to their style of music. All of this provides for highly targeted campaigns.

Unlike Facebook and Twitter, Pandora does not have a wider ecosystem of ad partners. It does the vast majority of its advertising directly. You can find out more about Pandora advertising here. Try it out and let us know what you think.

Twitter

Twitter, as large as it is, is still a private company, and so there are fewer public stats available for it. But available evidence suggests it ranks fourth overall in mobile advertising. It will have an estimated $266 million in mobile ad revenue this year, according to eMarketer.

It’s seeing explosive growth too. Last year was the first year Twitter offered mobile ads, and it already commands an estimated 7.3 percent of net U.S. mobile display ad revenues.

Like Facebook, it’s benefitting from runnging ads in its feed (so-called “native ad” formats), which integrates the ads into a reader’s stream of reading. Twitter recently launched its own app install “cards,” which make it easy to download apps people are tweeting about. Promoted Tweets amplify these links. All of this gives Twitter a huge advantage over most other publishers outside of Facebook.

Also, Twitter is clearly looking at Facebook’s success and emulating in other ways: Just this week, Twitter announced five more partners who will access its ad APIs. It also has formed relationships with major ad agencies, including StarCom and WPP. Look to see Twitter do more too: CEO Dick Costolo is attempting to steer the company through an upcoming IPO, and he wants it to be big. You can find out more about Twitter advertising here (self-service) or here (full-service). Try it out and let us know what you think.