The driving forces of change in mobile advertising

Facebook broadly launched its first mobile ad product just weeks after its IPO. Fast-forward three months and mobile represented 14 percent of their business. It seemed every other week the company released a new mobile ad product, and by the end of 2012, mobile grew to represent 23 percent of Facebook’s ad business. And today this number has grown to 30 percent.

Why exactly have mobile ad dollars moved so quickly to Facebook? The answer is simple. Facebook and its Preferred Marketing Developer ecosystem are solving real challenges on behalf of marketers – challenges that center on the three core pillars of any successful ad campaign:

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• Targeting
• Creative
• Optimization

Combined, these driving forces of innovation have resulted in advertisers achieving 15 to 20 times higher clickthrough rates (CTRs) on Facebook mobile as compared to desktop and, most important, are revealing the true return on investment of mobile ad investments.

Targeting

Twenty-five percent of time spent in mobile apps is on Facebook, with the social network bringing a 750 million person audience to mobile. While this engagement and scale is impressive enough, what’s more compelling to marketers is that (finally) hundreds of millions of people on mobile have an identity. From demographics and psychographics to affinities and behaviors, marketers have a trove of targeting data and combinations to leverage with Facebook mobile.

One Facebook targeting innovation achieving broad, sustained success starts with a marketer’s known customer-relationship management (CRM) data. With custom audience targeting, advertisers can upload information from their CRM database such as e-mail and phone numbers, and Facebook will match this data with profiles containing the same information. The targetable audience created through this process has proven a lucrative strategy for marketers from retail to gaming, with results like increasing the ROI of campaigns by a factor of five and driving 100 percent same-day ROI multiple days in a row.

Mobile ad targeting lacked identity almost completely prior to Facebook — with targeting data either nonpersonal or inferred. Take gender targeting. When mobile ad networks tell marketers they’re targeting women, what they really mean is they’re delivering impressions on publisher sites and apps that cater to women audiences. Sure, the marketer’s message could reach women — but there’s a high probability it’s also reaching men. Ultimately this lack of identity resulted in an industry relying on spray and pray tactics, with marketers buying blindly and thinking opportunistically that those people they’re putting impressions in front of will actual convert into customers.

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To learn more about mobile advertising, check out the “Mobile money: More money, more problems” track at VentureBeat’s MobileBeat conference, July 9-10.

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Creative

When we think of mobile ads, we’re used to thinking of tiny, ugly banners that sit in the mobile apps we use and on the mobile web pages we browse.

Enter Facebook. The social network’s brought ads to mobile that take up the entire screen with strong calls to actions, providing the huge canvas and seamless conversion funnel the mobile marketing industry has been craving for years.

Facebook has also brought ads to mobile that act like content, sitting in the News Feed with the same look and feel of the content being shared by friends, family, and colleagues. These ads feature social engagement such as Likes, comments, and shares, making them even more relevant to end consumers.

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Facebook mobile app install ads are a great example, providing advertisers with large creative, strong “install now” calls to action and social context. All of this has contributed to incredible campaign results on Facebook mobile, with advertisers achieving on average 1 percent click-through rates (CTRs).

Optimization

Facebook is no longer social marketing. It’s performance marketing. The reason for this is due to the media buying, tracking, and optimization innovations developed in the Facebook marketing ecosystem on desktop — which are now shifting to mobile.

Advertisers no longer need to buy on mobile based on proxy metrics like views or clicks or immediate actions. They can now buy and optimize their ad spend for true ROI. A brief summary of the evolution of mobile media buying is below:

• CPM (cost per impression): cost to deliver one thousand ad views.
• CPC (cost per click): cost to generate a click on an ad.
• CPA (cost per action): cost to drive an immediate action, like an app install.
• LTV (lifetime value): value you earn off a customer over time.
• ROI (return on investment): how much greater your LTV is than your CPA.

The shift from CPM, CPC and CPA to LTV and ROI is significant, as marketers are able to accurately understand the true return generated from their mobile investment – that is, the purchase revenue generated from people the advertiser reaches with mobile ads.

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To understand why optimizing on proxy metrics like CPA is dangerous for marketers, let’s take a basic example from retail. The retailer has two hypothetical customers, Steve and Mary. Both buy a $10 T-shirt immediately after engaging with the retailer’s ad. Steve (25, single) costs $9 to acquire, while Mary (35, with a family) costs $12 to acquire. Mary is 33 percent more expensive to acquire than Steve, so Steve appears to represent a more valuable segment for an advertiser.

But what happens after that immediate purchase? Who is a more valuable, lifelong customer over time?

Mary ends up making additional purchases for her family in the coming weeks ($50 worth), while Steve never returned after that first T-shirt purchase. While Mary was 33 percent more expensive to acquire, she purchased 400 percent more. Ultimately, this calculates out to Mary generating 28 times higher ROI than Steve.

Marketers focusing on lifetime value and optimizing based on true ROI by leveraging maturity curves and predicting purchase behavior over time are the ones profitably scaling budgets across desktop and mobile today.

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Evolution

There’s no question there’s been a huge evolution in mobile advertising – all in an incredibly short period of time.

Targeting is no longer inferred or non-personal; instead, marketers have a vast and rich targeting set. Creative is no longer limited to tiny banner ads; instead, marketers have the opportunity to leverage large, engaging creative that acts just like content. And media buying and optimization no longer has to be based on proxy metrics like CPA; instead, marketers can measure and predict lifetime value to optimize for true ROI.

Welcome to the new world of mobile advertising, with thanks to the Facebook ecosystem.

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Cheryl Morris is director of marketing at Nanigans, the developer of the predictive lifetime value platform for performance marketing at scale. Prior to Nanigans, Morris was part of the early team that built BostInnovation into a venture-backed new media company, publishing nearly 1,000 articles about the Boston technology ecosystem. Before this she was in management consulting at Market Platform Dynamics and a payments analyst at the Federal Reserve Bank of Boston. Morris graduated from Babson College with a bachelor’s degree in business management and concentration in economics.