Lots of smart people have predicted for many years that Facebook would build an ad network. But so far they haven’t been right — though Facebook has played around with the idea, it has concentrated on selling ads on its own properties instead of other people’s.
The Candy Crush Effect: Facebook Revs Up Its Long-Awaited Ad Network, Fueled by Ads for Apps
Facebook’s mobile business, which didn’t exist a couple of years ago, is now big enough to spread to other people’s properties. Thank app install ads.
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Peter Kafka covered media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.
But one day those smart people could be right: Facebook announced today that it’s experimenting with selling ads on other people’s mobile apps. Sriram Krishnan, the Facebook product leader who announced the move via a blog post, even spelled out what he was working on: “This current test is more like a mobile ad network.”
As Krishnan notes, this isn’t Facebook’s first test of selling ads off its own property, or even on other mobile properties. In 2012, Facebook started a mobile ad test, then called it off a few months later, announcing that “our focus is on scaling ads in mobile news feed before ads off of Facebook.”
The in September of last year, Facebook told Business Insider that it was testing mobile ads again. That project, which involved third-party ad servers, is still going on, Facebook says; the project it announced today involves ads Facebook will serve directly.
One important thing that Facebook didn’t address today is the kind of ad it will be serving on other people’s apps. But I have an educated hunch: Facebook will use the space on other people’s apps to sell ads for other people’s apps.
That’s because app install ads — the kind that get you to download Candy Crush Saga or Jack Threads or whatever to your phone — are booming, a fact that Facebook has acknowledged without spelling out exactly how big that business has become. But I’m reasonably certain that app install ads — an ad market that barely existed a couple years ago — now account for a very substantial portion of Facebook’s mobile ad revenue, which now accounts for half of Facebook’s ad revenue.
And while app advertisers are clamoring to get in front of Facebook’s users, Facebook may not be interested in showing its users a steady diet of Candy Crush ads. Because that would get wearisome quite fast and would also crowd out the brand advertisers Facebook still aspires to bring over from traditional media, like TV.
So farming those ads out to other people’s properties lets Facebook win twice — it gets a piece of a fast-growing market without burning out its users.
I do wonder if the app ad market is sustainable, or if this is a one-time boom. A handful of developers — again, like Candy Crush maker King — can likely pay for installs forever, because their apps are money-making machines with a measurable return on investment. But what happens if other developers conclude that they can’t afford to keep spending money on installs?
Another what if: What happens if Apple or Google decides it would like to assert more control of the app ecosystem and doesn’t want developers buying audience on other networks? Or alternately, what happens if Apple or Google decides it would like more of the app-install ad market for itself?
Facebook’s next earnings call is in a week. Wouldn’t it be cool if someone asked about the app-ad business then?
This article originally appeared on Recode.net.
