) proved Wednesday that you can make money selling ads on mobile phones. Lots of it.
Mark Zuckerberg's social networking giant derived $375 million in revenue from selling ad space on the mobile versions of its platform. That represented 30% of all its ad sales for the quarter -- a traditionally tough one, up from 23% last quarter. It's a good bet that number will grow again for Q2.
Yet just as Facebook is getting its act together on mobile, it faces a competitive headache over the next year or two from increasingly popular and native-to-mobile messaging apps. As they evolve into social platforms, they may take users away from Facebook and -- who knows -- mobile ad dollars too.
Over the top (or OTT) messaging apps are following a similar path as Facebook did when it first emerged from Zuckerberg's Harvard dorm room -- starting out as a basic utility for connecting people, then evolving into a platform where third-parties can advertise and sell services. Several mobile messaging companies are moving in this very direction.
KakaoTalk, a messaging company from Korea, has now turned itself into a social platform on which third-party developers can sell games and derive 20% of the revenue. Google
) Play or Apple's
) App Store takes the usual 30% cut, while Kakao divides the remaining 70% with the developer. The network has about 82 million active users, mostly in Asia, and more than 100 games on offer.
WeChat of China, which claims a whopping 300 million users, is also working on building out a social platform, as are messaging apps LINE and Nimbuzz of India.
Canadian messaging app Kik has more than 50 million active users and six games that it has developed in-house for its platform. Later this year the company plans to open itself to third-party mobile web developers, to host web apps on its platform. The idea is that when users are messaging one another, they can instantly start playing a game within the app, without having to move to another separate app or request that the other party download it.
Kik's CEO Ted Livingston says he could open up Kik's platform any time from now, but wants to make sure all the APIs and features are fully baked. "We saw chat being the killer app in mobile, and now the sprint to the finish is finally here," he says, referring to the race to build a platform.
Talmon Marco, the CEO of free-calling and chatting app Viber, whose has 175 million users registered through their cellphone numbers, also said in an interview that building a wider platform that hosts third-party apps was "definitely something that we're considering." Marco argues that people on Viber communicate with the smaller network on their app more frequently than they do on Facebook, because the latter platform has a larger, more daunting audience.
"I find myself having something to say maybe 100 or 200 times a day on Viber, anything from sharing a cool picture with a friend to saying 'hi,'" says Marco. "On the other hand sharing with everybody -- several hundred friends on Facebook -- I do this maybe once a week. You don't have something smart to say everyday."
It's worth noting that most of these OTT players still only make a sliver of the money Facebook does. Kik and Viber aren't profitable yet. KakaoTalk reported its first profit in 2012, of $7 million. That's a ways off from Facebook's $217 million profit for a single quarter, and it can be argued there's no reason why Facebook cannot ride the momentum and continue to rake in mobile ad revenue while mobile messengers like Kik and WhatsApp duke it out between each other.
In fact, researchers at E-Marketer forecast that the global market for mobile advertising is perfectly healthy, and that Facebook will derive almost $1 billion in revenue from mobile ads before 2013 is out. They expect that number to hit an incredible $1.5 billion by the end of 2014.
Yet there remains a risk that over the next year or two, rival messaging platforms will still prove to be a more attractive place to communicate through mobile devices than Facebook's mobile offerings, including its native apps, Messenger, Poke and more recently, Home.
Facebook sought to strengthen its position on mobile last month by releasing Home, essentially a souped-up Android launcher. The software suite offers more integrated, immediate access to high-end Android users -- but it has been panned by users, and received an average two out of five stars on Google Play.
Home also did not integrate some of multimedia features that many messaging apps boast, such as video- and audio-sharing. The service, which has been downloaded between 500,000 and 1 million times on Google Play, got little more than a few passing mentions on Mark Zuckerberg's Q1 conference call with analysts on Wednesday.
Smaller OTT messaging apps may find that by being close to the ground with their user base and able to introduce features more quickly, they can evolve into popular destinations that take attention away from Facebook on mobile devices. That could be an increasing problem if recent stats from independent analytics firm Social Baker are to be believed -- that Facebook is shedding users in developed markets like the U.S., U.K. and particularly Japan.
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