Four years on from its IPO, Facebook has beaten its mobile demons but still has mountains to climb

Schadenfreude was in plentiful supply as Facebook’s value plummeted immediately after its IPO. Audiences may have been flocking to mobile but Facebook appeared to have no concrete ideas as to how to monetise that platform. Four years on, Facebook is celebrating the anniversary of that public launch with quarterly revenues smashing analyst expectations, rising 50 per cent in Q1, and 80 per cent of that comes from mobile advertising.

Making mobile-first work

At first the analysts were right to be worried. Facebook wasn’t focused enough on how to monetise the wholesale shift of consumers to mobile. Confident that deep pockets (at least on paper) would win the day, the platform’s other strength has been to recognise its weaknesses. Those that can do and those that can’t buy others that can. This led to acquisitions that at the time seemed expensive [£11.4bn and no ad strategy?] and even contradictory. Why buy WhatsApp when Facebook was also developing its own free Messenger application? Why acquire Instagram when you can post filtered pics to friends in the newsfeed? Today, these choices are nothing short of prescient.

It wasn’t so much that WhatsApp gave Zuckerberg access to a new user base almost 1 billion-strong, it’s where that user base was located. It gave Facebook an entry into developing nations whose use of messaging and mobile was far outpacing growth in the west.

Any number of reasons were given for its 2012 acquisition of Instagram, from removing competitive threat to gaining kudos among a growing mobile-first audience of photosharers, to again gathering in the data goldmine of its user base.

Today, Instagram is thought to be one of the biggest contributors to that 50 per cent revenue rise. Facebook's chief operating officer Sheryl Sandberg noted that 98 of the top 100 advertisers on Facebook also advertise on Instagram and one analyst predicts the site’s 2016 revenues will exceed $1.3bn. One company getting at least two bites of the ad cherry.

Where the cool kids are

Facebook still has a lot of work to do. Even the company itself acknowledges in its annual report that Facebook is not where the upcoming generations are expected to hang out. With the company yet to fully realise the potential of its WhatsApp acquisition, there is much to address.

How will it deal with the increasing stranglehold its competitors Weibo, WeChat and Baidu have on the east for example? These platforms are already adept at attracting younger users and monetising like crazy with everything from online shopping and banking to chat, artificial intelligence and virtual reality running through them.

These platforms also benefit from the fact that China, potentially Facebook’s biggest market, remains closed to it. And other nations look like they are resisting the temptation to fall under the social network’s spell. In 2014 a combination of savvy commerce and philanthropy saw Facebook pledge to support free internet access to disenfranchised communities in India – and it backfired spectacularly. Sparking a country-wide debate on net neutrality and casting an uncomfortable spotlight on the company’s attempts to speed up adoption, Facebook’s ‘free internet’ concept is still floundering two years on.

In home markets too, applications such as Kik and Snapchat are stealing the march on the ad front. Snapchat is expecting to generate ad revenues of $300m in 2016, six to seven times its original $50m estimate. In addition, the latter’s Super Bowl dunk fest with Gatorade really upped the profile of both platform and advertiser, delivering 165m ‘dunks’ within 24 hours of the event. Live video is increasingly important, boosted by Periscope. Facebook has joined the live video party and there is evidence that its newsfeed algorithm is prioritising it over web and premade video.

A Facebook future

The network isn’t sitting on its laurels. While it’s unlikely that anyone will ever out-Facebook Facebook – threats aren’t going to come from a me-too platform – it can’t keep writing cheques to answer new consumer demands.

Snapchat filters may have captured the zeitgeist but underneath the gimmicks is the very real trend that consumers are moving increasingly towards chat and instant messaging as the services that take up their time.

Acquiring Masquerade, a face-swapping and filter app with Snapchat-esque functions, shows it’s serious about this space but is it already playing catch-up? There is no sense that this acquisition will divert the younger audiences away from Snapchat but it may feed the new functionality to its core, older audience.

Facebook will have to be careful of chasing after every fad. Its much-demanded yet hardly used Reactions facility shows that what customers want, they shouldn’t necessarily get. Facebook will have to give brands a platform here that allows them to engage with customers with integrity and utility. Chatbots could be the next level of engagement but Facebook is going to have to help its brand partners tread carefully to strike the right note.

Agencies working with Facebook will also want to know that it’s capable of reaching the audiences it promises, particularly across India and China where it is also finding penetration most difficult. If it solves its market entry issues, it will still have to find its killer app among an ever-widening playing field of social suppliers.

There’s no doubting that the next decade and beyond will continue to bring massive change but the lessons from the recent past – Yahoo’s ill-conceived tech conglomerate and even Facebook’s IPO wobble over monetisation – should be enough to keep Zuckerberg and his team focused on where the audiences and the money will be coming from next.

Chris Whitelaw is EMEA president at iProspect