This past week, eMarketer increased its estimates for Twitter's ad revenue based on greater-than-expected demand for the platform's mobile ads. The news isn't entirely unexpected; social advertising has delivered a streak of upside surprises. As social advertising continues to gain traction, should Google be worried about losing advertising dollars?
Social advertising is gaining on Google
eMarketer's revised estimates for Twitter's ad revenues were substantially higher than its original expectations. The market research company had initially forecast 2013 and 2014 ad revenues to come at $545 million and $808 million, respectively. Now it has pushed up those estimates to $583 million and $950 million.
Adding perspective, that's an expectation for a 102% year-over-year change in 2013 and a 63% change in 2014. Some anonymous insiders even expect Twitter's revenue to top $1 billion in 2014. Where's this growth coming from? eMarketer's report cites these four areas:
- Growing adaption of mobile devices.
- More interest on spending money on mobile advertisements on Twitter.
- Improving audience reach on Twitter.
- The launch of Twitter's Ads API.
Facebook and Twitter shine in mobile
Mobile is definitely the name of the game in digital advertising these days. According to a Pew Research Center study, mobile ad revenues increased 80% in 2012, year over year. The explosion of mobile browsing is changing everything.
Facebook declared itself a mobile company in its fourth-quarter results, when the company's mobile monthly active users, or MAUs, exceeded 50% of the company's total MAUs. Furthermore, its mobile revenue accounted for 23% of total revenue, up from 14% in the prior quarter.
eMarketer estimates 53% of Twitter's ad revenues to come from mobile this year, a drastic increase from virtually zero mobile ad revenue in 2011.
While Google is definitely poised to perform well in the mobile market, will Twitter and Facebook, whose businesses are tied more closely to mobile, see outsized benefits? If recent history is any indication of the future, it is a feasible prospect.
Twitter's 107% year-over-year increase in revenue in 2012 and Facebook's 37% increase are mainly due to the explosion of mobile advertising on these social platforms. Though there is definitely some cannibalization of desktop advertising's share, it's likely that a great amount of incremental growth is due to mobile adoption, since the platforms are extremely mobile friendly.
Spam or relevant?
Much of the astounding growth of social digital advertising on Facebook and Twitter platforms is due to new platform-specific ad solutions that allow advertisers to run targeted campaigns that weren't possible in the past.
The recent launch of Twitter's Ads API, for instance, gave advertisers significantly more access to users' streams. eMarketer explains that this is one of the key driving forces for Twitter's revenue growth.
This week, Facebook opened up users' news feeds to targeted brand posts, allowing brands to provide status updates that appear in targeted users' feeds. The updates will be hidden from the brand's page and only show up on the feeds of the targeted users. The move comes after a host of other similar changes introduced during the past 12 months that have continually brought more and more advertisements to users' news feeds.
The proliferation of increasingly more ads in the user experience, however, isn't a sustainable way to grow revenue. The challenge for Facebook and Twitter will be to balance user experience with revenue sources. As soon as revenue sources begin to impede the user experience, user discontent could cause a long-term problem.
Facebook has reached this point, says BTIG Partners media and entertainment analyst Richard Greenfield. He thinks that advertising on the social network is looking more and more like spam, and less like targeted, relevant advertising. Facebook's new timeline will continue to push ads to the news feed, as the ads on the right side of the news feed are eliminated.
How will Google fit into mobile?
Google's a major mobile player. In 2012, it became the largest player in mobile display ads. The company's onslaught of Android devices gives it a powerful position in mobile marketing. But could the Internet giant lose market share to Facebook and Twitter amid their soaring ad revenues? Probably.
But this doesn't mean investors should sell Google. The company isn't priced for the growth rates Facebook and Twitter are experiencing. In other words, investors don't need the business to earn Facebook-like growth rates for investors to be rewarded.
Investors should, however, keep a close eye on exactly how Google, Facebook, and Twitter are monetizing their mobile platforms. Their mobile strategies will undoubtedly play a very large role in their wherewithal to compete over the next five years.
So should Google be worried? Not necessarily, but it should continue to actively pursue successful mobile strategies to remain a provider of competitive solutions for digital advertisers.
After the world's most-hyped IPO turned out to be a dud, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.
The article Twitter's Ad Revenue Soars. Should Google Be Worried? originally appeared on Fool.com.Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.