Facebook and Google Are in Trouble - and You're to Blame

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Maybe you were one of those people who bought Facebook (FB) stock right after the initial public offering. You watched stock of the social network giant brought to its knees by worries about future growth and, most importantly, mobile. But those problems are all behind us now.

Facebook has become a king of mobile. After its latest blowout quarter, as Benzinga noted, everyone is deliriously happy. Fifty-nine percent of advertising revenue came from mobile, and the stock is over $76. If you hung in, you made some serious money. If you had bet on Google (GOOG) over the same period, you also would have had a payday, especially as the search giant owns the mobile platform of choice.

But don't get too comfortable, because there's a tiny problem. Facebook, Google and companies like them may not be able to keep delivering those massive increases in revenues and profits. The reason is your smartphone.

There's an Ad for That -- or Is There?

That's right, the mobile miracle -- that is transforming high tech, bringing the Internet everywhere, changing our lives and even finding parking spaces when we need them -- has a gotcha. Advertising on smartphones doesn't make money as much as it did on the old-fashioned Internet. And the more we all move toward doing our searching, social networking and everything else on those handheld devices, the tougher we're going to make it for the companies that deliver all those services to satisfy our stock portfolios.

Advertisers are dissatisfied with smartphone ads and therefore less willing to pay premium rates that can fuel growth. Some issues:
  • Carriers have been slow to tap the user data that advertisers depend on for targeted delivery, according to Advertising Age. Third-party ad networks and vendors offer some data, but the carriers have the richest data. However, they don't want to find themselves trying to convince a Congressional investigative panel on live TV why what they do doesn't affect consumer privacy.
  • Brands feel let down by mobile ad opportunities, according to iMedia. Companies view them as "seriously lacking the excitement and effectiveness that brand marketers need."
  • Mobile video use is down among consumers, according to AdNews. Video is the source of some of the highest-paying advertising space on mobile because it commands the best attention from consumers.
  • There isn't the room physically on a smartphone screens for numerous ads, so the Googles and Facebooks can't rack up as much revenue per user. Compare that to a web browser on your desktop or laptop, where you'll see plenty of ads simultaneously.
You can already see the results in the earnings reports. As the New York Times reported, the price Google gets per clicked ad dropped 6 percent last quarter from the same period a year before. That's the continuation of a two-year trend. Google's explanation was that "mobile does not monetize as well as other forms."

Facebook isn't out of the woods, either. The company announced that mobile represented 62 percent of its advertising revenue. Sounds good until you look at the audience composition: 79 percent of daily active users and 71 percent of daily monthly users were mobile. That means you.

Many investors are betting, whether they realize it or not, that somehow, somewhere, someone will figure out how to make mobile pay off more thoroughly. But until they do, you and I and every other Internet user who shifts more of their online time to mobile will put the pressure on the revenues, profits and eventually the stock prices of the service providers.


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