Facebook will announce its second quarter earnings today, and the social giant appears to have solved its mobile problems. When Facebook launched its IPO two years ago, it was criticized for not having a clear mobile strategy. Just two years later, more than half of the firm's revenue comes from mobile ad sales and its stock is approaching an all-time high. Now that is has figured out mobile, it is moving on to an even more lucrative segment: commerce.
Facebook has always had a huge audience. It has more than 1.3 billion active users, which blows away social competitors like Twitter and LinkedIn. When the kids started moving to Instagram, Facebook paid $1 billion to get them back. The challenge for Facebook has always been how best to unlock the value from those users. It doesn't hurt that Facebook has some of the most advanced ad-targeting technology in the world, but that wouldn't matter much without a solid mobile solution.
Mobile ads are the fastest growing segment of the digital ad market, and Facebook has been desperately focused on getting those dollars. More than half of Facebook's users are logging on exclusively from their mobile devices. The good news for Facebook is that other than Google, there are not a lot of firms that can deliver a mobile ad experience at scale. Mobile revenue was 59 percent of its Q1 earnings.
Mobile reach is one thing, but monetizing that reach is another. It paid $16 billion for WhatsApp to get access to 500 million monthly users, but I haven't seen a plan for how to make money on those users. The service costs $1/year and Zuckerberg said he won't raise the price. I respect that as a consumer, but it puts a lot of pressure on the company to find another way to make money on that huge install base.
Ads are going to be the bulk of Facebook's revenue for a while, but the company is looking to diversify. It is testing "Buy" buttons in its News Feed, which will enable social shopping from within the Facebook experience. The company is also making long-term technology bets, like its acquisition of virtual reality headset maker Oculus VR.
Of all the places Facebook is investing, the commerce integration it is testing now has the greatest potential. Everything that makes Facebook a great ad platform also make it a great commerce platform. It has a ton of data on its massive user base, and it can get them to click "buy."
Of course, there is a segment of consumers who will freak out over this news service. Being willing to share your status is a long way from sharing your credit card information. But consumers are already super comfortable with online shopping. It seems like just about everyone if offering to manage transactions for you. Count up your "one click shopping" options: Amazon, iTunes, Google Wallet, your wireless carrier. Why shouldn't Facebook join the fray?
Facebook shopping will be particularly effective in pushing digital goods. It has already shown it can drive downloads, from Farm Heroes to Spotify. There is no reason it can't extend to the real world. As long as the package is on its way to your door, who really cares where the buy button was located? If Facebook doesn't do it, Pinterest will.
The media business is being driven by content, commerce, and data. Facebook has plenty of all three. Advertising may be driving the company now, but commerce is the future.