How Google Can Steal Facebook's Candy

 Facebook’s dependence on app-install ads primarily driven by free games leaves the company very exposed to both Apple and Google, albeit in two different ways.
Is he ready for the mobile future? Photographer: David Ramos/Getty Images

Facebook has once again crushed its quarterly earnings report, primarily on the back of mobile advertising. While overall user growth is slowing, thanks to market saturation, Facebook increased both engagement and revenue per user, with mobile revenue surpassing non-mobile revenue for the first time.

Part of this growth is due to the attractiveness of the Facebook mobile ad unit: Unlike most other mobile ads, which sit in a small bar at the top or bottom of the screen, Facebook's mobile ads are directly in your timeline. Thus, as you scroll, each ad has an opportunity to fill the entire screen with an attention-grabbing image that is eminently clickable. It's arguably the best display unit in digital advertising today.

Significantly, the largest driver of Facebook's mobile revenue is app-install ads -- that is, ads that encourage users to download an application rather than simply promote a product. According to AdKnowledge chief executive officer Ben Legg, whose company handles about 2 percent of Facebook's ad sales, app-install ads make up well over half of Facebook's mobile revenue. These ad units are largely purchased by free-to-play game publishers such as King (maker of Candy Crush Saga) and Big Fish Games (the Bejeweled series), which leverage Facebook's incredible demographic data to target the small percentage of players who will spend hundreds of dollars on in-app purchases.

The cycle goes something like this:

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