Facebook’s Path to Dominating Mobile (Local TBD)

April was an action-packed month for Facebook, especially news around mobile and local. After first quarter earnings where mobile was pegged at 59 percent of ad revenues, news came barreling close behind that Facebook will launch its long-rumored mobile ad network.

Known as Facebook Audience Network (FAN) it’s the reincarnation of the off-site network that’s had a few false starts over the past couple years. For those unfamiliar, it will apply Facebook’s audience targeting to third party apps, such as those using Facebook Connect for log-in authentication.

The beauty of such an off-site network is that it uses Facebook’s data and positioning to continue milking demand for mobile ads, without killing the cow. Instead of over-monetizing its own core user experience, it can do so in someone else’s yard (albeit with a revenue share).

But it won’t be the “native” news feed ads characteristic of Facebook’s own app, as many speculated. Native ads work great in Facebook’s feed-based interface, but most other apps don’t have the same scrolling real estate/inventory to work with.

So Facebook will work directly with some app publishers for customized native ad formats, but presumably only the largest ones. Everyone else will feed from the banner and interstitial trough. I’ve predicted lots of app-install ads — which have so far been a cash cow for Facebook (last cow pun, I promise).

As for FAN’s ad targeting, it will be mostly behavioral and profile-based. This will shine within apps that use Facebook Connect for authentication and social sign-in. But there won’t be a heavy location-targeting component to ad placements in FAN just yet, despite all the speculation.

That’s where local enters the picture. FAN’s speculation was at its peak when Facebook separately announced its new Nearby Friends feature, along with comments that it could later be used for ad targeting. This sent the blogosphere and generalist tech media into a fit of misguided speculation.

Connecting hyperlocal ad targeting with FAN is interesting, but didn’t pan out (reasons below). That integration could come later but brand-centric advertisers currently buying Facebook ads aren’t ready for it. And if it’s applied anywhere, it will be news feed ads before FAN.

In either channel, location targeting could add relevance and higher performance to mobile ads, as it often does. We also can’t forget Facebook already offers zip-code level targeting for sidebar ads. But there are realities impeding any location targeting, which most coverage has missed:

1. Advertiser adoption of news feed ads has so far been more about branding or app downloads — things that have less to do with location or offline transactions. App install ads are in fact a huge chunk of Facebook mobile ad revenues and they don’t have a location targeting imperative. Demand could change but that’s where we are now.

2. Adoption has also skewed heavily towards large brands as opposed to SMBs, as is often the case with emerging media. And reach is a longstanding objective for brands, for better or worse. Location targeting is great for boosting relevance and ad performance, but it impedes reach by segmenting audiences into small geographic pockets. This attitude is slowly shifting but, again, it’s where we are now.

3. When Facebook advertising does move down market to SMBs, location targeting will make more sense. But the question is when that will realistically happen. Reaching SMBs from an ad sales perspective has challenges that are well known to Street Fight readers (even if most punditry ignores them).

The third point is perhaps the most interesting because of the sheer size of the SMB market opportunity — certainly one that’s not new or unique to Facebook. To reach that market, there’s been lots of speculation on whether or not Facebook will partner with a local sales channel to re-sell its ads.

Facebook local head Dan Levy recently doused some of that speculation. Does that mean Facebook will go it alone? More importantly can it? Just ask Google about its local saga. The answer is unclear but it will be vital to Facebook unlocking local in the ways everyone keeps assuming it will.

Michael Boland is senior analyst and VP of content at BIA/Kelsey. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.

To find out more about Facebook’s local plans, join us at Street Fight Summit West, where Ted Zagat, the company’s Product Marketing Manager for SMB will talk about Facebook’s SMB strategy and partnerships.  Click here to buy tickets.