Mobile video has bright future in advertisement

LiveRail may widen income stream for Facebook

Facebook announced last week that it had completed acquisition of LiveRail, an advertising company that distributes user-tailored online video ads, marking a deal that some believe could bring a huge earnings boost to the social media titan. Although the financial terms of the deal were not disclosed, media reports priced the sale in the $400 to $500 million range. If true, such a high price tag would be justified if it propels Facebook to the forefront of the mobile video ad market.

Facebook reported $2.5 billion in total revenue during the first quarter of 2014, representing a 72 percent year-on-year gain. Advertising accounted for $2.27 billion of overall income during the period, up 82 percent from a year earlier.

Meanwhile, Twitter, one of Facebook's main rivals in the social media space, notched even more impressive growth. According to its own results, Twitter's advertising revenue jumped 125 percent to hit $226 million over the same time frame.

If we take a closer look at the two technology giants' reports, it's not hard to draw a conclusion about their different growth results. Mobile ad revenue accounted for approximately 80 percent of Twitter's ad income over the first three months of this year. Meanwhile, Facebook's mobile ad revenue represented 59 percent of its ad take, up from approximately 30 percent during the first quarter of 2013.

Mobile advertising is now one of the biggest money makers for Internet companies thanks to widespread adoption of smartphones and tablets. In fact, recent figures from the Interactive Advertising Bureau place US spending on mobile ads at $7.1 billion last year, up 110 percent compared with 2012. Luckily for Facebook, one of LiveRail's key features is its ability to distribute video ads across both mobile and desktop platforms, potentially positioning it to tap the burgeoning market for mobile video ads.

As the industry strides toward advances that can improve ad distribution efficiency, advertisers are still deeply concerned about the question of exposure - that is, how much information do viewers take away from any particular ad? Usually, this is quite hard to measure, as viewing habits and receptivity to commercial content differ greatly between individuals, but we can get a rough idea based on the click-through-rate (CTR) of various types of advertisements.

According to the results of a survey conducted by Coull, a tech company that specializes in online video ads, traditional display ads usually see a CTR of about 0.11 percent. Mobile banner ads perform slightly better, with an average CTR of roughly 0.35 percent. Things change dramatically though when one looks at mobile ads, which boast a reported CTR of 11.8 percent. For website operators looking to create value for advertisers, such a high figure cannot be ignored.

Looking specifically at video ads though, their high cost relative to other forms of display ads could prove prohibitive for some marketers looking to connect with consumers on mobile devices. We can see this in one widely used metric for measuring digital ad prices, cost-per-thousand (CPT). According to analysis by Credit Suisse, the average CPT for a digital video advertisement is just over $24 across all platforms, or as much as 10 times higher than the average cost of a traditional display ad.

But this cost should start to slide as more advertisers and content publishers enter the booming market. Last year, digital video ads made up only a small share - 9.7 percent, according to estimates from eMarketer - of the cross-platform digital ad market. By 2017, this rate is expected to hit 15 percent. Meanwhile, although they accounted for only 2.4 percent of revenue, spending on digital video ads grew from roughly $2.89 billion in 2012 to $4.15 billion in 2013.

Last year, Google was ranked as the top digital advertising company, according to AOL. Facebook wasn't even in the top five. Given the promising growth potential of mobile advertising and video ads, Facebook's future success could come down to its ability to bridge these two areas.