Mobile internet growth has just tapped the surface

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Mobile Internet Growth make things a bit tougher for Facebook
Mobile Internet Growth make things a bit tougher for Facebook

A prospectus lodged in the US is a very dry affair these days but Facebook’s paperwork for the float did highlight some great data points relating to what is going on online.

Facebook says the internet still represents only a modest portion of total advertising spending, even though its audience reach is greater than television, and the ability to harness the internet for targeted or interactive marketing is unparalleled.

Citing the researcher IDC, Facebook notes total worldwide advertising spending in 2010 was about $US588 billion, of which television, print and radio accounted for $US363 billion, or 62 per cent.

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Yet the company makes the point that in December last year an advertiser could reach an estimated audience of more than 65 million US users in a typical day on Facebook, compared with the 29 million viewers who watched last year’s season finale of American Idol.

Once upon a time, delivering your message to consumers was simple – you had your pick of TV, radio and print, or outdoor advertising. Now you have SEO (search engine optimisation) and SEM (search engine marketing), internet banners, social networking, YouTube videos, mobile apps and so on. It’s a confusing world where different mediums require different approaches.

An online media executive speaking last week at an investment conference said traditional retailers were run by executives with views ranging from “I retire in a few years, I don’t need to deal with this”, to “What am I going to do about this?”, and “We need to work this out”.

By 2015, the worldwide online advertising market, excluding mobile advertising, is projected to increase to $US120 billion from $US68 billion in 2010, according to IDC data.

Data from the industry body Interactive Advertising Bureau Australia shows the nation’s online advertising market grew 17 per cent last year to $2.66 billion, setting it up to hit the $3 billion mark this year.

Businesses taking the “I don’t need this” approach look like they are missing the boat, but those that wish to confront the changes also face problems.

It isn’t necessarily easy to hire people with the skills to build an effective online platform, and a lot of the work – including marketing on Facebook – is still in an experimental phase with no blueprint on how to tackle the online world.

Returning to the Facebook prospectus, the global mobile advertising market is expected to surge to $US17.6 billion in 2015, from a mere $US1.5 billion in 2010.

Facebook expects the growth in mobile usage of its site will grow at a faster rate than ”desktop” usage. It is devoting substantial resources to this segment and says ”we believe that mobile usage of Facebook is critical to maintaining user

growth and engagement over the long term”.

In Australia, mobile wireless accounts for nearly half of all internet subscriptions. There are also another 11 million mobile handsets with internet access.

The mobile internet explosion has actually made things a little tougher for the likes of Facebook and Google. Facebook had to amend its prospectus before listing to note that it did not generate any meaningful revenue from the use of mobile products. In other words, it has not worked out a way to serve the same amount of advertising to a smartphone that it does to a desktop internet browser.

The global adoption of apps for mobile devices also makes it more difficult for Google and those who market through search engines to grab the attention of internet users. Officials from the US online restaurant review site Yelp recently told analysts that mobile was a distribution channel ”where we have a much more intimate relationship with consumers because they’ve chosen to download the app. They’re much more engaged, we’re now a button on their screen.”

So rather than search for restaurant ratings via Google, those who have downloaded the Yelp app will simply press on the Yelp icon, bypass Google and its ads, and access their intended destination directly. The same holds true for apps across a range of industries – travel, gaming, media content and so on.

I do not see investing in Facebook at its IPO pricing of about 77 times earnings as particularly attractive. But there are several online businesses listed on the Australian Stock Exchange that, while not having the scale of opportunity to grow as Facebook, have solid prospects at far more reasonable price-earnings ratios.

ASX-listed online businesses can be divided into two broad camps: those that have already had their turn and achieved strong market positions in what are now relatively mature industries; and those that are pursuing such positions in industries where the online penetration story is still playing out.

I recently found the former REA Group chief Simon Baker in Peru (and on Skype) as he pursued growth opportunities for online classifieds in markets that are still evolving (he also has an ASX-listed vehicle, iProperty Group, that operates online real estate classifieds in Asia). The company that he took to market leadership is battling it out with its main competitor for percentage points in market share and relies on pushing through price increases to generate growth (REA reported only 4 per cent growth in property listings in the previous half and a 3.8 per cent decline in the number of real estate agents paying for listings, despite 18 per cent revenue growth).

 

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