Peter Kafka

Recent Posts by Peter Kafka

Facebook: Trust Us! We’re Going to Nail Mobile.

So Mark Zuckerberg showed up, everybody played nicely, and Facebook survived its first earnings call. What did we learn?

Not a ton: The most interesting tidbit was Zuckerberg’s seeming disinterest in building a phone. Since lots of people, including ones who work at this news site, believe that Facebook has been very interested in building a phone, we’ll have to wait a bit to figure out if he’s actually changed his mind, or if that was an attempt at a Jobsian head feint.

And the other thing we learned we already knew, but Facebook wasn’t taking any chances in explaining it over again: It doesn’t think it’s going to have a mobile ad problem, because it has already introduced its mobile ad product.

Those would be Facebook’s “sponsored stories” — basically endorsements from your friends that show up in your News Feed. And much like Twitter’s ad strategy, these ads are supposed to work as content, so  you won’t mind seeing them in your feed, whether you’re at your desk or on your phone.

So far, Facebook said, over and over, the ads are performing well: By the end of June, the company was selling  $1 million worth of those ads a day, and half of that was coming from mobile. The message: Yes, right now, we’re losing the opportunity to show people ads when they migrate from MacBook to iPhone. But pretty soon we’ll have that licked.

Now, time to see if Wall Street likes that story better than the numbers they saw this afternoon.

—————————————-
Earlier:
Facebook hit its numbers. But that’s not good enough — the stock is trading down 10 percent.

Time to see if Sheryl Sandberg and David Ebersman can fix that. And time to see if Mark Zuckerberg shows up.

Greetings! Just listening to some sunny hold music. Nice strings. Woodwinds, too.

Music’s off, and we’re on.

On the call: Zuckerberg, Sandberg, Ebersman.

Legal boilerplate.

5:03 pm: Here’s Zuck:

Stresses long-term goals. Running through MAUs.

Added three million U.S. users (in last month?).

Focus on priorities for rest of 2012:

Mobile (of course). “Building great services for these devices is essential.”

543M actively using mobile services. (Again, from release). People who use mobile are more active than desktop-only. 20 percent more likely to use FB on any given day.

“We want to build the best apps.” (Cough.) Investing heavily in Android, iOS, mobile Web.

Again, repeating lines from release — Instagram deal, etc. Proving we can advertise successfully on mobile, with sponsored stories. (Cough.)

On to platform: Standard rap here — we want people to build on FB.

Shout-out to Spotify. We want you to be able to buy a car, and then you log in via your car to FB, and your dashboard lights up with social info, just like the Spotify experience today.

Open Graph isn’t just about games, people. Spotify, Netflix, Instagram, Viddy, Nike+, SongPop, etc. “Already, people are sharing nearly a billion pieces of content a day using social graph.”

Still early days for open graph. Want to give people more tools to control way they share. Complex problems, etc.

Social ads: “The best type of advertising is a message from a friend” (which I would argue is different from learning my pal “Likes” Target).

Most ads today on FB aren’t social. But they should be.

Social ads are great because they work on desktop and mobile, via News Feed. That’s great, like I said. By end of June, doing a run rate of $1M per day on sponsored stories. Half of that is on mobile.

5:12 pm: And now Zuck’s done reading. On to Sheryl, who sounds like she is snorkeling.

Giving broad ad pitch. We can be every part of the funnel. Google/search owns the bottom of the funnel, but we do well there, too. But we can also sell ads at the top of the funnel — “demand generation.”

Sheryl selling sponsored stories, again.

They are the “cornerstone of our mobile monetization strategy.”

(So. Are we clear? Facebook wants us to know that it does have a mobile ad strategy.)

Wow. She is literally repeating part of Zuckerberg’s script — $1M/day sponsored stories run rate, half on mobile.

Now talking up Facebook ad exchange. (By the way, talked to a tech company working on this today. They are very excited, but they can’t say that in public.)

People remember our ads, and we can prove it.

Now repeating release again, citing stats on ad campaign performance. Now citing case studies.

Now talking up small biz ads, local ads. No one has cracked small biz market yet. But we can do it.

(Wall Street unmoved by Mark and Sheryl’s scripts so far. FB still down around 10 percent.)

Still, early days! (Give us time, Wall Street. Give us money, advertisers.)

(Sandberg can be a much more effective sales rep. She was great onstage at a marketing event in New York City. Here, very stiff. But she was reading. Let’s see how she does with questions.)

5:23 pm: Now Ebersman. Walking through stats again. Move to mobile ads means we get fewer impressions to deliver. We increased CPM primarily because of U.S. market, where our users are worth much more than anywhere else on a per capita basis.

But since we’re growing more rapidly in Asia and parts of Europe, where ads are cheaper, it decreases our overall CPM growth rate.

Payments revenue is flat, because gaming is growing on mobile, where people don’t tend to pay. (See: Zynga.)

(Meanwhile, a quick note from Citi analyst Mark Mahaney: “We don’t view these results as dramatically good or bad. Key questions remain: The future of FB Mobile Monetization and the future of FB User Engagement. We’re hoping for a lot of disclosure on the EPS call. … “)

We’re tweaking our user measurement techniques. We’d like to be sure that each FB account represents an actual person.

We hired a lot of people, and we’re going to try to stay disciplined, but we’re still going to keep hiring a lot of people for mobile, platform, social ads.

We’re going to spend a bunch on infrastructure and R&D. That’s for long-term and growth goals, and we care more about that than margins.

Winding up here.

5:31 pm: Q&A:

Q: Please talk about early results from Facebook Exchange, and some details about Yahoo patent deal.

Sandberg: Too early to share on FBX, but our advertisers and customers seem very interested. (Ad tech guys are very interested.)

We’re happy we got the Yahoo deal done. Historically a good relationship with those folks. Also, congrats to Marissa.

Q: Any sense of decline in engagement with “the younger cohort”? Also, you’re hiring a lot of people. How big can the company be?

Zuckerberg: Seeing steady growth in all age groups. On size of company: “We’ve always been significantly smaller … compared to the number of people we serve in the world.” (So FB will not employ 900 million people.) Need to use leverage.

Over time, we may build more stuff ourselves, but we’re mostly focused on platforms, and happy to let more developers leverage what we’ve built. “Basically, growing by trying to find as many talented engineers as we can … but we’re going to be way smaller” than some of our peers.

Q: On mobile: Do you think it’s important to own the entire experience? Device versus app? (ARE YOU BUILDING A PHONE?)

Zuck: Facebook is the most-used app on basically every mobile platform. Now we want to increase depth of experience. We want to be “as deeply integrated into as many of these systems as possible,” like the Apple deal that just got announced.

(So no, not going to answer the phone-building question)

(Apologies, my colleague Mike Isaac said Zuckberg said it made more sense to encourage third-party app development than building out a whole phone. We’ll have text in a second.)

(Here’s the quote, via Mike: Building a whole phone “really wouldn’t make much sense for us to do.”)

(Missed following Q, A)

Q: Can you talk about penetration of social ads?

Sandberg: Fewer than half of ads are social. Very focused on increasing that percentage.

Ebersman: A “very small” percentage of ads are social, because those go into News Feed, and we’re being very cautious about monkeying with that.

Q: You talked about sponsored stories. Anything else look promising? Also DAU/MAU ratio declining sequentially. Is that because people aren’t hanging out on laptops in the spring?

Sandberg: FBX looks good, like I said. Also, we’re very optimistic about mobile. (Remember: Mobile is not going to be a problem for us.)

Ebersman: We’re pleased with that ratio. We figured the number would go down as we got late adopters, but it went up. Its a slow-moving number, and it did decline, and some of that may be because of the way we measure — like we’re trying not to count when your phone auto-pings our servers, even though you’re not on Facebook.

Seasonality isn’t that big a deal for summer. For holidays, use changes.

Q: Update on Instagram deal, please. How is acquisition working? Do you have other big deals cooking? Also, is this going to be your lowest quarter for year-over-year growth?

Zuck: Deal isn’t closed, so no integration. Other M&A? We’ve been doing “acqhires.” We like entrepreneurial people, so we try to hire/buy them. That’s going to be our primary approach.

(Sorry, have lost call. Mike will take over temporarily.)

Mike Isaac here!

A Goldman question: How do you gauge how often to show sponsored stories?

(Okay, back.)

Also: How will local work with mobile?

Sandberg: We want to make sure context is relevant. Also looking at user reaction, which is easy for us to gauge — we can see if people “Like” or share sponsored stories. But we still are being cautious about only rolling out a certain amount of these.

Haven’t rolled out sponsored stories in all countries yet.

Local is huge, like I said. And we think it’s going to be relatively small leap from getting the small businesses who are already using their FB pages into advertisers. (Question was about mobile, not sure Sandberg was aware of that.)

Outside of obvious revenue streams for FB platform, what about commerce, what about video? Other stuff?

Zuck: The basic approach is to build out platform. Let people build on top of that. People will transform industries, and we’ll get a portion of that value. We get a “relatively high percentage” of revenue that comes into gaming companies. For music, we provide less value, so we’re going to sell less revenue there.

Over time, more and more nuanced experiences will be social. Gaming straightforward. Media requires more nuance. Commerce even more. We’ll get a portion of that value. But I’m not going to share more plans with you.

Sandberg: Things are going to become more social. Fab.com is great.

Q: Marketers says the FB platform is still kinda complicated. When will that improve? Also, can you talk about revenue share for the app center? Also, anything you’d do differently if you could take a mulligan on the IPO?

Sandberg: We’re going to be a more complicated platform, because our product is more complicated. More complicated than search. We have to teach marketers how do this stuff.

It took a long time for the TV market to be understood. Took a long time for search. Early days. But the early results are so strong. “Truly good.”

For app center: We believe social discovery will make you more likely to install an app. Right now, not offering paid apps. So no revenue share.

Ebersman: We’re disappointed in the way the stock has traded. But we’re focused on long-term.

Q: In second half of year, how will revenue look compared to what you thought in the spring? Has your view changed since IPO? And when you show people stuff in the News Feed they haven’t asked for, like trending stories or sponsored stories, how do you measure user experience?

Zuckerberg: We have robust systems to measure this. We’ve figured out how to put in sponsored stories without “degrading those metrics.”

Ebersman: We have a little bit of visibility for operating expenses — they’re going up, like I said in my prepared remarks. Revenue is harder to gauge, because we’re still experimenting.

Q: You have 330 “preferred marketer developer” partners. A bunch are for ads, a bunch are for insights. Are those numbers going to grow?

Sandberg: We’re optimistic about our partners. We’re not very focused on specific programs. We want a lot of people to use our tools.

“We’re a partnership company. We want to make social companies and make them big, and take big companies and make them social.”

And we’re done.


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