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Sorry Verizon, Facebook Is About to Crush Your Mobile Ad Dreams

Source: Verizon.com.

News that Verizon 's AOL would acquire digital advertising player Millennial Media had barely hit the feeds before a new report from eMarketer gave us reason to question how much of a foothold the company will be able to grab in the fast-growing mobile space. AOL is paying $238 million for Millennial Media, a company that controlled about a 0.5% share of the mobile ad market in 2014, according to eMarketer research. That's just a sliver of the 18.5% captured by Facebook , or the 36.9% owned by search giant Google .

But what's troubling about the eMarketer report -- at least from Verizon's perspective -- isn't the market-share numbers from last year. It's the projections moving forward. The report shows the soon-to-be AOL-owned Millennial Media losing share this year, and again during the next two years, holding just a 0.2% share in 2017. If the projections prove true, Millennial's mobile revenue would grow from about $96 million in 2014 to just shy of $102 million in 2017.

During the same years, Facebook's mobile-market share would increase from 18.5% to 20.3%. In dollars, Facebook's mobile revenue is expected to climb from about $3.5 billion to more than $10 billion. That's a near tripling of mobile revenue in just three years.

When we expand our look to include all digital advertising, eMarketer sees a similar picture.

There are expected to be just a few winners during that time in terms of mobile market share. Google will lose share, but still hold more than 30% of the market come 2017, according to the report. AOL, meanwhile, should see growth, but only to the tune of about 35%, from $1.05 billion in 2014 to a little better than $1.4 billion in 2017.

Monetizing mobile

There are good reasons why companies large and small are trying to get into the mobile ad game. People are spending an increasing amount of their time on their smartphones -- some 4.7 hours a day, according to Informate Mobile Intelligence. And because of that, the mobile ad market is set to explode in the coming years, rising from $19 billion in 2014 to more than $50 billion in 2017.

The deal for Millennial makes sense for AOL and parent Verizon, which has been trying to figure out new ways to monetize its mobile users as cell phone subscriber growth slows. (Operating revenue for the six months that ended in June was down 1.8% over the prior-year period.) That's why the company acquired AOL in the first place, and Millennial's network, which covers some 65,000 apps and reaches 1 billion users, will provide it with important tools to work with in that quest.

Verizon's massive customer base and customer data, AOL's ad clients and cross-channel platform, and Millennial's mobile reach "are the components Verizon needed to spin its mobile operator data into a tangible revenue stream," AdAge wrote after the deal was announced. But the eMarketer report should leave investors skeptical as to whether Verizon and its subsidiaries will be able to get the traction they desire in coming years. And the biggest impediment standing in their way is the company that is fast becoming the king of mobile: Facebook.

Big user base, but even bigger data

Facebook has built a platform that allows it to acquire massive amounts of data on its users, then put that to use to target ads in a way that might be out of reach for any rival in the mobile ad market. On top of that, Facebook is continuing to grow its share of time spent on mobile phones.

And while you've probably heard this statistic by now, it's worth repeating: Facebook's apps last quarter accounted for more than one of every five minutes people spent with their smartphones.

One other thing that truly sets Facebook apart from its competition in digital advertising is scale. Facebook has a huge user base. More than 1 billion people used the social network in a single day, Aug. 24, and nearly 1.5 billion use Facebook at least once a month. Few other companies can offer advertisers anywhere close to that type of potential audience.

Tough to compete

Facebook is continuing to work on better targeting. And the better it gets, the bigger share of the market it will grab. This is what we see in the eMarketer projections.

That doesn't make the Verizon-AOL deal for Millennial Media a bad one. But it does shine a light on the difficult market the company will be up against as it dives deeper into the mobile ad space and fights for ad dollars.

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The article Sorry Verizon, Facebook Is About to Crush Your Mobile Ad Dreams originally appeared on Fool.com.

John-Erik Koslosky owns shares of Facebook and Google (A shares). The Motley Fool owns and recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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