Internet Advertising and Bubbles

Great article on Facebook's mobile business:

Significantly, the largest driver of Facebook’s mobile revenue is app-install ads -- that is, ads that encourage users to download an application rather than simply promote a product. According to AdKnowledge chief executive officer Ben Legg, whose company handles about 2 percent of Facebook’s ad sales, app-install ads make up well over half of Facebook’s mobile revenue. These ad units are largely purchased by free-to-play game publishers such as King (maker of Candy Crush Saga) and Big Fish Games (the Bejeweled series), which leverage Facebook’s incredible demographic data to target the small percentage of players who will spend hundreds of dollars on in-app purchases.

Ignore the mention of Big Fish games (which does not publish the Bejeweled series -- that's PopCap, now owned by Electronic Arts), the core dynamic is correct. Mobile game companies -- particularly King which is now public and under pressure to show growth -- will pay a great deal for acquisition looking for "whale" players who generate the bulk of their revenue. However, I'm pretty sure that the platform provider which handles the billing -- namely Apple and Google -- know much more about who the whales really are than Facebook and so are best positioned to sell them to the app companies. Therefore, Facebook's position here looks shaky, but also similar to when they first went public and were reliant on Zynga for the bulk of their revenues. Ultimately, Facebook will need more reliable legs to stand on than selling whales to game companies.