Facebook and Twitter are now, beyond a doubt, mobile companies. And major brands are quickly moving to reach consumers on mobile devices. But on the path social media companies are taking to find cash on mobile, the twain have yet to meet.
On Monday, Twitter fully unleashed its newest ad product, an app-install format, and agreed to buy TapCommerce, a startup that automates buying for app advertising. Google has introduced similar features to promote app downloads and engagement. Yahoo is flirting with them, too.
And for Facebook, the tap-to-download product has been a growth hormone.
EMarketer projects that app-installs could net as much as $4.3 billion this year, nearly a quarter of all U.S. mobile ad spend.
But that money isn't coming from brand advertisers. It is the domain of small, performance-based marketers and, by a large margin, games. Other marketers and ad buyers praise the social media titans for finding a way to reach consumers where they spend most of their time -- on mobile apps -- but say the uses for app-install ads are limited.
"They don't solve for the brands having good, mobile-optimized content," said Douglas Rozen, chief innovation officer, MXM.
Do they need to? Do Facebook and Twitter need brand dollars to shift to app-install ads, or can they keep riding the Candy Crushes of the world to fuel their growth?
Most industry insiders agree the phenomenal growth of the app-install business will soon peter out. In their latest moves on mobile, Facebook and Twitter are grabbing land and technology in the hopes it paves the way for major brand advertisers to jump aboard the format eventually.
"I believe that we're going to see it; there's so much riding on its success," said Larry Chiagouris, marketing professor at Pace University's Lubin School of Business. "Otherwise, Twitter is going to go away."
"Even Facebook has got to be nervous about how things are unfolding," he added.
An end to the euphoria
Announcing Facebook's first-quarter earnings last year, CEO Mark Zuckerberg said selling app-install ads had brought in "real revenue." Then, his company netted 30% of its ad revenues on mobile. A year later, the proportion was 59%, roughly $1.48 billion.
On July 1, Facebook declared that App Links, its feature for easily linking among mobile apps, had been deployed over one billion times since its introduction in April and was now compatible with ads. App Links touted some notable users, including Spotify, Hulu, and Goodreads, which Amazon owns. But you likely haven't heard of the other applications deploying App Links.
For now, app-install advertising remains the gamers' game. Mobile gaming companies account for "well over 50%" of all the format's ad buying dollars, according to the analytics firm Flurry. Lagging behind are other marketers for lifestyle, entertainment, social network and travel categories. Each represents less than 10% of app-install campaigns.
Two years ago, the ad format didn't exist. And despite its rapid growth, mobile-ad executives do not expect it to keep exploding. "It's not going to go away 100%," said Harry Kargman, the CEO of mobile-ad network Kargo. "But the euphoria that exists today won't continue."
One major app-install buyer, the game-maker EA, is facing fresh regulatory obstacles in the United Kingdom. Others have seen their money-making potential come under siege by recent rule changes from Apple.
"App-install dollars are not going to grow faster than they did four quarters ago," said Brian Wong, the CEO of Kiip, a mobile ad company funded by Interpublic Group. "It remains to be seen whether that unit is sufficient for the brand marketer's needs."
Twitter, for its part, is aware of this. In an interview with Ad Age, Richard Alfonsi, Twitter's VP-global online sales, explained the decision to acquire TapCommerce as a step toward diversifying the company's offerings to marketers.
One click mobile commerce
With its recent acquisitions, Twitter is also working to diversify its mobile-ad inventory beyond the Twitter stream. TapCommerce buys across several thousand applications; MoPub, Twitter's exchange, reaches onto other apps as well.
Facebook, with its brand-new mobile ad network, is doing the same.
For the social giants, it's an immediate way to profit from the app-install rush -- and hedge against its potential end.
"When the dollars start to dry up," said Mr. Kargman, "they'll start thinking about, 'How do we repurpose that same real estate that we've carved out in a way to capture brand dollars?'"
Challenge to brand advertisers
Some brands have a experimented with promoting apps -- building their own, sponsoring others or even creating branded mobile games.
Yet that requires muscling (and spending) through the thicket of millions of apps offered by Apple and Google. And capturing waning consumer attention: a recent Nielsen study reported that consumers are spending more time with apps, but aren't using many more of them. And games still command most of the time spent.
A more plausible path for brand dollars is to use the app-install format to run mobile coupons or e-commerce, said Mr. Rozen. Soon, you may be invited to buy a movie ticket or detergent with one click from an ad in your Twitter app.
Yet that avenue for brand dollars depends on significant progress in mobile wallets, fraud protection and retail acceptance. For now, it remains in beta.
"There's a ton of pilots that the CPGs are exploring this summer," Mr. Rozen said.