Facebook, Instagram, and Mobile

From Facebook’s S-1 (IPO) filing under the category of Risks Related to Our Business and Industry, emphasis mine:

Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.

We had 488 million MAUs (Monthly Active Users, ed.) who used Facebook mobile products in March 2012. While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored stories in users’ mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.

Only now are Facebook really starting to monetize their 488 million users on mobile platforms through ad and sponsorship placements. Consider the significance on this based on their complete reliance on the same very same thing on the desktop platform:

We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that enables users to purchase virtual and digital goods from our Platform developers.

And take a look at this under Trends in Our User Metrics:

Worldwide mobile MAUs increased by 69% from 288 million as of March 31, 2011 to 488 million as of March 31, 2012.

(…) We estimate that approximately 83 million mobile MAUs accessed Facebook solely through mobile apps or our mobile website during the month ended March 31, 2012

The number of monthly active users who only use Facebook from a mobile platform is growing by 69%, a number which is currently 83 million. 83 million and counting who only now will be subject to (mobile) ads, which is not to mention the prospective Facebook apps.

Compare the 83 million to Instagram’s ~33 million and bear in mind the rapid growth of the mobile user base. It’s not hard to see that Zuckerberg bought Instagram for more than their filters.

And while we’re on the subject of Facebook apps, imagine if Facebook can’t get a slice of the mobile pie, which leaves companies like Zynga to do their own (shitty, deplorably plagiarized) mobile iOS and Android apps.

Facebook will not get a cut of this revenue, if they don’t figure out mobile, which is disrupting desktop SAAS completely. But how important are companies like Zynga to Facebook anyway?

In 2011 and the first quarter of 2012, we estimate that up to 19% and 15% of our revenue, respectively, was derived from Payments processing fees from Zynga, direct advertising from Zynga, and revenue from third parties for ads shown on pages generated by Zynga apps. If Zynga does not maintain its level of engagement with our users or if we are unable to successfully maintain our relationship with Zynga, our financial results could be harmed.

In 2011 and the first quarter of 2012, Zynga directly accounted for approximately 12% and 11%, respectively, of our revenue, which was comprised of revenue derived from Payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate pages on which we display ads from other advertisers; for 2011 and the first quarter of 2012, we estimate that an additional approximately 7% and 4%, respectively, of our revenue was generated from the display of these ads. Zynga has recently launched games on its own website and on non-Facebook platforms, and Zynga may choose to try to migrate users from existing Facebook-integrated games to other websites or platforms. We may fail to maintain good relations with Zynga or Zynga may decide to reduce or cease its investments in games on the Facebook Platform. If the use of Zynga games on our Platform declines for these or other reasons, our financial results may be adversely affected.