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Facebook Inc (FB)’s Fluid Shift to Mobile Leaves Competitors in the Dust

Both Google and Yahoo! have struggled with balancing the cost-per-click (CPC) of PC ads against mobile ads. The core dilemma is that the CPC for mobile ads is generally lower than PC ones, which has hurt companies that rely more on higher-priced PC ads. In addition, the PC market is shrinking rapidly, with global shipments plunging another 11% year-on-year in the second quarter.

Mobile search ads currently account for 32.5% of Google’s top-line. To remedy this imbalance, Google introduced a new AdWords program called Enhanced Campaigns, which bundles desktop and mobile ads together in a single package. Advertisers must now purchase this single package, which is aimed at balancing out its CPC, which declined 6% year-on-year last quarter, compared to a 4% drop a year ago.

By comparison, Facebook uses a bid-based model, which allows advertisers to choose a CPC or CPM (cost per thousand impressions) system. Due to the wide variety of prices seen in CPC and CPM on Facebook, it is more reliable to simply look at the overall growth of its advertising revenue.

Yahoo! is being crushed by two titans

Yahoo! Inc. (NASDAQ:YHOO), on the other hand, is getting squeezed out of the mobile market by Facebook Inc (NASDAQ:FB) and Google, which together account for more than 70% of global mobile revenue. Although Yahoo! recently announced that it has 340 million monthly mobile users, the company has only generated $125 million in mobile revenue annually from those users, accounting for a meager 2.5% of its 2012 revenue. Yahoo!’s overall CPC also fared worse than Google, dropping 8% last quarter.

However, under Marissa Mayer, Yahoo! Inc. (NASDAQ:YHOO) has become the market’s favorite tech underdog, and its acquisition of Tumblr has given it a valuable weapon to compete socially against Facebook and Google+. However, Yahoo!’s revenue declined 7% last quarter – a slide that is likely to continue unless it reverses the 11% decline in display advertising revenue that it reported last quarter and starts producing mobile revenue.

The Foolish Bottom Line

By all accounts, this was the blowout quarter that Facebook investors have been waiting for. Zuckerberg proved that he knew which areas the company needed to invest in, and those initiatives have paid off.

Facebook also has the advantage of youth over Google and Yahoo! – while those two older companies need to reorganize their business models to focus more on mobile users, Facebook Inc (NASDAQ:FB) is designed from the ground up to feed on and monetize social connections, which will only increase exponentially with the rising reliance on mobile devices.

The article Facebook’s Fluid Shift to Mobile Leaves Competitors in the Dust originally appeared on Fool.com and is written by Leo Sun.

Leo Sun owns shares of Facebook. The Motley Fool recommends Facebook, Google, and Yahoo!. The Motley Fool owns shares of Facebook and Google. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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