Facebook’s Mobile App Ads See Early Traction With 20% Of iOS’ 100 Top Grossing Devs Using Them

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About one-fifth of iOS’ top grossing developers are testing out Facebook app install ads, showing some early traction for the new product. Sheryl Sandberg, the company’s COO, mentioned this on today’s fourth quarter earnings call.

Launched last fall, Facebook launched new kind of ad unit that doesn’t involve a friends’ like or recommendation. These ads send users to the iOS app store, where they can download promoted apps. They’re going to be an important prong of Facebook mobile monetization efforts.

Why? Facebook can’t derive fees or virtual currency revenue from mobile apps, because they exist on platforms operated by the company’s frenemies Google and Apple. As users have migrated to mobile devices, Facebook’s payments revenues has stalled because of this.

“We continue to face headwinds in payments revenue, since our games revenue is essentially from desktop computers,” said Facebook’s CFO David Ebersman on today’s earnings call.

So mobile ads are going to be the key way that the company earns revenue from its developer ecosystem on mobile devices.

Given that Facebook reaches 680 million users every day on mobile devices, it really isn’t surprising at all that a significant fraction of top developers are testing this out. Early anecdotal feedback from developers I’ve talked to has been mixed, but many developers acknowledge that it will be an important user acquisition channel in the future.

Anil Dharni, who is a senior vice president at the $3.5 billion Japanese mobile gaming company GREE, told me in an interview last week (which I have yet to publish) that, “Some of the test results that are coming in are pretty good actually. They’re really premium spots and the ROI is definitely there.” He said it will almost certainly be one of the top handful of marketing channels the company uses going forward.

Perry Tam, who is the CEO of Storm8, a game developer that sees 10 million users every day, told us last month that Facebook campaigns were four times as effective as other channels in acquiring users with “exceptional” conversion rates. (It’s worth noting though that Tam is a former Facebooker, who left the company to start Storm8.)

It’s quite common for any single one of top 50 grossing iOS developers at to spend at least a few million dollars every month on user acquisition. I moderated a panel earlier this week with Terry Angelos, who is CEO of longtime Facebook partner Trialpay. He said expected those app install ads to eventually become a $500 million a year business.

But because it’s so early and Facebook tweaks the news feed algorithm every day, the effectiveness of these campaigns varies dramatically. Kevin Chou, the CEO of Kabam, a game developer that earns at least $100 million a year from mobile games, said the amount the company is spending per mobile user on Facebook changes significantly from week to week, at the same panel.

Facebook Q4 2012 Earnings