Evidence Supports Facebook’s Plan To Monetize Mobile With Sponsored Story News Feed Ads

For the first time, Facebook may start showing ads in its mobile apps and HTML5 site, sources close to the company’s ads team tell me. The ads would come in the form of mobile news feed Sponsored Stories — social ads that show a friend’s interaction with a brand rather than traditional display ads which don’t fit on mobile screens. Bloomberg News published earlier today about receiving similar information from undisclosed sources. When I asked Facebook’s ad representative Brandon McCormick a week ago about the potential for mobile news feed Sponsored Stories, he coyly told me “I think that could be interesting.”

More evidence for the plot: Facebook has begun showing Sponsored Stories in its website’s Ticker, possibly to test for backlash. Also, Facebook recently declassified one ad type from being a Sponsored Story to make sure they all require a user action. The strategy could open a major new revenue stream for Facebook in the ramp up to a potential $100 billion IPO.

Two weeks ago I began hearing that through mobile, Facebook might mix ads into the primary news feed — something it has never done before. When I grilled McCormick on whether Facebook would follow this path to mobile monetization, he told me “it’s about getting the mobile experience to be really good, then we’ll think about ways to monetize it. We want a solution that’s going to work for people, we don’t want it to be interruptive, but we want it to be effective for advertisers.”

That sounds like Sponsored Stories, considering a study conducted in May showed the social ads have a 46% higher click through rate and 20% lower CPC. This shows they’re attractive to both viewers and advertisers.

Only permitting Sponsored Stories on mobile would prevent advertisers from injecting irrelevant content that could significantly pollute the news feed. Sponsored Stories are different because they show content that could appear in the news feed organically such as a friend Liking a brand’s Page, checking into a Place, or using an app. Brand advertisers pay to guarantee visibility of these stories, but first must trigger them by courting authentic user interaction.

Because Sponsored Stories actually include the activity of friends, they’re much less likely to piss off Facebook’s historically whiny user base. Last month, Sponsored Stories began appearing in the secondary Ticker feed on the right side of the Facebook web interface and there has been little sign of user protest. As Facebook pulls the news feed for its native mobile iPhone and Android apps from its HTML5 site, it would only have to start showing Sponsored Stories on its mobile website’s news feed to have them reach hundreds of millions of users a day.

Before September, advertisers could pay for “Page Post” Sponsored Stories to have their Page updates gain more visibility amongst their existing fans. However, since these ads didn’t require friends to have taken action, Facebook moved this ad unit type out of Sponsored Stories and renamed it “Sponsored Page Post”. This subtle change could pave the way for mobile news feed Sponsored Stories that always include a friend’s actions, and therefore force brands to focus on driving engagement, not just spending money.

It’s unclear whether advertisers would be able to choose to have their Sponsored Stories shown specifically mobile, or whether Facebook would allocate them across web and mobile. Either way, mobile news feed Sponsored Stories could become a huge revenue driver for Facebook as US mobile ad spend is predicted to reach $1.8 billion in 2012.

To date, Facebook has kept mobile ad-free to fuel widespread adoption, especially in the developing world where there’s still high potential for user growth. But it also may have been waiting until unobtrusive Sponsored Stories were ready for mobile deployment. In the years since its mobile apps and site launched and grew to account for half of the site’s daily active users, Facebook has been stockpiling monetization potential.The company may have planned to announce this new revenue stream just before its IPO to drive up investor interest. The cat’s out of the bag now, though, and secondary market share prices might rise accordingly.