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Facebook's Paper Problem (Update 2)

Updated from Feb. 4 to include study from Nanigans.

NEW YORK (TheStreet) -- Facebook (FB - Get Report) announced Paper last week, perhaps the most innovative redesign of Facebook in years. It's aesthetically pleasing, and redesigns the way you use and interact with Facebook. For investors, though, there's one major problem.

Introducing Paper

No ads.

Right now, Paper, which is available for Apple's (AAPL) iPhone only, has no advertisements. That's a big problem if Paper was designed to eventually replace the main Facebook app on your iPhone or iPad, which it seems like it will be.

Introducing Paper

Last quarter, Facebook generated earnings of 31 cents per share on $2.59 billion in revenue, $2.34 billion of which came from advertising. More importantly, $1.24 billion came from mobile devices. Just a couple short years ago, Facebook had no mobile revenue, and was a major concern for investors when the company went public. Now it's generating over $1 billion in revenue per quarter. That's absolutely insane.

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I've noticed myself using Paper more than the Facebook mobile app itself on my iPhone, and find it interesting that the default option on Paper is for push notifications to go to Paper, instead of the traditional mobile app.

A Facebook spokesperson said the company has "no current plans for ads in Paper (and nothing to share on future plans)." I could not get a breakdown of what percentage of users come from iOS, versus Google's (GOOG) Android.

Update: A recent study from Nanigans, one of the largest buyers of Facebook ads, noted that mobile ads on iPhone generated 1,790% more return on investment than Android. "Retailers are realizing significantly greater return from audiences on iOS than audiences on Android," the Oct. report said.

--Written by Chris Ciaccia

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