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Facebook is finally getting to grips with the challenges of making money out of its vast mobile traffic, or at least the markets seem to think so. The social networking firm's confessed uncertainty about how to monetize mobile usage was a factor in the poor response to its IPO earlier this year, but its stock rose to its highest price in seven weeks on Wednesday, on news that it is preparing a service to place adverts in third party mobile apps.

Shares rose by 6.5% to $23.29 at the close, the highest level since July 27, with investors showing cautiously increased confidence in Facebook's ability to create a viable mobile business model. Not that it is doing anything radical here, just chasing Google and Apple in creating an advertising network rather than just placing ads in its own applications, so boosting revenue potential and the scope to offer targeted promotions to users.

"We view the reported launch of a mobile ad network as another signal that Facebook is moving aggressively to improve user monetization," Colin Sebastian, an analyst at Robert W Baird wrote in a client note quoted by Bloomberg. "Facebook has the potential to become a more relevant ad network than Yahoo and AOL, and to compete more directly with Google."

Facebook needs to act quickly as more of its traffic shifts from PCs to mobile devices, which have far less advertising 'real estate' and less user tolerance for poorly targeted ads. It also runs the risk of falling behind, in functionality and credibility, as big names and start-ups include social networking in their services, often closely tied to location and presence awareness. According to eMarketer, Facebook will have just 2.8% of the $2.61bn US mobile ad market this year, putting it in sixth place. Google dominates with about 55% predicted share, and in second and third place are Pandora Media and Twitter, though neither has double-digit share (Pandora will have 8.7% and Twitter 5%, say the analysts).

"Showing mobile ads outside of Facebook is another great way for people to see relevant ads and discover new apps," Facebook said in a statement though it stressed that, at this stage, the new offering was part of a "small test".

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