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Apple has an early lead over Google in the mobile industry given strong iPhone and initial iPad sales, but calls to agencies, publishers, networks and mobile executives indicate that Google is poised to take a greater share of the mobile online ad market, a point we believe is understated by the press and analysts. Specifically:
- The scaleable opportunity in mobile remains search and Google dominates mobile search like it does PC search.
- Most advertisers currently see more opportunity in display advertising on mobile web pages as they do in rich media applications.
- Mobile is inherently local and Google is positioning itself better than Apple in that market.
- Android is rapidly gaining share of the smartphone market versus Apple’s iPhone.
To be sure, the immediate opportunity in mobile advertising is limited by the small size of the market (most agencies still view it as an experimental buy). However, mobile is taking increasing share of the average consumer’s overall internet use so it represents a major opportunity for web publishers and advertisers. We believe most analysts are currently underestimating the mobile opportunity at Google and the foundation the company is putting in place, which should enable it to be a major player in the mobile ad market and could eventually represent an additional growth driver at the company.
FOR NOW (AND THE FORESEEABLE FUTURE) IT’S ALL ABOUT SEARCH AND LEADS
Except for a few niche channels, most advertisers we speak with see more potential in mobile search than branding advertising since 1) over the medium term mobile should continue to be used primarily for search queries and 2) most view it as a lead-generating medium best suited for driving revenue, with branding impressions or purchase intent being a secondary form of advertising.
Google dominates mobile search like it does PC search so is in a prime position to capture most of these dollars.
For example, Google captures about 70% of all mobile searches according to mobile web browser Opera (we should note iPhone figures are not included) and accounts for about 50% of all web traffic on the iPhone according to ad network Chitika:
In addition, lead-generating, revenue-driving ad inventory has always been cheap and with significant scale in order to drive the most clicks per dollar. This favours Google’s CPC search ads but also its web browser approach given its larger scale and cheaper inventory compared to Apple’s iAd offerings (see below).
ADVERTISERS SEE MORE IMPACT ADVERTISING ON MOBILE WEB BROWSERS THAN IN APPLICATIONS
Apple has a sizable lead over Google in the number of applications offered (roughly 200,000 for Apple vs. about 40,000 for Android) and has built its mobile ad strategy around its applications in a bid to earn a greater share of premium advertising spend on rich media inventory from major brands.
Google recently closed its acquisition of mobile ad network AdMob and is positioning itself around more traditional, inexpensive display ads (in-line with its overall display strategy) that serve mobile web publishers in addition to applications (we estimate less than 20% of AdMob’s revenue comes from in-app ads, the rest from mobile web publishers).
Advertisers we speak with have experimented to some degree with iPhone applications and sponsored some charter iPad applications given significant hype around the release. But, now that the launch party is over most advertisers realise there is a greater opportunity for display advertising on networks across mobile web browsers than inside apps for the following primary reasons:
- Growth of mobile apps has not been as strong as expected. Some advertisers noted that the 64,000 free apps downloaded for the Wall Street Journal after one month was impressive, but feedback on the growth of most application subscriptions was lukewarm at best. Most view opportunities offered by advertising in iPhone apps as very limited given most of the popular apps continue to be about information and games. Currently, browser-based networks offer significantly more reach than applications.
- Ad rates are much lower for networks than inside apps. Media buyers we spoke with pointed out that mobile ad networks offer much more reach than inside applications, but also offer significantly lower rates. CPMs on networks can be as little as 10% those charged for placement inside applications.
- Usage of Apps plummets over time so the audience is even smaller than first thought. Many advertisers we spoke with were initially excited by the surge in iPhone apps the past couple years. However, many have learned that the overwhelming majority of users who download an app stop using it very soon after it is downloaded. Less than 5% of those who download mobile apps consistently use them over the medium term.
One concern some advertisers had with the web browser inventory is that users must click through the ads to get to the ultimate advertiser site whereas Apple’s iAd units are essentially an application within an application so don’t require the user to click through to anything. However, most expected the majority of web browser display inventory to incorporate features similar to the iAd units, many pointing to a product already being offered by ad network Videoegg (and others).
MOBILE IS INHERENTLY LOCAL AND GOOGLE IS WELL POSITIONED
Publishers, advertisers, and industry executives across the board see a much greater opportunity for local advertising on mobile devices than national. This is due to the fact that users primarily look for local information on the devices (much like on the radio or in newspapers) and the fact that products can be built around location-based GPS targeting (some have already spent materially on location-based mobile ad campaigns). Google is quietly releasing products that address this growing opportunity and remains ahead of its competitors, in our opinion. Specifically Google has:
- Launched mobile product searches that lists nearby stores with the product in stock.
- AdWords clients can extend a CPC (cost-per-click) campaign to mobile sites or create a local campaign specifically for mobile through the self-serve AdWords UI (including only paying for local call leads).
AT THIS RATE IT WON’T BE LONG BEFORE ANDROID CATCHES IPHONE IN MOBILE MARKET SHARE
For the past two years the iPhone held a strong lead over Android for share of overall OS usage, but Google’s multiple carrier approach has gained significant steam recently. For example, in the last six months of 2009 through February 2010 Android’s share grew steadily from the low single digits to nearly 10% while Apple’s hovered around 25%, according to comScore.
In addition, research firm NPD said that more Android phones were sold last quarter than iPhones (28% versus Apple’s 21%), demonstrating that this trend is gaining steam.
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