Mobile Ad Market Is Frothy, But Will Remain Relatively Small In the Near-Term

Forecasts for mobile ad spending are all over the place:  eMarketer – $3 billion by 2013, Juniper – $6 billion by 2014, JP Morgan – $3 billion by as early as 2010.  In addition, it seems there are many reports out there studying the effectiveness of mobile ads versus online and traditional ads, with results ranging from heavily in favour of online/traditional to mobile being a far superior advertising medium. 

Our take is that at the end of the day it’s far too early to quantify with any accuracy exactly where the mobile ad market is headed in the coming years.  What is becoming clear is that there is a lot of activity in the space, mobile advertising is a “sexy” sector advertisers want to know about, but will remain pretty small in the near-to-medium term. 

We made some calls to various contacts in the mobile ad industry and found the following interesting points, indicating mobile is growing, but has a long way to go yet.

Most advertisers are still not sold on mobile advertising and need a lot of education.  A common concern we heard about was mobile’s reach.  While advertisers acknowledge a lot of people use mobile phones they still have questions/concerns about how interactive those users are and whether or not reach goes beyond niche early adopters.  In addition, many categories like retail and travel still tend to focus on traditional online performance metrics like CTR and ROI, making mobile a tough sell to them currently.     

Education is still the biggest challenge.  One contact we spoke with referred to the “deers in the headlight” reaction by advertisers.  Once ready to dip into the mobile market many advertisers/agencies don’t know where to begin, who to call, whether to make a small buy on a single publisher or use a network.  This is reminiscent of the reaction many advertisers originally had to online advertising.  It took a long time to get them past this initial hurdle. 

Once they “get” the medium advertisers tend to increase buys.  Though for the most part mobile is still fighting for attention in the average media buy there is some evidence it is gaining momentum.  For example, agencies will often make very small, almost experimental buys, when first buying mobile.  But, the size of the buy increases significantly the second or third time around (indicating education is working, albeit slowly).  In addition, we found it interesting that one network saw client requests for ads that steer users to a specific mobile site versus a rich media ad not attached to a site, increasing almost 20% last month. This is a sign advertisers are taking the medium more seriously.

More activity, Media buys getting bigger.  Almost everyone we spoke with is seeing more activity now than at this point last year.  Media buys are anywhere from 2-3 times bigger in some cases.  Analytics firms are getting up to 50% more requests from brands and publishers to measure the effectiveness of mobile campaigns.  And RFPs are now looking into next year whereas last year at this time agencies did not want to discuss anything further than the current quarter.     

Most of this growth, however has been driven by audience, not rates.  Media buyers we spoke with said rates were near all-time lows and couldn’t get much lower.  A lot of the increased spending has come from other media budgets – mostly online, but in a few cases traditional.

Our take:

Mobile has a long way to go and the only accurate prediction is that mobile ad spend will increase in the next few years.  It is too early and there are just too many variables/unknowns to forecast mobile ad spend accurately.  With overall US adspend expected to be flat for many years according to some, advertisers may never be sold enough on mobile to make it a $6-billion-plus market.  A crazy, new device or mobile operating platform could take the market by storm, changing the space altogether.  Online publishers may come up with an ad unit that rivals mobile, helping stem the loss of share from online to mobile.  The only thing clear to us at this stage is that mobile will continue to grow over the next few years given the momentum it continues to experience.  

Mobile metrics are not comparable to online, and likely never will be.  If mobile is to grow into a meaningful category advertisers will need to get comfortable with the fact that performance metrics like CTR, CPA, and Cost-per-conversion are not applicable to mobile since surfing habits are far different than online (less time surfing, less “random” surfing, users don’t think to click through as much) and may never be applicable. 

Most mobile publishers we spoke with are focusing on the 100% share-of-voice mobile ads command (rarely more than one mobile ad per page) as well as the interactive features of mobile phones (especially smart phones after the popularity of the iPhone).  In addition, while publishers do report click-through rates most focus their pitches primarily on the branding impact that mobile ads bring to the table (just like online display) and point to higher response levels from consumers (“5% of users said they would consider buying x product after being exposed to its ads versus only 1% for online,” for example). 

Networks will need to evolve.  In the last few years mobile ad networks have been launched that help publishers who do not have the technology to serve/sell quality mobile ads make money off of their mobile audience.  As phones start to resemble computers and one can simply view a webpage on a mobile phone without having to access a special site made specifically for mobile phones, these networks will need to look more like online ad networks by aggregating scale and selling for publishers too small to sell their own inventory, not emphasising technology as their major selling point.  If they can’t adjust and evolve to what is shaping up to be a rapidly-changing industry they will be in trouble.

Jury is still out on whether SMS or display will dominate the mobile ad market.  Some forecast that display/search advertising will surpass SMS as phones start to look more like computers.  However, responses ranged from the belief that SMS will ultimately become a value-add sale as part of a larger display buy to display will never make as much money as SMS.  We’re somewhere in between for now.    

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