Photo: StatCounter, Mary Meeker
For the past 17 years, since the dawn of the commercial Internet, analysts have been hyperventilating about the massive opportunity for mobile advertising.The projections for this market have always gone up and to the right: They start small in the year in which the projection is made and then explode upwards in the following five years.
Alas, for the first dozen years or so of the industry’s development, all of these optimistic projections were categorically wrong: Mobile advertising remained tiny.
But then, in 2007, when Apple released the iPhone, the mobile-ad bulls breathed a huge sigh of relief. Their time had finally come! Now, mobile advertising really was going to be huge!
Five years later, mobile advertising is still relatively tiny–around $1 billion globally in 2011. That’s a drop in the bucket of the broader Internet ad market, which hit $32 billion in the U.S. alone.
But the slow development of the market has not quelled the optimism.
The consensus projection for 2015 mobile advertising revenue, for example, is now around $15 billion. And analysts are talking about a $20 billion opportunity shortly thereafter.
So will mobile-ad gurus finally be right?
Has their time finally come?
Tech guru Jean-Louis Gasse recently published an article describing the massive projections for the mobile ad market as a “mirage.”
And he makes excellent points.
Basically, Gasse observes, the smartphone is a terrible place to advertise, at least using conventional display ad formats. For one thing, the screen is tiny. For another, the ads can be highly intrusive and annoying. (Not an emotion a smart advertiser wants to trigger in a potential customer.)
But the mobile ad bulls have an immediate counter to this and all other sceptical arguments:
The mobile ad market is still in its infancy! Just wait until advertisers discover what an amazing opportunity it is! They’ll go nuts with the spending!
That argument sounds compelling, but it overlooks something.
Mobile advertising is not “in its infancy.”
It’s now 17 years old.
And the smartphone version of it–the far more promising version–is now 5 years old.
Five years is a long time.
The first five years of TV, for example, saw vastly more advertising than the mobile world has. And same for the first five years of basic Internet advertising.
Let’s go to the charts…
Here’s BI Intelligence’s history of (and forecast for) U.S. mobile advertising. It was about a $1 billion market in 2011, and it’s projected to grow to a ~$6 billion market in 2017. That’s a far more reasonable forecast than many.
But other analysts expect the market to grow much faster than that. Specifically, they cite a “$20 billion opportunity” in only a few years. That seems wildly optimistic, to say the least.
This slide from Mary Meeker’s latest excellent presentation on the state of the Internet explains the basis for this argument: The difference between time spent on mobile and mobile advertising spending is huge. This gap, the theory goes, will close. And as it does, mobile ad spending will explode.
But, again, the mobile advertising market is already 5 years old. If it were such a spectacular advertising opportunity, you would expect advertisers to have already glommed onto it, the way they did with other new media. Instead, mobile is still small.
As the chart below shows, by the time regular online advertising was 5 years old, it was already an $8 billion market (compared to a $1 billion market for mobile). And that was when there were far fewer Internet users. (Yes, the dotcom bubble inflated spending, but even if you assume the normalized market was only, say, $6 billion, the spending growth was still far more rapid than mobile.)
And then there’s TV. As the chart also shows, TV spending grew far more rapidly than mobile in the early years of the industry.
Photo: IAB, PWC
The basic point is this:
Although “time spent” correlates nicely with advertising spending on some other media–namely, TV, newspapers, etc.–it may not correlate well with mobile advertising.
And then there’s another thing to keep in mind.
Most of the current ~$1 billion mobile ad market actually isn’t dedicated mobile ad spending. It’s just regular old digital spending that happens to be consumed on a mobile device. So counting this spending as a major new “mobile” opportunity is misleading.
For example, as this chart from BI Intelligence shows, mobile ad spending in 2011 was dominated by search (just like regular digital spending). Folks may have used their smartphones to conduct Google searches, but the ads they saw were, in most cases, the same ones they would have seen if they had done the searches on their desktops or laptops.
Photo: BI Intelligence
And the same can be said for display ads consumed through a web browser and other forms of digital spending. Yes, the ads are consumed through mobile devices, but they’re not really “mobile advertising.”
Now, importantly, there are some native forms of truly mobile advertising that are working and growing quickly.
- Dedicated mobile display ads (small overlays at the top or bottom of the screen )
- Dedicated mobile video ads (highly intrusive and annoying)
- Twitter ads (Twitter now says half of its ads are consumed on mobile)
- Facebook mobile ads (in the news feed)
- Geo-targeted search and other ads
- Groupon Now and other location-based ads.
- Pandora’s audio ads
Most of those ads really are true mobile ads. And spending on them is certainly a nice opportunity and is increasing.
But is mobile advertising suddenly going to explode to a $20 billion US market in 3-5 years?
Again, it seems unlikely. At least relative to the growth rate of other massive advertising opportunities.
(Good thing our mobile advertising conference is tomorrow! We’ll be able to put this question to a lot of the folks spending the money!)
SEE ALSO: The Future Of Mobile