The mobile advertising learning

1. Introduction

“Mobile advertising really sucks.” So said Steve Jobs kicking off iAds in 2010¹. Indeed, monetizing mobile advertising has so far been a great challenge for advertising fueled companies (also read the Delta Partners blog “Will 2012 be the year of mobile for Facebook?”).

With the inevitable rise of mobile, many companies wonder: what are the main challenges and solutions in addressing the shift from desktop advertising to mobile advertising?

2. The seemingly untapped mobile advertising potential

The mobile platform presents a great opportunity (and threat) for advertisers: around 5 billion mobile subscribers are still to start using data-hungry smartphones, and yet sales of smartphones have already overtaken the sales of PCs² and consumers are spending a rapidly increasing amount of their time on mobile devices compared to other media³.

Nevertheless advertising spending is still dismal. Mobile advertising spend has grown from US$ 0.1bn in 2008 to an estimated US$ 1.2bn in 2011⁴in the US, yet a discrepancy still exists between the time spent on mobile devices (10%) and the share of advertising expenditure allocated to these devices (1%) – see exhibit 1.

3. The main challenge with mobile advertising: CPM and/or CPC

The shift of desktop advertising to mobile advertising has proven to be complicated for some advertising players. The difficulty that these players are facing is the lower average cost for ad displays or ad clicks for mobile advertising compared to desktop advertising:

Facebook: the current cost per thousand ad impressions (CPM) is significantly lower for mobile compared to desktop in its key regions – see exhibit 2. The company also reported earlier this year that ad growth was not keeping pace with user expansion, hence leading to unattractive financials on mobile.
Google: the average cost per click (CPC) has been dropping for 4 consecutive quarters (YoY) while paid clicks have increased rapidly, an effect principally attributed to the rise of mobile – see exhibit 3.
Pandora: Pandora, an online radio funded by advertising, reported that desktop monetization stood at $63 per 1,000 listener hours in its fiscal year 2012, whereas monetization on its mobile platform stood at around $20 per 1,000 listener hours for the same period⁵.

4. Mobile as its own challenger

The nature of mobile devices, ironically, together with the infant stage of the mobile advertising industry explains largely the monetization challenges is this industry. The main challenges are:

Screen size / browsing experience: With many smartphones offering small to medium sized screen sizes, a sidebar with advertising just doesn’t fit in many apps. Check for example the BBC app and compare it with the desktop website. No ads can be found on the top or on the right in the BBC app (see exhibit 4). With the launch of bigger screen smartphones such as the iPhone 5, the Samsung Galaxy Note and the HTC One X, the attractiveness should be gradually increasing. On top of screen sizes, many websites are not adapted to mobile devices, leaving this website difficult to navigate, and making it unattractive for mobile advertising.

Awareness among marketers: a key challenge of mobile advertising is the lack of experience of marketers in the mobile space. Both the calculation of the ROI of campaigns and how to execute a campaign are often unclear for them and many times a showstopper. As a result, many companies do not have a dedicated online or mobile marketing team, neither do they value mobile as an advertising channel.
Device and ad format fragmentation: different devices mean different operating systems and different screen sizes. Advertisers have been turned off by this fragmentation⁶.
Customer behaviour: when browsing on a PC, consumers are usually focused and comfortable, hence occasionally drawn to advertising, yet with mobile browsing consumers are more likely to be on the move, distracted. This difference in behavior affects the attractiveness of advertising on mobiles compared to fixed PCs

5. Advertising, the 2.0 mobile version

With less attractive monetization metrics compared to desktop advertising, what can mobile advertisers and marketers do? Several things:

Attract companies to mobile: many companies are increasingly focusing on adapting their websites to mobile to improve the customer experience. Better customer experience leads to more customers and more customers lead to higher monetization potential. To help companies with this adaptation Google launched several initiatives. The company launched the “Howtogomo”⁷ and The Mobile Playbook⁸ websites helping companies take their websites successfully mobile.
Generate higher CTR and/or CPC through:

i. Analytic-based targeting and evaluating: At present, mobile advertisers make use of the traditional methods of ad targeting: device, context or demographic group. Current innovations aim at expanding the targeting tools for mobile. Mobile ad targeting is expected to focus increasingly on the consumer’s behavior and current location. Facebook is rumoured to be working on hyper-local mobile ads serving relevant local business ads to users within a few hundred feet of a brick and mortar store. Relevance can also be driven through endorsements from the consumer’s immediate social circle. Facebook’s mobile Sponsored Stories, ads endorsed by friends, are triggering higher click through rates (CTR), leading to higher effective cost per mille (eCPM)⁹- exhibit 5. Online advertising companies are also increasingly creating tools to measure the effectiveness of mobile ads in an era where clicks continue to dominate the perception of success. At present, the tools for measuring mobile ads’ impact often lack the sophistication that advertisers expect.

Exhibit 5: financial KPIs of Facebook’s Sponsored Stories

ii. Rich media / greater interactivity: The majority of mobile ads today are published as simple text or in banner formats. The ad is clickable but does not offer many interactive features. Rich-media ads aim at improving the engagement levels with the consumer. Soon most ads will be interactive and consumers will be playing, watching, or interacting with these ads. The ongoing development of HTLM5 will add to the changing way in which ads are increasingly made richer. Blippar already successfully launched several such campaigns using augmented reality (see exhibit 6). Rich-media ads however still face several challenges: they are costly, not all smartphones handle them well and they usually require a fast data connection. The results of rich-media ads look promising however: mobile rich media ads that include video have an average of 35% higher engagement rate¹⁰. Click-through rate averages above 1%, significantly higher than online averages.

Exhibit 6 – Blippar augmented reality mobile advertising

iii. Going beyond banners: The future of mobile advertising is expected to go beyond targeted location-based rich banners. The big data and advanced analytics capabilities that advertisers increasingly master might eventually lead them to pursue a digital assistant role. Instead of displaying passive banners based on socio-segmentation, these advertisers might aim at figuring out what you need and supply it before you realize that you need it. An example could be Google Glasses guiding you to a nearby store to buy an umbrella for upcoming rain or Facebook suggesting a restaurant reservation when a distant friend is in town.

6. The data rich mobile operators

Mobile operators have a key advantage in the mobile advertising space; they own significant amounts of consumer data. With Google and Facebook only having visibility what their customers do on their respective domains, mobile operators however, managing all customer data traffic, could potentially ‘see everything’ (beyond knowing where the consumer is located at all times). As desktop advertisers use browser cookies to target consumers, so could operators use proprietary “mobile” cookies to target their customers.

A clear competitive advantage exists for the operators that combine rich media, interactivity and improved mobile browsing experience with their vast analytical potential. Yet some immediate challenges need to be overcome by these operators. With the proliferation of apps, the value of operator portals become less relevant. Operators will need to find innovative ways for displaying ads and circumvent the “OTT advertising” effect. Additionally, the existence of many mobile operators implies a fragmented advertising landscape. Consolidation or unification of mobile operator advertising platforms will help in increasing their power in the advertising world.

7. Mobile advertising has kicked off for some

The ingredients to turn mobile advertising into a massive market are present. Mobile advertising monetization levels are rumored to surpass those of desktop in the USA within 1-3 years¹¹, while other reports forecast a remarkable global mobile advertising market growth from $ 4 billion in 2011 to $ 24 billion in 2016¹². Accordingly, some companies have successfully started to adopt a dedicated mobile advertising strategy.

SingTel is aiming at breaking into the advertising market by building its advertising eco-system. The purchase of the mobile advertising solutions provider Amobee and advertising driven restaurant review portal HungryGoWhere, form the start of their localized, targeted and rich media advertising eco-system.

Twitter’s CEO reported in June 2012 that their mobile ad revenue in a day exceeded for the first time non-mobile revenue¹³. Also on October 24^th, Facebook’s share price jumped 23% after its Q3 sales beat analysts’ estimates demonstrating its ability to monetize mobile advertising. The company reported that 14 percent of its Q3 advertising revenue was generated from mobile¹⁴.

After a long hype, it seems that mobile advertising is finally starting to deliver on its promise.

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The mobile advertising learning

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Vincent Stevens

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