It was at the April 2010 launch of iAd, Apple’s mobile advertising platform, that Steve Jobs, prowling the stage in his customary black turtleneck, uttered the words: “We think most [of this] mobile advertising really sucks.” As he himself conceded at the time, it wasn’t the most elegant of phrases. But his words certainly struck a chord: three years ago, the platform was considered niche at best. It was crude, interruptive and, above all, at the time Jobs was speaking, smartphone penetration in the U.S. mobile market was below 20%. Unsurprisingly advertisers stayed away in droves.
The intervening years have done little to prove Jobs wrong. Small wonder then that the mantra-like claims that mobile advertising was finally poised to go mainstream became less credible every time they were made. “Over the past 10 years we’ve been saying now is the moment for the mobile advertising market to take off,” says Ludovic Levy, director of mobile advertising and data monetization at Orange. “I have to confess for 10 years now, all the industry — including advertisers, operators and agencies — have not truly understood how advertising works on this specific device.”
Mobile currently still represents a tiny proportion of total advertising spend. U.S. advertisers, for example, spent $180 billionn last year — and only 2% of that was on mobile. But it looks as though the hype around mobile advertising might finally become reality. Tech consultancy Gartner is forecasting that the global market for mobile advertising will jump from $1.8 billionn in 2011 to $13.5 billionn in 2015. The eventual number may be much bigger: research from eMarketer forecasts that spending on mobile advertising (which in this instance includes display, search and messaging-based ads served to mobiles and tablets) in the U.S. alone is set to double from $7.19 billionn in 2013 to $15.82 billionn in 2015.
“The value that can be generated from mobile advertising has now really been proven across a number of industries,” says Tim Dunn, director of strategy at Isobar Mobile, a London-based advertising agency which specializes in digital creative work. “Predictions of massive growth through 2015 absolutely make sense to me, as the industry starts to catch up with the consumer trend [of smartphone adoption].”
A number of significant factors underpin the optimistic forecasts. In Q3 of last year, Strategy Analytics reported that smartphone handset penetration shattered the one billion global handsets barrier. Meanwhile, the shift from PCs to tablets and mobile devices is now widely viewed as a given. Facebook’s embrace of mobile advertising is another major reason for more optimistic forecasts. The social giant had no mobile ad offerings at the beginning of 2012 but saw revenues from this sector skyrocket as soon as it introduced them. It reported that its overall advertising revenues rose 41% to $1.33 billionn year-on-year in the final quarter of 2012, with mobile reaching 23% of the total. In the previous quarter mobile was just 14% of the total ad revenues. The increase in mobile ad revenue is so encouraging that it’s one of the key reasons why Facebook founder Mark Zuckerberg has taken to describing the giant social network as “a mobile company.”
Google also posted better-than-expected mobile ad growth in Q3 of 2012. Fueled primarily by direct-response advertisers, Google now controls a 56.6% share of the U.S. mobile advertising market, according to eMarketer estimates. Google announced on February 6th that it was upgrading AdWords to take account of “today’s multi-device world,” which has been interpreted as a move to try to further boost mobile revenues.
That goal is important because search on desktops is slowing and Google does not yet make equivalent profits on mobile devices. For starters, advertisers pay far less for mobile ads as it is a less proven medium.
Today, most of Google’s mobile ad revenues come from search. And, when consumers use Google for search they often do so via their iPhones and Google has to pony up a hefty share of its revenues from these searches to Apple.
Still, search is a powerful driver for sales, particularly when combined with location-based data, which is why Isobar Mobile’s Dunn says he expects Google and Facebook, in particular, to “ace the class.” “Mobile is closer to the point of purchase,” he says. “The follow-up time [after searching] on mobile is, on average, a day, instead of a week on desktop and PC and, crucially, a large proportion of mobile search has local intent.” He also predicts the price advertisers pay for mobile search will soon catch up with desktop/PC search.
The arrival of 4G networks could also prove a game changer: as mobile networks evolve to offer customers far greater browsing speeds, they enable richer interaction between users and advertisers. This, in turn, has helped solve another ongoing friction point: the lingering question mark over what distinguishes mobile as an advertising medium from other platforms, most notably online.
Nigel Gilbert, director of sales EMEA at AppNexus — a customizable advertising technology platform, which recently closed a Series D round of $75 million led by Technology Crossover Ventures (TCV) — argues that the industry has suffered from what he describes as a lack of relevance. “Historically mobile advertising has been cash-point [ATM] finders, wallpaper, games and so on, which wasn’t compelling,” he says. Advertisers have had to improve their understanding of how to engage customers through mobile and design offers that are relevant to the platform. “We’re seeing more mobile-optimized sites and therefore more budget on the [advertising] ‘buy side’,” he says.
Improving infrastructure has also led to the creation of companies whose raison d’être is helping content developers monetize through selling ads, says Sephi Shapira, CEO and founder MassiveImpact, a performance-based mobile advertising platform, which reaches more than one billion mobile Internet users. “If you go back to 2008, if I was a content developer and had a free mobile website I would have had to go and chase the advertisers one at a time to try to persuade them to advertise on my website,” he says. “Today, I just go to one out of 100 ad networks that sells all of my ad space in an effortless manner. That whole ecosystem didn’t exist four years ago — today it’s all in place.”
Yet despite these innovations — and supporting data — doubts about the platform’s role in the advertising landscape persist. Mark Read, strategy director and CEO of global communications giant WPP Digital, remains unconvinced that mobile is an advertising medium — in the traditional sense — at all. “Mobile is a very important marketing channel,” he says. “It’s going to be critically important for all of our clients in terms of building relationships with their consumers. But as an advertising or brand-building channel, it is competing with other media which may be better at achieving the same objectives. It’s not, for example, going to take over from TV as an advertising medium. Banner ads don’t necessarily work on mobile because of the size of the device. Lots of people used to say that we’d judge the success of mobile as when there’s lots of ad spend on mobile devices — but that may not be the right metric.”
A better metric, adds Read, one of digital advertising’s most influential figures, is what people actually use their smartphones for — and that increasingly includes e-commerce. The platform’s true value may well lie in location-based services, which will see customers receive personalized offers and geo-located ads and promotions. “We’re only really at the beginning of the use and development of location-based services,” he says. “The unique thing a smartphone has is [a user’s] location and the fact that it’s nearly always on and within reach.”
He cites an example of a campaign WPP carried out for BMW in Germany. BMW drivers received special on-the-day offers — depending on whether snowfall was predicted for the following day in their area of the country — to buy snow tires for a 20% discount. “That was interesting in a number of respects,” he says. “It was personalized — it only went to BMW owners — location-based, because if you lived in Munich you would get the offer at a different time to a BMW driver in Bonn, and it was timely/event based. I’d say that was something you could do on a mobile better than on other devices.”
Orange, like other major mobile operators, is also encouraging brands to use mobile handsets to reach their audience in new ways. Evidence suggests that growing numbers of people are browsing the Web or using social media while watching TV. (See Informilo’s Mobile World Congress 2012 cover story for more on this trend). Orange has developed the tracking and retargeting technology to follow its customers as they shift between screens. One way the operator is doing this is via a social TV app called TVcheck, which allows users to check in with TV shows and share content with friends. In return, they can then win free minutes, SMS and coupons. “This is a way for a brand to be part of users’ conversations while they are socializing,” Levy explains.
It also enhances measurability. “By measuring all the interactions, for instance on social networks, between users during TV spots or programs sponsored by a brand, marketers can get a clearer picture of their ROI and the role mobile plays in the overall media mix,” says Orange’s Levy. “The more we will be able to integrate the mobile into TV campaigns or other media campaigns, the faster mobile advertising as a whole will take off,” he says.