Mobile Advertising is Broken: A Framework For Change

There have been lots of rosy forecasts this year regarding mobile advertising growth, and yet it is important to put mobile advertising into context of all advertising. According to eMarketer, mobile ad spend in the U.S. was $18.9 billion in 2014, which was about 10% of the total U.S. ad spend of $178 billion. Looking at their forecast, mobile will represent 26% of 2018 U.S. ad spend and only 24% of 2018 global ad spend.

Those numbers are not exactly transformative. What’s more, mobile advertising has had the time to prove itself. It is not a nascent business, it’s been around in significant form since 2005. It will take mobile advertising 13 years to grab ¼ of advertising spend. And yet we all are aware that mobile is the first and most important screen to consumers, and has been for at least three to four years in the U.S. Shouldn’t mobile ad spend logically take up more ad spend than it does or is currently forecasted to? Most definitely.

Mobile advertising is broken. Its conversions lag other ad vehicles. It does not offer enough good value propositions to consumers. It is too fragmented to offer scale to many advertisers.

Here’s what we can do to fix those issues:

Turbocharge mobile commerce. Mobile advertising suffers from lower conversion rates compared to other advertising vehicles, but the blame for low conversion should not be laid primarily on advertising. Merchants who want more effective mobile ads have some work to do on their sites. With mobile, buying things online is not easy, too many shopping carts are abandoned. Anyone who sells something online needs to focus on making it frictionless for consumers to buy their products via mobile. That means a relentless focus on the mobile experience – streamlining the number of clicks, increasing page load speed and most importantly, enabling fast checkout This may seem like small potatoes in the overall scheme of things, but it will improve ad conversion rates which is a win-win-win for advertiser, ad platform and consumer.

Advertisers need to improve their social contract. Most consumers don’t like ads, even if it’s for things they are interested in, that’s part of life. But consumers have always been willing to put up with advertising when they feel they have gotten something of equal or better value in return – cheaper or free content. That model doesn’t translate as easily to mobile, so the mobile advertising ecosystem needs to develop good value propositions in that regard. One advertising product that could help is sponsored data . With exploding mobile data use, consumers are putting an increasing amount of value on mobile data, and they will reach the limits of what they can spend on mobile data usage before they reach the limits of the amount of mobile data they would like to use. This paves the way for the introduction of ad-supported mobile data in various forms. Free or reduced cost mobile data is a desirable value proposition in mobile advertising and will boost ad conversion.

Platforms offer scale. Part of what has held mobile advertising back is fragmentation in significantly scaled ad inventory. Ad agencies have historically made most of their revenues from media sales, and mobile (and digital for that matter) have never offered enough potential to move agencies off of TV. But two trends may start to shift that thinking. First, as media consumption continues to shift to mobile, display advertising for mobile is growing. According to eMarketer half of mobile ad spend in 2018 will come from display-type ads (banners, rich media, sponsorship, video). This is the type of ad product agencies like, as opposed to search ads. Second, mobile platforms which deliver media channels are starting to bring the scalability and segmentation media buyers need to deliver significant campaigns. These mobile platforms include Facebook, Instagram, Uber, Airbnb, maybe Pinterest and Twitter, but more and more it will be messaging apps like Snapchat and Kik . These mobile platforms will offer media channels, notifications and other advertising products.

I believe mobile conversion, mobile value proposition and fragmentation will be addressed and the forecasts for mobile advertising as a percentage of total ad spend will increase, with the potential to reach 30-40% of total ad spend in 2018.

Hidden Gem: What Daum Kakao Didn’t Get With Path

Daum Kakao announced today it has bought American messaging app Path Path gives Kakao Talk an entrance to  Indonesia, where Path is strong and the U.S. market where Path is not, but what’s interesting is what Daum Kakao didn’t get.  The following is an excerpt from our report published in January, Whatsapp, Weixin, Snapchat, LINE: The Growing Power of Messaging Apps :

Customer contact — Path

You might not be familiar with Path yet, but they have launched a unique feature that may put them on the road to mobile messenger stardom. In September 2014 Path added Places, which allows users to text local businesses with questions and get answers back. Places addresses a key opportunity in the new age of message-first communications. Small and medium sized businesses (SMB) in particular have had to rely on fixed telephone service as their primary interactive communications channel with customers. But as consumers have migrated to messaging-first communications, SMB has lost business opportunities.

It is interesting that Places is not a very elegant solution, since there fixed line phones which SMBs depend on are for the most part not message- capable. The message from user is routed to call centers, who contact the business, then the call center messages the user the answer. Path

“Plans to invest” in natural language processing and text to voice technology to help convert text to calls, calls to text without people, but for now it flows from text to voice to text.

MBC believes messaging apps, including SMS, have a significant revenue opportunity in facilitating retail and service business communications with customers. MBC believes specialty enablers will emerge and competition will grow to serve this market.

See more on the growing power of messaging apps here

Verizon-AOL: Paves Way For Sponsored Data

The blockbuster news that Verizon Communications will acquire AOL has many speculating as to Verizon’s plans, particularly around how to leverage AOL’s ad technology. According to AOL financial reports, the company made $1.8 billion in ad revenue last year, and of that, $856 million came from serving ads to third parties (media other than AOL properties).  I think there is one distinct and immediate competitive advantage opportunity for Verizon to jump on with AOL — a sponsored data ad product on Verizon Wireless.

It could start with Verizon offering sponsored data as an ad product for AOL media properties, which admittedly isn’t a huge opportunity, but a great way to test the market. Verizon consumers could receive offers to view AOL media like Huffington Post (or one of my favorites, TechCrunch) on their mobile device, either through dedicated apps or via the browser, for free, the data session use is deducted from that consumers mobile data plan. In my recent report on sponsored data , I outline how mobile search is a good match for sponsored data. In either case, advertisers collectively pay for exposure.  More importantly, Verizon can easily extend the sponsored data product to third parties who have historically used the AOL ad network. It would be limited to Verizon Wireless users, but that is a hefty potential market to offer an advertiser.

Don’t be surprised to see a sponsored data ad product from Verizon and AOL before the end of 2015. Find out more about how sponsored data will become a significant advertising vehicle through this market report