Why it’s time to believe the hype in mobile advertising

Juniper Research this week predicted the worldwide mobile advertising market will surpass $39 billion by 2018, marking a threefold increase over the estimated $13 billion it is expected to generate this year. As VentureBeat quickly noted, two substantial data points support that seemingly bold forecast in a big way: Mobile ads accounted for 41 percent of Facebook’s revenue in the 12 months ending July 2013, up from almost nothing at the start of that period; and The Search Agency last week estimated that one-third of all Google’s paid clicks occur on mobile devices.

The rise in mobile ad volume, however, conceals the fact that ads on the smaller screen aren’t nearly as lucrative as PC-based ads. Google’s overall number of paid clicks in its latest quarter climbed 26 percent year-over-year, USA Today reported, as mobile usage continued to surge. But its cost per click fell 8 percent over the last year.

There are two primary reasons why mobile ads don’t generate as much revenue as traditional online ads, as the USA Today piece notes: Banners and text ads are typically more annoying than enticing on the small screens of mobile phones, and the explosion in the usage of mobile apps has resulted in a surfeit of supply (ad inventory) with a limited amount of demand (the ads themselves). But here are some reasons to believe that mobile ad revenues will catch up to – and eventually blow past – those of PC-based ads:

  • Location. Location-based advertising is often described as the “holy grail” of marketing, and for some pretty good reasons. Location information enables marketers to present their pitches to potential customers at the most appropriate time and place, often by dangling coupons or other promotions. Location-based campaigns are only beginning to come to market thanks to geofencing and other strategies, and they’re not without risk – presenting ads to users who haven’t opted in to receive them is a big no-no, while presenting them to users searching for what you’re selling is a promising proposition – but players such as Facebook, Groupon and Twitter are aggressively pursuing this space. There are big reasons why.
  • Better analytics. The ability to deliver highly targeted ads based on multiple variables (including location) will become increasingly important over the next several years, which is why analytics companies are being snapped up by deep-pocketed suitors left and right. Analytics not only helps advertisers target their come-ones more accurately, they help determine how effectively those marketing campaigns are executed. And because those firms can compile much more data from mobile users than from PC users, they hold the key to unlocking big revenues.
  • Bigger ad networks. As any mobile user who has spent much time using the browser can tell you, mobile ad networks are still too small to deliver valuable ads consistently. While many nationwide chains have a decent advertising presence on the mobile web (and in ad-supported mobile apps), many smaller chains and mom-and-pop stores have no presence at all. Which means it’s much more difficult for users to come across an ad they’re willing to click on to get to a landing page, say, or initiate a phone call. The build-out of ad networks will result in ads that are more valuable to potential customers – and therefore more lucrative for everyone in the value chain.
  • More innovation. As The Guardian wrote last week, mobile marketers are still struggling to expand beyond tactics that have worked on TV on PCs to create campaigns that are fully optimized for smartphones. That not only means tweaking ads for the smaller screens phones, but presenting ads that exploit the nature of mobile by integrating click-to-call or establishing text dialogues with users. It means using deep links to direct users to a web page where they can easily consummate a transaction, as Mashable recently documented.  And just as importantly, it means building complex new pricing models that take all these factors into account.

Mobile advertisers face plenty of other challenges, too: User privacy remains a prime concern, screen size will always be a factor, and advertisers must find ways to avoid delivering ad content that is too data-heavy for particular handsets or older networks. But there’s no doubt that after years of failing to live up to expectations, the industry is getting legs in a substantial way. These challenges will be addressed in the coming months and years, which is why I think some recent forecasts are actually too conservative.