Just how big is the mobile ad market going to be?

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Posted 28 September 2012 15:29pm by Patricio Robles with 4 comments

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Mobile is everywhere, and while it might not be everything, one need look no further than Facebook to recognize that for many companies, figuring mobile out is crucial.

But despite the obvious opportunities being created by the mobile explosion, many questions remain. One of the biggest: just how big is the mobile ad market going to be?

There are billions of mobile devices in use around the world, but even in the world's largest advertising market, the United States, spending on mobile ads is still in the single digit billions. Contrast that with spending on television ads in the U.S., which exceeds $130bn each year.

Many believe that the mobile ad market is in its infancy and that we haven't seen anything yet. Razorfish's Paul Gelb, for instance, has suggested that mobile ads will eventually overtake their television counterparts, and he's not alone.

Matt Cohler, a former Facebook executive who is now a partner at venture capital firm Benchmark Capital, also believes that "mobile will grab TV advertising's crown."

In a guest post on TechCrunch, he explains:

People are going to spend more time staring at mobile screens than television screens (and certainly more time than staring at computer screens, especially when you exclude work applications). Your smartphone is with you pretty much all the time. Smartphones are also inherently social devices, which explains the deep emotional connection people feel to them. The society-wide reach and social context that mobile smartphones will provide advertisers leaves other media in the dust.

Using a mobile device is also a focused, immersive experience. Like watching TV, the screen focuses the user's attention on one thing at a time and "changing the channel" is even less distracting than with a television.

So what is holding mobile ads back? According to Cohler, the current size of mobile ad market is "simply an issue of time and of product and market development."

Theory versus reality

Few doubt that the market for mobile advertising is going to grow significantly. But can it really overtake television, which still generates more than double the revenue produced by all web advertising?

Cohler's faith in mobile is based on his belief that mobile beats television in "frequency, reach and engagement." But does it? In practice, mobile advertising suffers from a number of challenges, including:

• Size. One of the most attractive characteristics of mobile devices -- consumers always carry them because they fit in a pocket or purse -- is also one of mobile's most problematic characteristics. Put simply, creating effective mobile ads is a challenge with smaller form factors and even Apple
• Efficacy. Mobile ads are often seen to deliver higher CTRs, but does that mean they're effective? In some cases, advertisers are learning that their higher-than-average CTRs are the result of fat fingers, not interest, something that's reflected in a lack of ROI.
• The annoyance factor. Mobile devices are intimate devices. They connect us to our most important friends, family members and colleagues, and they are our lifelines when we need information in a hurry. While Cohler sees this as a benefit, it's actually arguably a limitation: mobiles are tricky devices through which to advertise because they give advertisers the ability to annoy at least opportune times.

  So it's not exactly surprising that many consumers seem to be tuning out mobile ads much as they do display ads. According to a new study conducted by Azullo, just a fifth of users polled could recall seeing an ad on their smartphone, either in an app or via the device's browser, within the past six months. Of the minority who did, over half couldn't recall the brand the ad was for.

• Inventory glut. Advertisers pay hefty premiums for television ads and one of the reasons is that inventory is tightly controlled by networks and purposely sold in a fashion that limits the efficiency of the market. With mobile, there is effectively no limit to the amount of inventory that can be created, and much of that inventory is sold very efficiently. As such, it is likely that mobile ads will face the same downward pressure on price as their web counterparts.

Can these challenges be addressed? Yes, some more easily than others.

But there's no reason to believe that they'll be addressed sufficiently enough any time soon to produce the time of shift that would be required to propel mobile advertising to television-like heights. Advertisers and publishers still have a lot of work yet.