The Critical Insights You Need Following A Big Week For The Mobile Economy

Last week brought a flurry of upbeat news on the state of the mobile economy, especially the improving health of its advertising business.

First, eMarketer projects that advertisers will pump $9.6 billion into mobile in 2013, with estimates that total mobile spend will eclipse desktop ads by 2016.

Then, Facebook announced its plans to test video ad units that will auto-play in a user’s wall. One might think this represents a shot across YouTube’s bow, but the media coverage of the news makes clear Facebook’s plan to take on TV advertising. Given Facebook’s total audience of over 1 billion users, that ambition doesn’t seem unreasonable.

Here’s a little perspective on the news and how you can profit from it.

The robust projections for mobile ad revenues come as welcome news, but look carefully and you’ll find that the numbers tell a different and largely hidden story.

Nearly $10 billion in mobile ad revenue is a big number, but evaluating it requires having a point of comparison. For this, i return to Mary Meeker’s 2013 Internet Trends report. It’s full of useful information, including how large the mobile ad business should be based on the amount of time users spend in front of mobile screens. By that measure, the business should drive about $20 billion. According to her estimates, then, the fast-growing sector still is performing at only about half of its potential.

Where does the mobile ad revenue go? Nearly two-thirds of global mobile ad spend flows to just two companies: Google and Facebook. You can see the details here. (These two heavyweights gobble up relatively less of the US market, where their combined share is “only” about 58 percent.) Vying for the remaining third of the global pie are the likes of Pandora, Twitter, YP.com (familiarly known as yellowpages.com), and Millennial Media, a mobile-native advertising network.

Facebook’s share derives much of its size from a nascent class of advertisers: mobile app developers. This blog post suggests that about 20-25 percent of Facebook’s mobile revenues comes from this group, which uses Facebook’s mobile app install program to acquire new users.

In other words, the mobile ad business still has a lot of room to grow, and the companies leading the way are showing the world which mobile advertising tactics work and, by extension, which do not.

Google is winning because it figured out long ago that customers welcome sponsored search links, e.g. the search terms advertisers pay to return hits atop search results. Using its maps data, Google is in a position to add location relevance and therefore value to advertisers. Over the last year, it has simplified the ad words bidding process for advertisers, ensuring that they buy across all screens.

Facebook, on the other hand, has unleashed the galactic volume of user data it possesses to help ensure that advertisers target their messages more efficiently. The result is a higher probability that an advertising message or offer finds a willing audience. Facebook also delivers that content in a way that users will accept, knowing that even if an ad misses the mark, on a mobile device any bit of content is just a flick of the finger away from being swiped off the screen. It doesn’t get much more customer-friendly than that.

Both companies are insulating themselves against the risk that the mass migration from desktop to mobile screens will result in a net decline in ad revenue. For Google, it’s about adding location data. For Facebook, it’s about offering higher-cost video.

Companies trying to figure out how to buy mobile advertising in a smart way should look closely at how app developers do it via Facebook and other app install programs. Advertising that does not offer immediate access to a download is of little value to a developer. They need the shortest possible path from an ad to a download, and install programs like those offered by Facebook, InMobi, Fiksu, and others help them do just that.

For really useful insights on how app developers successfully drive mobile engagement, check out this report by InMobi. It includes a lot of free information on how to think about mobile targeting, creative and measurement.

As 2013 draws to a close, the mobile economy has come a long way. It also still has a long way to go in order for more money to flow to more actors. The MBA student in me recognizes that over-sized profits derived by just a couple of firms invites more competition. What remains to be seen is how potential competitors can acquire the scale they need to go toe-to-toe with these incumbent heavyweights and what innovation in targeting and creative they can bring to bear. Both present sizable obstacles, but for those that succeed, the future looks very bright.

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