Mobile Advertising: The Next Big Thing Hasn’t Arrived (But It’s On Its Way) - Capabilities and Challenges

By David LaFontaine

 The mobile platform has been anointed as the “Third Screen,” the latest technological miracle that could dominate our lives and information consumption. 

But as with every new technology, the nagging issue is figuring out how to make it pay. There are a number of ad products that have been developed for mobile devices, but because this is such a new and rapidly growing field, the techniques and technologies involved are the subject of much dispute.

Put simply, there’s a lot of hype about the potential of mobile advertising, but actual measurable results are still in short supply.

"You're out on the bleeding edge with mobile advertising,” says Mark Jenkins, founder of Marquis Mobile Solutions.  “We're just now trying to implement the business models we've all been talking about for the last 15 years. The challenge is that we don’t know which model, or models, are going to actually work.”

Most analysts agree that only one in 20 of mobile advertising start-ups will ever show a profit, but a Gold Rush mentality has taken hold, and companies are scrambling to get in front of the Great Mobile Advertising Wave of The Future.

Thus, mobile industry conventions are clogged with legions of start-ups, all touting wild revenue and user adoption projections.

Attractive Audience, Missing Metrics
It’s the raw numbers of users that make this advertising space so appealing. Last year, more than 1.15 billion mobile phones were sold worldwide, compared to only 271.2 million personal computers. In other words, more than four times as many mobile phones were bought than PCs. 

The total number of mobile phones worldwide is between 2.7 and 3.0 billion, and analysts project that 1 billion more people will be added to the global market in the next few years.  Most of those people will have their first look at the Internet via the screen of that mobile device.

The numbers have made believers out of some fairly significant tech players.  No less an authority that Google CEO Eric Schmidt said in Germany earlier this year, “The next big wave in advertising is the mobile Internet.”

Google could be saying this because they’ve invested millions in developing “Android,” their software platform for mobile phones.  They hope to become the Microsoft of mobile – everyone is going to have to play using their toys, which will allow Google to take its growing monopoly on online advertising and simply transfer the simplicity of buying AdSense words against content onto this brand-new market.  As with so much else in this space, there are compelling and contradictory reports on Android’s potential for success.

Meanwhile, experts are extrapolating and applying trends in other countries to the U.S. market.  Japan’s mobile ad spending was $621 million last year, up 60 percent, while the rest of the ad market was flat.  This kind of growth is certainly impressive.

Unfortunately, the same problems bedevil mobile ads in Japan as they do here in America: accurate measurement, weak mobile search algorithms, and overly complex media buying mean that advertisers are basically spending money on mobile with no clear, established blueprint as to whether or not their campaign actually worked, or if it was ads on another platform (TV, print, the Internet) that were responsible for the success/failure.

Integrated Campaigns: The Potential and the Obstacles

The mobile ad industry seems fixated on just a few visions of what a truly integrated ad campaign that takes advantage of mobile’s strengths will look like. One, of course, focuses on the 2002 Steven Spielberg movie “Minority Report”, a sci-fi action thriller. In that film, as Tom Cruise’s character walks past store displays, retinal scanners determined his identity, and instantly started blaring ads using his name, aimed at him based on his past buying habits. Another example often given is “walking past a Starbucks and your phone offers you a 20 percent-off coupon.” 

“Seriously, we need to come up with some new paradigms, because these two are just beaten to death,” says Placecast CEO Anne Bezancon. “We’re lacking a clear vision of where we’re headed right now, because this whole area is still so new.

“There are several components that all have to start coming together for these fantasies to become a reality, and we cannot start assembling the components until we have a proper toolbox.  That means strong, well-thought-out analytics programs that show what kinds of results you get from what actions.

“The problem is that you won’t know what works until you try.  But people won’t try anything really new because they don’t know if it will work.”

One of the few case studies where the results were made public was by Superpages.com, which says pilot projects through that company have yielded the following results:

If you can invest $1 in an ad campaign and get up to $300 back, why isn’t everyone doing this?

The answer lies in the complexities of mobile campaigns.  Reaching out and touching a consumer right as they’re about to make a purchase – say, telling a person shopping for cars who is about to pull into the Chevy dealership about 0 percent APR, nothing-down loans down the street at Ford – means that you have to know when that person is in that exact location. (For more on the state of mobile local search, see “The Tipping Point for Mobile Local Search.”) Even assuming that’s possible – a prospect that makes many uneasy about privacy issues – who’s to say that it wasn’t the billboard down the street, the ad on the car radio, or the sudden recollection of a TV jingle that was the real influencer?

The mobile ad industry is working to develop the mobile analytics and measurement tools that will start connecting the stimulus to the response.

One significant obstacle to the spread of mobile advertising campaigns has been the reluctance on the part of the big carriers – AT&T, Verizon, T-mobile, Sprint – to change their core business model of charging millions of people monthly for cell phone service.

“I would pitch a fit if I started getting ads shoved onto my phone,” says Classified Intelligence Editor Peter Zollman. “I pay for every byte of data sent to my phone, which means that I’d be getting charged now to look at spam I don’t want?  No way.

“But – and this is a big but – mobile advertising is going to take off like a giant rocket the day that the carriers start saying ‘We’ll take 30 bucks a month off your phone bill if you let us send you three ads a day.’ ”

Consumer Attitudes
Significant growth in three areas may change consumer’s attitudes towards digital content sent to their phones: 1) less expensive and unlimited data plans, 2) a “pay to play” model, or 3) more phones with built-in wi-fi, so users don’t have to pull down data from phone networks.

Until these conditions change, the one fixed rule of mobile ad campaigns is that they must be “Opt-in.”  Consumers must be asked for their permission, whether it be through clicking on a link in a story on the phone, or using some of the newer technologies to trigger the phone to access content.  Many mobile ad campaigns are based around a call to action appearing in traditional media content – such as a code appearing as part of a display ad in a newspaper – which the reader then texts to the advertiser, triggering the ad to get served to the phone.

“One of the great advantages of cell phone content is also one of the great dangers,” says Mimi Ito, a researcher at the Annenberg School at USC. “Because you take your phone with you everywhere, you develop a very personal, trusting relationship with it. 

“So if your personal friend were to start spying on you, and then spamming you with ads, you naturally would feel angry and betrayed.  Those feelings persist for a long, long time.”

Cell phone companies fear that unregulated and uncontrolled advertising could quickly morph out of control the way spam e-mail messages did with the Internet. They are closely monitoring the effect of increasing mobile advertising on something they call ARPU (Average Revenue per User). 

“Mobile companies are sitting around conference rooms 3 days a week, beating their brains out on how to jump the ARPU from $53 to $55,” says industry consultant Jenkins. “Because when you have, say, 4 million subscribers in a metropolitan area, that $2 turns into an extra $8 million a month in revenue. 

“Newspaper ad strategies that help carriers boost their ARPU will get an enthusiastic reception. But anything that even looks like it could cut ARPU will run into a brick wall.  And then blow up.”

Part 1: Capabilities and Challenges | Part 2: Banners and 2D Codes | Part 3: Classifieds, Videos and Other Formats

First Published:
July 31, 2008