Forecast: Mobile Makes Facebook Number Two Digital Ads Platform after Google

Research and data aggregator eMarketer is projecting that US mobile ad spending will be roughly $9.6 billion this year and reach a surprisingly high 22% of digital ad revenues. It's possible, given the surge in mobile in the second half, that we'll see something between $7 and $8 billion in US mobile ad spending this year. However the nearly $10 billion eMarketer prediction is too aggressive for 2013. 

More interesting than whether mobile ad spending is $7.5 billion or $9.6 billion is the fact that eMarketer anoints Facebook as the second largest digital ad platform globally (behind Google) because of the rapid growth of the company's mobile revenues. And those mobile revenues will be further accelerated by Facebook's recent video-ads announcement.  

Back in very early 2010 we speculated about Facebook's impending entry into mobile advertising:

Let's talk about what may be coming sooner rather than later: Facebook as a mobile ad network and one that offers location (and potentially demographics) as part of that proposition. There are currently no ads on Facebook's apps, mobile websites or SMS. I would almost bet my life that's going to change in the near-to-medium term.

Facebook will be clever and careful about integrating advertising into mobile, mindful of the potential to alienate mobile users. However the mobile ad opportunity may be at least as big for Facebook as it is on the PC.

Emarketer speculates that Facebook will make just over $3 billion in net US ad revenue this year (against global gross ad revenue of nearly $7 billion). By comparision, Google will make $17 billion in net US ad revenue. Google's worldwide gross ad revenue this year is likely to be roughly $50 billion.

Emarketer places local search and directory publisher YP in the third position regarding mobile ad revenue in the US. But because YP basically doesn't sell mobile ads (except at the margins) this once again raises the question: what is a "mobile" ad?

Most of YP's ads are simply distributed in mobile rather than being intended by the small business advertiser for specific mobile exposure. Yet this is equally true of ads that appear on both Twitter and Facebook; and Google now also "bundles" PC and mobile ads as a practical matter -- as a way to boost its mobile ad revenue. 

 

If we define "mobile advertising" as any ad that appears on a mobile device and where simple exposure (e.g., CPM) and/or a subsequent user action (e.g., CTR) triggers a billable event then we're going to see mobile ad revenues grow extremely quickly and put up some pretty big numbers. That's because in this context mobile ad revenue becomes largely function of mobile adoption/usage and how much of that usage is "monetized" through existing ad inventory. 

Facebook's new video ad product or YouTube pre-roll ads for that matter are a case in point: these ads can appear on the PC or mobile without being specifically modified or even intended for the medium. Thus simple mobile distribution will grow Facebook revenues attributable to mobile. The most engaged Facebook users are on the smartphone app daily; that's going to boost ad revenues attributed to mobile very quickly. 

In essence, mobile ad revenue becomes an accounting issue rather than a technology or ad-creative question. Of course the ad platform itself has to be capable of distributing and rendering those ads appropriately on the device before you can be "platform agnostic." 

Amazon May Buy GoPago and Go into Mobile Payments

Mobile merchant sites can already offer "pay with Amazon" as an option beside PayPal or their own checkout flow. However Amazon may now be preparing a bigger push and more direct competition with PayPal, Square and others in the mobile payments arena.

The Wall Street Journal is reporting that "Amazon.com may be nearing a deal to buy payments startup GoPago." GoPago is a JP Morgan Chase backed payments startup aimed at the small business market. The company provides a range of payment services including a free "Square register"-like terminal and POS system

In the fairly noisy payments market I wouild speculate that GoPago has struggled to gain traction and its investors may be looking for an exit. By the same token it's natural for Amazon to embrace mobile payments more fully. 

Amazon has roughly 200 million consumer credit cards on file. While this is quite a bit less than Apple it's more than PayPal. And although I haven't seen any survey data on this question I suspect that Amazon has a more trusted consumer brand than PayPal. Thus Amazon is a logical candidate to enter mobile and smartphone-based payments directly and could be a major player in the segment.

In a move to bolster its own mobile and e-commerce position PayPal acquired Braintree for $800 million in September.

Apple is another very logical candidate for mobile and online payments given its massive database of consumer credit cards. Indeed Apple CEO Tim Cook keeps teasing this idea by repeating the number of consumer accounts and credit cards Apple has, now at or near 600 million.

If Apple were to power app-store payments and mobile transactions for third parties it could both remove friction from mobile commerce -- with Touch ID as the equivalent of Amazon's 1-click buying  -- and potentially add meaningful revenues to its bottom line. 

Update: PayPal acquires StackMob and gets more serious about being the mobile payments platform of choice for developers. 

New Auto-Play Video Ads a Boon for Both Facebook and Brands

Users may become annoyed by the insertion of new auto-play video ads into their Facebook news feeds. However brand marketers are going to love the new ad units. And Facebook's investors are going to love the revenue -- especially from mobile. 

Facebook is promoting video in the news feed as a potential source of "high quality" ads for users. While that might be true in some cases, it's all about giving brand advertisers new ways to "tell stories" on Facebook -- and Facebook new ways to generate revenue across platforms with TV-style video advertising.  

It will work on both the PC and, most importantly, in mobile. Here's how the ads will operate according to Facebook:

  • Rather than having to click or tap to play, videos will begin to play as they appear onscreen - without sound - similar to how they behave when shared by friends or verified Pages. 
  • If the video is clicked or tapped and played in full screen, the sound for that video will play as well.
  • At the end of the video a carousel of two additional videos will appear, making it easy to continue to discover content from the same marketers.
  • On mobile devices, all videos that begin playing as they appear on the screen will have been downloaded in advance when the device was connected to WiFi – meaning this content will not consume data plans, even if you're not connected to WiFi at the time of playback.

Facebook is carefully trying to balance advertiser and user interests here. Most notably there's no sound when the videos start to "auto-play." This is a key decision to minimize user backlash. In addition the "no data-plan impact" of mobile ads is also critical. 

These ad units -- assuming that there's no sustained user uproar -- will bring significant new revenue to mobile for Facebook. They'll also give brand advertisers a potentially compelling and simple way to reach mobile users. The genius of these ads is that they automatically work across platforms and marketers won't need to change the creative to address the mobile audience.

The decision to keep the sound off is smart both to minimize the backlash, as I said, but also to indicate true engagement with the video units -- users will have to click to hear the sound. But these units will also likely have a "brand effect" and influence even if the sound is not engaged.  

I've argued in the past that video is a key format for mobile ads. If I'm right, Facebook may have just created its "killer" mobile ad unit.  

Expect Labs' MindMeld App Showcases Dynamic 'Assistant' Technology

Startup Expect Labs has launched its MindMeld app after months of being in private beta. A crude but quick way to describe it is: Google Now meets Skype. Expect Labs, founded by Tim Tuttle, describes it as a "voice assistant." But that doesn't really do it justice. 

Many bloggers and tech sites are reviewing MindMeld. In a way that misses the bigger picture. The app is really a "technology showcase" or demo for something larger and more forward looking. Expect Labs, which charges $4 for the app, doesn't see MindMeld as a money maker and isn't staking its future on the success (or failure) of the app. 

First, here's what MindMeld does: it listens to your conversation, with one or several people, and in real time shows you pages and websites that are relevant to the discussion. The sites and data are coming from various APIs and the internet broadly. If you and your friends are talking about going to New York on vacation, for example, it will start showing hotels, restaurants and things to do based on the specifics of your conversation.

The key challenge here is filtering "signal" from "noise" and finding relevant pages and sites. Expect Labs' CEO Tim Tuttle says that the technology has significantly improved over time and the app has changed somewhat from its inception to its launch today. For example, it used to listen to the entire conversation. However now it will pause and users are required to initiate "searching" via an "OK MindMeld" wake up phrase. 

The underlying technology seeks to deliver a better search and discovery experience on devices where the keyboard isn't particularly useful or there's no keyboard. There are myriad inputs into "search results" (anticipatory search results): time of day, location and "context" broadly speaking. If you sign in with Facebook it also grabs other information about you as another relevance input. 

Expect Labs' technology, while imperfect, is really the fulfillment of the vision behind Google Now: real-time, useful information that dynamically changes based on context. MindMeld is the "1.0" expression of that vision. Speech recognition is from Nuance but the natural language understanding is Expect Labs' own technology. 

There are a number of enterprise use cases in development; and one can see this technology being incorporated into a wide range of general and vertical applications. Google Ventures is an investor, as is Intel. Those are two potential buyers of the company. 

The technology is impressive and the major practical question for Expect Labs will be where to focus and how to fully express what the technology can do in a commercial context. 

By 2016 Mobile Will Be the World's 4th Largest Ad Medium

Earlier this week ZenithOptimedia released a new global ad forecast that argued "Advertising is set to see the strongest sustained period of growth in ten years." The firm identified mobile as the "principle [sic] engine of this growth." 

According to the agency mobile is expanding overall media consumption, "without cannibalising any of the other media platforms." That's not exactly true. Mobile and mobile video are fragmenting audiences, which makes it more complex for marketers to reach them as well as to track the efficacy of different channels and media.

Cross-platform and multi-device shopping is an example of this phenomenon.  

ZenithOptimedia explained that notwithstanding its mobile ad growth figures, it only contributed 2.7% of global adspend in 2013. By 2016 that number will reach nearly 8% (7.7%) according to the forecast. If that indeed comes to pass mobile would become, according to Zenith, the "world’s fourth-largest [advertising] medium." It would then exceed traditional radio, magazines and outdoor advertising. 

For purposes of the forecast "mobile advertising" is considered to be any ad shown on a mobile device whether or not the ad was specifically purchased for mobile distribution. Accordingly the sheer number and usage of smartphones and tablets -- and their anticipated growth -- is driving up ad revenue attributed to mobile. 

Surprise: Nokia Developed "Forked" Android Device, Will It Survive?

I've argued a number of times in the past that had Nokia from the beginning embraced Android it wouldn't have had to sell to Microsoft. It turns out that Nokia had/has developed an Android handset, apparently code-named Normandy. It uses a customized or "forked" version of Android much like what Amazon has done with Kindle devices, taking them out of the realm of Google standards and control. 

Reportedly it's a low-end device designed for emerging markets, where Nokia has had some success with its pseudo-smartphone Asha devices. Other details are scarce.

Microsoft bought Nokia's hardware business (for $7.2 billion) for multiple reasons. One of them was clearly defensive; it wasn't only about "bringing hardware and software together." 

Nokia sells most (80% or more) of the Windows Phones on the market today. The continuing strength of the Nokia brand in Europe is responsible for Windows Phone's roughly 10% market share there now. Had Nokia embraced or "diversified" its lineup with Android devices Microsoft might have felt the potentially negative sales impact as Nokia split its focus and marketing. 

The conventional wisdom is that Microsoft will kill the Normandy device when the acquisition formally closes -- it has been approved by regulators. Some are making the argument, however, that Microsoft might not immediately terminate the project because the version of Android being used is outside Google's control. 

That remains to be seen. Yet the existence of Normandy lends further credibility to the theory that Microsoft bought Nokia's phone business to prevent it from turning to Android.  

Indoor Location Examples Show Improved Customer Experience

According to an article appearing in the Wall Street Journal, The Future of Privacy Forum has estimated that roughly 1,000 retailers are using some form of indoor location for analytics and/or customer experience purposes. That will only increase because the benefits to retailers and shoppers are too significant to ignore. 

Companies mentioned in the WSJ article include: 

  • Prism Skylabs
  • Forest City
  • Euclid Analytics
  • Shopkick
  • Swirl
  • Macy's
  • Walmart
  • HomeDepot
  • Timberland
  • Kenneth Cole

More interesting is the discussion of some of the use cases in the article: 

  • Moving items from lower traffic areas in stores to more high traffic areas; moving hot selling items to less busy areas to relieve in-store congestion.
  • Better managing check out lines
  • Moving items to rear of store in apparel boutique where data showed customers tended to spend the most time (this was an SMB)  
  • Opening restaurants in mall earlier to better accommodate hungry late night/early morning shoppers on Black Friday based on prior year's data showing a mall exodus at 6 am (presumably for food)  
  • Creation of a "virtual Santa queue" where smartphones are pinged at an appointment time to enable consumers to keep shopping rather than waiting in line for hours. 

The article also contains the requisite discussion of privacy and concerns over "tracking." Those concerns can be managed through disclosures, opt-in apps and education that explains the benefits of indoor location to consumers. The virtual Santa queue is one such example that will immediately be understood and resonate with consumers looking to avoid lines. 

Among many others, Forest City (and Path Intelligence) and Euclid Analytics were speakers at our Place Conference in October. See our recap and session videos

Apple iBeacon Deployment Lends Further Cred to Indoor Location

Earlier this year Opus Research held the first conference dedicated to indoor location and its marketing implications: The Place Conference. The theme of that event was how indoor location technology and mapping would change online and mobile marketing across the board, bringing the digital and offline worlds closer together. 

At the event we explored the technology, marketing scenarios, privacy considerations, analytics and customer experience improvements that flowed from use of indoor location technology. Three months later we're starting to see increasing momentum in the segment, with new deployments, announcements and some acquisitions (which will increase next year).

Indoor analytics provider RetailNext, one of the speakers at the Place Conference, recently announced the acquisition of Nearbuy Systems. And earlier today AP reported that Apple was now rolling out Bluetooth Low Energy (BLE) beacons to all of its 254 retail stores. That will pressure and/or embolden other retailers to follow Apple's lead. 

Under the radar, most US retailers (and others) have to varying degrees been experimenting with indoor analytics and location. However they've been hush-hush about it, for fear of being criticized as Nordstrom was when it disclosed it was using indoor analytics. But greater public discussion and education around indoor location will change the tone of coverage from "spying" to focus on consumer and B2B benefits. 

Apple's March 2013 acquisition of WiFiSlam helped raise the profile of indoor location. The company's new rollout of iBeacons across its retail network will further legitimize the segment.

Indoor location is one element of a larger "ecosystem" of proximity marketing that includes geotargeted mobile advertising, notifications, analytics and online to offline ROI tracking. Mobile payments are also in this mix (see PayPal Beacon). Next year will be an eventful and exciting one for indoor location and place-based marketing. 

Place 2014 is coming soon. 

China Mobile Gets the iPhone, US Smartphone Growth and 'Nokisoft' Approved

Yesterday the Wall Street Journal reported that China Mobile and Apple had struck a long-anticipated deal to offer the iPhone to China Mobile's massive customer base (estimated by the publication at 7X Verizon Wireless). Neither company has confirmed the deal.

China Mobile is the largest carrier in the world's largest mobile and internet markets. The company has more than 750 million mobile subscribers. According to several estimates Apple has about 5% of the Chinese mobile market. Various flavors of Android are by far the dominant mobile platform in the country, with nearly 80% share. 

Many financial analysts think that the iPhone 5s and 5c are too expensive for China. However there appears to be a meaningful appetite for Apple's devices there. Apple's "greater China" revenue this past quarter was $6.8 billion. That number could easily double through the China Mobile deal -- if it's confirmed. 

October OS share

Back in the US comScore released September smartphone market share data. The firm estimated that 149.2 million American adults now own smartphones. Comscore's figures put smartphone penetration at or just under 64%, generally in agreement with Nielsen's estimates. 

Apple, Samsung and Motorola were the top three smartphone OEMs in the US. HTC and LG lost share and BlackBerry is out of the top five. Android is the top OS, gaining nearly half a point. Apple and Windows Phone also gained modestly. 

I was surprised not to see more of a bump for the iPhone given all the discussion of iPhone sales momentum. However it hasn't really materialized in comScore's data.

In the US Windows Phone share is 3.2%, growing but very small. By contrast, in Europe, Windows Phones now enjoy a 10% share across the EU5 (driven by UK, France and Italy) according to Kantar survey data.

Windows Phone's success in Europe is due almost entirely to Nokia and it's continued brand strength, which doesn't equally exist in North America. Nokia sells the overwhelming majority of Windows Phones globally, which is why Microsoft bought the company -- also to prevent it from starting to make Android handsets. 

That largely defensive acquisition has now been approved by US regulators, with European regulatory authorities likely to follow and permit the transaction. 

Report: Big Increase in iPads After Black Friday Weekend

There has been a near avalanche of shopping data released over the past several days, much of it documenting the rise of mobile devices in driving traffic and e-commerce purchases. Various estimates ranged from 23% to nearly 40% of traffic coming from mobile over the course of the weekend. 

One of the clear winners of the Black Friday weekend shopping bonanza was the iPad. Apple and other retailers offered gift cards as incentives to buy the devices. In combination with general consumer demand that strategy seems to have paid off for Apple. 

According to Localytics, which looked at over one million devices before and after Black Friday weekend, the iPad Air in particular saw very strong growth: 51% vs. the week before. So did the Mini and iPhone 5c. Admittedly the iPad Air is growing from a smaller base, although the device had a very strong launch

The data in the chart above also don't reflect iPads purchased as holiday gifts and not yet opened/activated. So there are probably many more that were purchased than what's represented on this chart. 

The top Android tablet was the Kindle Fire, which saw its own aggressive $50 discount from Amazon. The only other Android tablet to show growth is the Galaxy Tab 2, which was heavily discounted online and at several retail stores.

In October Apple announced that 170 million iPads had been sold to date. Given the momentum being reported, it's very likely that Apple will sell 20 million iPads (collectively) in the holiday quarter.