Mobile Advertising

What You Think You Know about Local-Mobile Advertising May Be Completely Wrong

I keep reading very aggressive projections about local-mobile advertising from BIA and others. Rather than grounded in reality today, these forecasts are built on a set of "optimistic" but simple assumptions about how the market will inevitably develop. For example, one assumption is that national ad dollars from brands and retailers that sell locally will pour into mobile and that their mobile ads will necessarily be geotargeted or localized.

While all forecasts must make assumptions about the future, my belief is that many of the assumptions being made about mobile are crude at best or simply incorrect. I'm a big proponent of location-based marketing and have written extensively about how geotargeted ads and ads with localized creative outperform conventional or "generic" national advertising. There's no question about consumer demand for local information. The question is whether and how advertisers can match or exploit that demand.

There remains a great deal of friction and many challenges to overcome before these big local-mobile forecasts can come true. There are also several "unexpected" things that may change the direction of the marketplace. I go into a few of those things below. In truth the majority of the localized mobile advertising today is happening in search. The platform is mature, the demand and the tools are there. The value is obvious to all involved. That's why Google is making the most money in mobile advertising today. (Facebook is also going to make a lot of money in mobile, some of which will be localized.) By contrast, local-mobile display is in its infancy.

There are two mobile ad networks generating and syndicating a large percentage of the local display inventory that you're likely to encounter: xAd and YP. CityGrid is out there and so are Verve, LSN, Telenav/ThinkNear and a couple of others. Marchex is there too with pay-per-call; however much of that is driving mobile callers to national call centers. Among the major ad networks Millennial, JumpTap and AdMob (Google) all offer local targeting. Often that targeting doesn't extend beyond state or DMA-level precision.

The emerging exchanges and RTB platforms all offer location as part of a laundry list of targeting capabilities. Indeed, location is likely to simply become one of many targeting variables on most networks and exchanges.

The War on Mobile Display Advertising

Many analysts simply assume that mobile advertising will follow the well-worn path of PC advertising, only perhaps in a more accelerated fashion. Thus you get mobile advertising forecasts that show a relatively smooth progression of ad budgets into mobile, with search and display being the two main ad categories (calls fall into both). There's a longer post to be written about these assumptions and why they may not play out as expected -- especially with respect to location-based ads on mobile devices. 

Overall there are relatively few mobile search impressions available outside of Google. So most of the ad inventory being sold today is some form of mobie display. However there's also something a "war on mobile display." That's really about the business model: CPM/CPC vs. CPA. 

It's largely being waged by firms whose business models that are not CPM or CPC based. Companies that use a pay-per-[app]-install or other CPA models have attacked CPM or CPC-based mobile display with the idea of the "fat finger problem."

The argument is that a huge volume of mobile display clicks are simply mistaken or perhaps even fraudulent in some cases

Screen Shot 2012-09-06 at 1.59.41 PM

Source: Trademob (9/12); based on analysis of 6 million mobile ad clicks 

There's also the idea, often discussed, that consumers don't like mobile display advertising and consider it to be just a notch above spam.  

More recently Marchex, which has transformed itself into a call-based advertising platform and network, asserts that the overwhelming majority of mobile display impressions and clicks are nearly worthless. In a study, released in December, involving six major display ad networks Marchex found that it took almost half a million ads to generate one "quality" phone call: 

We examined a set of mobile display ad campaigns across the six largest mobile display networks to investigate the real, measurable performance of these ads. The call to action on all advertisements was a phone call. Performance was based on the number of high-quality calls driven by the media investment. Marchex defines high-quality calls as those that do not include misdials and spam; existing customers looking for support services; and unproductive calls (e.g. too short).

Our advertisers included national, branded businesses in Education, Insurance, Home Services and Entertainment. We conducted the study on major mobile ad networks and employed media tactics ranging from highly targeted to broad buys. Ad spend was distributed across networks and advertisers to ensure statistically valid conversion results on the back end.

Marchex said that in its test it took 494K impressions to generate 2,481 clicks, which in turn generated only one "quality" phone call (as defined above). That single call effectively cost $302 according to the company, because of all the wasted impressions. 

Screen Shot 2013-01-23 at 7.43.43 AM

Source: Marchex (2012) 

I exposed these findings to one mobile ad network, which disputed them and said on its network the ratio of impressions to qualified calls was much smaller: 15:1 rather than 494K:1.

The Marchex argument is that it's simply cheaper to buy calls directly than to buy mobile display impressions. The company's study needs to be replicated before we can conclude that Marchex's findings are valid across networks. There's also the argument about awareness vs. direct response -- most national advertisers currently are just seeking broad awareness and scale.

Regardless Marchex's findings and the other data above collectively fuel pervasive doubts about the value of mobile display advertising. 

Failure to Properly Value Mobile Clicks Leads to Google CPC Decline

Yesterday afternoon Google announced Q4 2012 earnings. In almost every respect it was a spectacular holiday quarter for the company. Consolidated revenues (which include Motorola) were $14.42 billion, an increase of 36% over 2011.

Google made $50.2 billion for the full year, crossing that revenue threshold for the first time. That compares with $37.9 billion the company made in 2011. 

Google revenues 2012 

However the average price that avertisers paid Google per click (CPCs) decreased 6 percent vs. Q4 2011. That was a smaller decline than in the past, which could be seen as a positive.

The CPC YoY drop is because more clicks are now coming from mobile devices and advertisers are paying less for those clicks. According to a report released yesterday from marketing firm The Search Agency, CPC prices for paid-search ads appearing on smartphones are well below comparable ads appearing on tablets and PCs (see graphic below).

In Q4 mobile search clicks were worth less than 50% of what marketers paid for PC search clicks according to the data. Why are marketers paying much less for mobile clicks when mobile consumers are often much better prospects and customers than PC users? 

There's less competition currently for mobile clicks than there is for PC search clicks. Because Google's ad system is an auction that necessarily affects pricing. But more than that many advertisers are unwilling to pay more for mobile clicks because they don't trust them and/or can't calculate a mobile ROI.  

CPCs - tablets, PCs, smartphones 

Source: The Search Agency 

Many search marketers, especially brands and large advertisers, rely on automated systems that calculate paid-search ROI based on some pre-defined conversion event. Those conversions can be a variety of things but frequently they're e-commerce transactions or, in some cases, phone calls. 

PC ROI calculations are generally flawed because they usually don't or can't capture online-influenced offline buying. Accordingly the system and the marketer only see online events but not the far larger collection of offline purchases and activities (e.g., store visits) that are driven by online and paid search advertising. The problem is even more pronouced for mobile, however. 

Because there are relatively few mobile commerce transactions -- though there are plenty of phone calls from mobile devices -- marketers simply don't see the "latent" conversions that happen in the real world or later on another screen, such as in the case where someone does research on a mobile device and later buys on a PC or tablet. 

As a result of this varied, multi-screen consumer behavior marketers aren't able to correctly perceive or attribute ROI and accordingly value mobile clicks. While this represents a "buying opportunity" for advertisers that know the true value of mobile the majority of advertisers are undervaluing mobile clicks. And that's reflected in the average CPC declines that Google has been reporting. 

IAB: Q3 Online Ad Revenue $9.3 Billion, Mobile Could Reach $3 Billion in 2012

This morning the IAB reported that Q3 US online ad revenue came in at $9.3 billion. First half digital revenues were $17 billion. It's quite possible that the second half will see $19 or $20 billion total, bringing FY 2012 to $36 or $37 billion in online ad revenue (including mobile). However the IAB didn't provide a detailed breakdown of Q3 revenues by segment. 

Two days ago eMarketer revised its mobile ad forecast upward for 2012 from $2.61 billion to just over $4 billion.

 

The IAB said that mobile advertising revenue was $1.2 billion for the first half. It also said that mobile represented 8% of Q2 2012 revenues, or $661 million. While mobile is the fastest growing digital ad segment it's still small relatively speaking. If mobile continued to represent 8% of digital ad revenue in Q3 that would translate into $744 million.

However if mobile grew as a percentage of overall digital revenue to, say, 10% that would represent $930 million in revenue. That's probably the range that's reasonable to assume: $744 to $930 million. Let's take the midpoint of that: $830 million. 

Because of the holiday shopping activity surrounding mobile devices we can assume that mobile ad revenue will grow further in Q4. Accordingly, it's possible that Q4 US mobile ad revenues might reach or slighly exceed $1 billion. 

We can probably expect mobile ad revenues to come in for the full year between $2.6 and $3 billion on the high end. It's very unlikely that they will reach $4 billion this year however. 

Google Taking Steps to Address the 'Fat Finger Problem'

There are a couple of studies that suggest a substantial percentage -- perhaps as much as 40% -- of mobile display ad clicks are unintended or "bad" in some way. Pontiflex and Trademob are the sources of these findings.

There are a number of ways to address this. One way is changing the billing or business model (moving from CTR to CPA); another is to ensure that clicks are truly intended. For example, mobile ad networks like YP and xAd ask users to confirm that they want to actually contact an advertiser or visit the advertiser's site/landing page.

Below is an example of that approach from the YP mobile ad network: 

Screen Shot 2012-12-13 at 9.19.07 AM

Now Google is taking steps in its banner ad creative to make sure that clicks are valid. The company said in a blog post that  

[M]ost accidental clicks on in-app image ads happen at the outer edge of the ad unit, likely when you’re trying to click or scroll to nearby content. Now if you click on the outer border of the ad, we’ll prompt you to verify that you actually meant to click on the ad to learn more.

Below are screens from the Google post. The company will require users to now click on a specific area of the banner ("visit site"). The entire banner won't be "clickable." 

Screen Shot 2012-12-13 at 9.10.49 AM

Screen Shot 2012-12-13 at 9.11.11 AM

This is smart and together with other, similar efforts it should ensure that clicks and other consumer actions in response to mobile ads are intended and that advertisers are only charged for "valid" clicks and not fat-finger accidents.  

In one sense this is a solution to a practical problem but in another it's a symbolic, confidence-building measure for mobile display advertising. 

Despite Better Performance, Mobile Ads Considered Just a Notch Above Spam

Mobile advertising is typically quite a bit more effective than comparable ads on the PC. Indeed, the data show that mobile search and display consistently outperform their PC counterparts. Yet mobile ads (especially display and SMS) are viewed with skepticism and distrust and rank near the bottom of all ad categories in consumer surveys.

This is something of a paradox to say the least. For example, Marin Software's Q3 aggregated client data report indicates the following about the relative performance (CTRs) of paid search ads on the PC, smartphones and tablets:

  • PCs: 2.35%
  • Tablets: 3.22%
  • Smartphones: 5.07% 

You might be quick to respond that smartphone click-through rates could be attributable to the so-called "fat finger" problem thus distorting their true performance. This problem -- and we can debate the extent of its reality -- doesn't really exist in a paid-search context.

These clicks are from intent-based queries and thus more inclined be "real" and reflective of a buying intent. In a display context an unintended click may be somewhat more likely. However mobile display outperforms PC display advertising across the board and consistently across studies. 

Screen Shot 2012-12-12 at 12.01.43 PM

According to 2011 Nielsen US consumer advertising-trust survey data (above), personal recommendations and traditional media ads are near the top and mobile ads are the least trusted of all the major ad categories. 

A more recent Millward Brown consumer survey (Q3 2012) found much the same thing. Mobile ads were at the bottom of favorability rankings among all ad types. The list below just shows digital categories: 

Screen Shot 2012-12-12 at 11.48.11 AM

There's no easy way to explain the apparent contradiction between negative consumer attitudes toward mobile ads and their otherwise superior performance to categories more trusted or ranked more highly.  

Mobile Apps Challenge TV for Temporal Supremacy

Flurry Analytics has been chronicling the rise of the app ecosystem and the growth of app usage by consumers for several years. In January of this year the company released data arguing that daily time spent with mobile apps had surpassed the PC internet: 94 minutes vs. 72 minutes per day. And earlier today Flurry released an analysis of US consumer time spent with mobile apps vs. television.

Ad network InMobile asserted earlier this year that consumers are now spending more time on a daily basis with mobile media than they do with TV:

[M]obile ranks first in media consumption among Americans with 2.4 hours of the 9 hours spent consuming media on mobile devices—this is more than a quarter of time spent on mobile, outpacing TV (2.35 hours), PCs (1.6 hours) and any other channel.

However according to the data compiled by Flurry, consumers are spending 127 minutes per day with mobile apps compared to 168 minutes per day with TV.  TV time is basically flat, or slighly down according to Nielsen, while app-time is gaining according to Flurry. 

Flurry US Web vs App TV Consumption resized 600 

Nielsen itself says that people in the US spend roughly 4 hours and 18 minutes per day on average with conventional TV (vs. 168 minutes [2.8 hours] in the Flurry graph). That would be about 2X of the time spent with mobile apps, using the Flurry figures.

The question of whether time spent with mobile already exceeds TV time or closing in on it is largely symbolic. The larger point is that consumers are highly engaged with mobile devices and the mobile internet. That trend will only continue to grow and gain in the next several years. Mobile ad spending, however, is nowhere near commensurate with the kind of time and attention that consumers are spending with mobile media. The chart below (also courtsey of Flurry) illustrates the huge disparity between the two.

Screen Shot 2012-12-05 at 9.26.28 PM

Mary Meeker has argued that, based in part on this familiar time-spent formula, mobile advertising is basically a $20 billion opportunity in the US. That may be the case eventually -- though advertisers and their agencies aren't totally "rational." But in the near term are many barriers to the free flow of ad dollars into mobile right now: organizational politics and culture, lack of advertiser education, lack of budget and perhaps most of all lack of "clear ROI." 

It took a very long time for online advertising to attract the kind of ad dollars that were more or less consistent with consumer time spent online. It won't take quite as long for mobile to ramp. But it could still be a number of years before mobile marketing and advertising are significant budget items for the majority of advertisers.

For their part consumers are mostly indifferent to whether or how soon companies embrace mobile marketing and advertising. While they prefer mobile friendly sites and user-experiences they don't particularly care if marketers are fully exploiting mobile ad opportunities.

However, if marketers do not as the Thanksgiving holiday weekend has already proven, it will be their missed opportunity. 

The Most Interesting Mary Meeker Slides about Mobile

Former Morgan Stanley financial analyst, now KPCB partner, Mary Meeker did one of her patented blizzard of stats/data dump presentations at Stanford University the other evening. The slides (available here) are essentially an updated version of a presentation given earlier this year. 

You know most of the material by now. However, below are the most interesting slides I culled from a much longer set. They go to device adoption and mobile ad revenue projections. 

Screen Shot 2012-12-04 at 11.57.33 AM

The noteworthy thing about the above chart is that it argues there are 172 million smartphone subscribers in the US. If that's true it would mean a smartphone share of something like 68% or 73% depending on the base used. This is undoubtedly high. But it's not unreasonable to argue that there may be 60% smartphone penetration by the end of Q4 in the US (or early Q1). 

From the chart below: there may not in fact be 5 billion individual mobile phone users around the world. There are "only" 7 billion people on the planet. It's probably more accurate to assert there are something like 5 billion subscriptions/SIM cards (there are some dual subscriptions). Still the global smartphone growth opportunity is massive. 

Screen Shot 2012-12-04 at 11.58.14 AM

The following chart is based on Pew survey data, showing that 29% (as of earlier this year) of US adults owned a tablet or eReader. Tablets are going to be the number one electronics gift item this year. We could be looking at 80 million total tablets in the US in Q1 2013. 

Screen Shot 2012-12-04 at 11.58.37 AM

What's most interesting about the slide below is that it projects tablet ownership to pass PC ownership by the end of next year; in other words: more tablets than PCs. This may be a aggressive forecast but it's not out of the question. 

Screen Shot 2012-12-04 at 12.00.05 PM

The final slide is about mobile advertising and app revenue. There are many sources behind this projection. It envisions a $20 billion global market by the end of the year, with mobile advertising around $6 or so billion. 

Screen Shot 2012-12-04 at 11.59.17 AM

US mobile advertising was worth roughly $1.2 in the first half and is on track to be somewhere between $2.6 and $2.8 billion for the full year 2012. Globally mobile ad revenues will probably reach between $5.5 and $6 billion by the end of Q4 this year.

Where Do Mobile Users Get Their Deals and Coupons?

There's a relatively common perception that "daily deals are dead." What's more accurate to say is that the daily deals "bubble" has burst and consumers are burned out on push email marketing, where many of the deals are irrelevant to their interests or needs. But it would be inaccurate to say that "deals are dead." 

Coupons and deals remain popular among consumers and mobile users in particular. According to data from Nielsen, xAd and Telmetrics, the three top reasons that a mobile user would engage with an ad are the following:

  1. The ad is locally relevant
  2. There's a coupon or promotion
  3. It features a familiar brand

Consistent with the findings above, "search for/receive mobile offers" (especially locally relevant ones) is one of the top three "mobile commerce" activities that users engage in according to 2012 data from the US Federal Reserve and JiWire. They also search for coupons on smartphones while in stores according to multiple surveys and behavioral studies. 

A new set of data from Nielsen tries to identify where mobile users get those deals and coupons. A majority get mobile vouchers from retailers directly (sites/apps), followed by deal of the day sites/apps.

Screen Shot 2012-11-22 at 6.27.33 AM

 

Among the daily deal apps Nielsen found that the "usual suspects" were the most often used: Groupon, LivingSocial, Google Offers and AmazonLocal (LivingSocial). Amazingly, of those who have sought out daily deals on their smartphones, 91% have done so through the Groupon app. 

Screen Shot 2012-11-22 at 6.27.46 AM    

This shows that relatively few daily deal vendors have any brand awareness and usage beyond these major sites. But among them Groupon is far and away the leader. 

TV Remains King of Time Spent but Mobile More Effective Ad Medium

TV remains the king of all US media channels in terms of time spent -- but it's not necessarily quality time. Our attention is increasingly split; simultaneous media usage is growing. In addition there's considerable reason to believe that TV advertising is now less effective than mobile advertising.

As a real-world case-in-point that is representative of larger trends, my 13 year old never watches TV shows (on Hulu Plus) without a smartphone so that she can check Instagram and text friends at the same time (during commercials).

According to a new Nielsen "State of the Media" report, "The average American consumes nearly 39 hours of content each week on the TV set, on the computer and on mobile." The bulk of that time is with TV but roughly 40% of smartphone and tablet owners are watching TV at least once a day while using other devices (i.e., smartphones, tablets) simultaneously.

Nielsen found that simultaneous tablet and TV use skews older while simultaneous smartphone and TV use skews younger. This "second screen" usage may contribute to the diminishing effectiveness of TV advertising, which has been declining since that advent of the DVR.

Screen Shot 2012-11-19 at 8.21.15 PM

It turns out that mobile video advertising is more effective than TV. A Q2 study from Nielsen and AdColony "measured the brand and ad effectiveness of the exact same 15-second [CPG] video spot in live campaigns across TV, online and mobile." What the research found was that the same ad delivered better results in a mobile context than online or on TV. 

Relatively speaking mobile video ads are dirt cheap by comparison to TV. Below are the study results comparing performance of the same video unit in the three different contexts: 

Mobile video ads:

  • 79% General Recall
  • 58% Brand Recall
  • 45% Message Recall

TV ads: 

  • 49% General Recall
  • 10% Brand Recall
  • 6% Message Recall

Online video ads: 

  • 29% General Recall
  • 12% Brand Recall
  • 8% Message Recall

In the study, the mobile ad dramatically outperformed the other screens across these traditional brand metrics. Some of this is undoubtedly the result of novelty but it's also the way in which mobile commands user attention in ways that TV and the PC internet have lost the power to do.

Report: Restaurants and Retailers Using Mobile to Drive Customers into Stores

This month's Millennial Media "SMART" report takes a closer look at the behavior and goals of mobile advertisers in the restaurants and retail vertical. Apparel retailers and fast food/national restaurant chains are the two largest categories of advertisers on the Millennial network in this segment.

Citing June comScore data Millennial reported that "Females spend nearly twice as much time on mobile Retail & Restaurant apps and mobile websites as men do."

Screen Shot 2012-11-13 at 6.31.11 PM

The main campaign goal of both sets of advertisers was to drive foot traffic into local stores. Accordingly retail and restaurant advertisers were more interested than average in getting people to store locators and maps on landing pages, as well as exposing promotions (coupons). The were also interested in generating mobile commerce. However unless there's a stored credit card on file there will probably be no m-commerce.  

These restaurant and retail advertisers were much less interested than average in driving application downloads. This apparent lack of interest in getting apps onto the smartphones of their customers and prospects reflects a misunderstanding of the role apps can play in stimulating sales and improving retention and customer service.

Screen Shot 2012-11-13 at 6.30.44 PM

Finally Millennial reported that restaurants and retail was the number three category in terms of ad spending on its network -- more than automotive, travel or CPG: 

  Screen Shot 2012-11-13 at 6.30.10 PM

Opera: North America Sees 70% of Global Ad Requests

A few years ago Opera bought mobile ad mediator AdMarvel. Today the company released its Q3 State of the Mobile Web report, which focuses on advertising. It features some great data about platforms, revenue categories and CPM rates. All the data are drawn from Opera's global network of publishers and advertisers representing 40 billion ad impressions per month.

One of the major findings is that 70% of mobile ad impressions are happening in North America (mostly the US). Asia is next and then Europe. 

 Distribution of ad impressions globally

Opera also reported eCPM rates by region. The global average eCPM was $1.31, with the US average slightly higher at $1.37 and Europe lower at $1.13:

  • US eCPM -- $1.37
  • EU5 eCPM -- $1.13
  • Rest of World -- $0.73

Opera reported on ad revenue by smart device. The company said that iOS devices generated more revenue and higher eCPM rates than competing devices: 

Once again, this quarter, iOS leads the pack in monetization performance with an average eCPM of $1.64. This outperforms the global average eCPM of $1.31 by over 25%.

Screen Shot 2012-10-25 at 3.46.52 PM

The iPhone and iPad in particular saw higher eCPM rates than other devices. Interestingly, despite the much larger number of Android phones, the iPhone generates roughly 2X Android revenue for Opera. 

The company also pointed out that while RIM/BlackBerry is losing share in global markets its position remains strong in the UK. 

Opera said that the category "Business, Finance & Investing" generates more ad revenue than any other in its network. It also said that 73% of Opera's mobile ad revenue is coming from apps (vs. mobile Web).

You can review the full report here

Yahoo Probably Compelled to Buy a Mobile Ad Network

Yahoo used to be one of the leading mobile ad networks. And it used to be ahead of Google in terms of innovation and mobile ad revenue. But that now feels like a lifetime ago.

While the company still has decent reach and, presumably, mobile revenue it has fallen way behind market leader Google as well as some of the independent mobile ad networks such as Millennial Media and JumpTap. Millennial Media is now a public company with a market cap of $1.15 billion and JumpTap has secured roughly $120 million in multiple investment rounds. The latter is rumored to be contemplating either a sale or an IPO.

Both companies, among a few others, are now Yahoo acquisition candidates.

Yahoo just announced Q3 2012 revenues, which showed about 2% growth. Display revenue was the largest contributor to revenues but basically flat YoY. Search grew 11% (on a non-GAAP basis). Google "owns" mobile search so display represents the greatest area of opportunity for Yahoo in mobile.

Indeed, mobile is one of the cornerstones of new Yahoo CEO Marissa Mayer's strategy. However, the company's mobile capabilities need to be substantially beefed up. On today's earning call Mayer said the following: "At some point in the future, Yahoo will have to become a predominantly mobile company. By that I mean that at least half of our employees will be working on mobile." She added that Yahoo will be doing a great deal of hiring in mobile.

Beyond its own mobile properties and sites, Yahoo needs to be able to deliver ads to third party apps and the mobile web if it's going to see truly meaningful mobile ad revenue. This leads almost inexorably to an acquisition, which could take the form of one of the leading independent mobile networks or a mobile ad exchange, which would mirror its acquisition of the Right Media online ad exchange several years ago. 

Mayer has been busy assembling her leadership team (many former Google executives) and the thought is that she'll announce some sort of major acquisition in the near term. I had previously thought it would be a consumer facing site such as Foursquare. However I think a mobile ad network now is also a good possibility.

If she wants to hit mobile and local at the same time, she could acquire xAd.  

Revisiting My 2012 Mobile Predictions

For several reasons I had occasion to look back at some of the mobile predictions I made in January. At the risk of sounding self-important or boastful many of them have come to pass. In fact I was somewhat surprised by the number, which is why I'm posting about it now.

For review, here are the original predictions from January:

  1. 2012 ends with 65% smartphone penetration in the US
  2. Android reaches 60%+ smartphone penetration by the end of 2012
  3. Voice search: Siri expands its reach to many more third party services; Google and Microsoft beef up their competitive voice offerings
  4. Apple launches its own mapping service for iOS
  5. RIM’s co-CEOs resign in 1H 2012
  6. Windows Phones see modest but not huge success in North America, greater success in Europe/Asia
  7. Major smartphone security (hacking/virus) event happens this year (most likely on Android handsets)
  8. Mobile payments see continued growth but 2012 isn’t the “breakthrough” year
  9. Tablets galore: 100 million tablets in market by the end of 2012 (globally). The iPad represents 65% of the market
  10. Google announces mobile ads “run rate” of $4 billion (in Q4)
  11. Facebook launches mobile advertising in 1H 2012
  12. Amazon buys a mobile ad network (Millennial or Jumptap)

Here are my comments and updates on each item:

  1. The smartphone penetration number (per Nielsen) right now is 55%; we'll probably end the year close to 60%
  2. Android smartphone market share in the US is 53% now (per comScore), probably going to 55% - 57% by the end of Q4 2012
  3. Siri has been beefed up and its structured data sources expanded. Google has answered to some degree with "Google Now" and related voice assistant; however Microsoft hasn't done anything significant in this arena beyond its core voice search. 
  4. Apple Maps launched of course
  5. RIM’s co-CEOs both resigned in the first half
  6. Windows Phones have continued to lose share in the US market (per comScore) but have seen some modest success in other markets
  7. Android malware has dramatically increased but there has been no single cataclysmic event 
  8. Mobile payments and wallets continue to make incremental gains (see Apple Passbook) but 2012 isn't the "breakthrough year" 
  9. The iPad's market share is about 68% on a global basis today. Roughly 84 million iPads have been sold to date and many millions of other non-iOS tablets. I suspect the 100 million threshold will be crossed by the end of Q4 if it hasn't been already
  10. Google announced a mobile run rate of $8 billion, with probably 70% to 75% of it being ad revenue. 
  11. Facebook did launch mobile advertising 
  12. Amazon has not (yet) bought a mobile ad network

Not bad . . .

Google: $8 Billion Mobile Run Rate, 75% Probably Ads

Under some pressure to show that it's monetizing mobile, yesterday on its earnings call, Google announced a new "mobile run rate" of $8 billion. That compares with a run rate of $2.5 billion a year ago. The numbers aren't a direct comparison; Google threw everything into the $8 billion figure (ads, Google Play, app sales).  

Here's what CEO Larry Page said in announcing the new run-rate number yesterday: 

This time last year, I announced that our run rate from mobile advertising hit $2.5 billion . . . But now, we’ve built up additional mobile revenue from users paying for content and apps in Google Play . . . I can announce our new run rate for mobile is now over $8 billion. That’s quite a business.

CFO Patrick Pichette added a small amount of additional clarity: 

The new [mobile] run rate is different from the one we gave you a year ago. And more specifically, last year, it included only our gross revenue from mobile ads, but this year, in this number we also added the gross revenue from the mobile sales of Google Play content. And finally, it also includes the consumer spending on the Play apps . . .

[O]f the three categories I gave you, ads continues to be the bulk of it, the vast majority of it. And then on the case of the Google Play, it’s important to note from a modeling perspective that everything’s that’s content, that is whether a book, a movie content is actually booked on our books on a gross basis . . . Everything that is tied to apps is booked on a net basis, but it’s still a huge kind of number in all cases.

Pichette said the "vast majority" of the $8 billion in revenue was comprised of mobile ads. Trying to estimate what percentage of this figure is ads with greater precision than "vast majority" is a bit tricky. 

Google is counting content sales on a gross basis and app sales on a net basis (30% of the total). Despite Android's larger footprint than iOS, Google Play makes less money than the iTunes App Store. 

 

Revenue Comparison   iOS vs Amzn vs Android updated resized 600

In March, Flurry said that revenues in the Google Play market were 23% of the App Store. However this was limited to app sales and not content (if I'm reading it correctly). Google includes content sales (movie rentals/sales, book sales) on a gross basis.

Apple makes roughly $4 billion annually on App Store sales according to financial analyst estimates. Twenty three percent of that would be $920 million. If we assume that Google Play app sales have increased since Q1 Google night now be seeing a $1 to $1.5 billion app sales run rate on a global basis. 

It's harder to estimate gross content sales; I haven't seen any estimates of Google content sales at all. Google's content sales are nothing like Amazon's. However, let's be extremely generous and say that it's $2 billion (gross) on an annualized basis.

Using these extremely loose estimates, $5 to $6 billion of the $8 billion run rate would be attributable to ad sales and $3 to $3.5 billion to content and app sales. Pichette's language "vast majority" to me implies something around 70% to 75% (or more) of the $8 billion is ad revenue. That would be right between $5 and $6 billion. 

Is Mobile Driving Down the Price of Google CPCs?

Google inadvertently released its Q3 revenues early today. The company reported that consolidated revenues (including Motorola) were $14.1 billion, a 45% increase vs. last year. Google said that Motorola brought in $2.58 billion. However there was an operating loss of $527 million. Indeed it was argulaby the weak link in the Q3 earnings report.

Minus Motorola, Google's revenues were $11.5 billion with 67% of that coming from Google sites vs. its third party network and other revenue sources. Paid search clicks grew roughly 33% vs 2011. However cost per clicks (CPCs) were down about 15% vs. last year. 

While Google has yet to directly address this, the reason for the lower CPCs is likely the growth of mobile search and the shift of some categories of queries to mobile devices from the PC.

Mobile search volumes have grown significantly; however marketers value mobile clicks less than PC search clicks. The main reason is the challenge of proving ROI. Consistently we see that mobile click-through rates (CTR) are higher than on the PC. But "conversions" are much lower. 

Part of the reason may be the infamous "fat finger" problem. But the larger issue is how marketers are defining and tracking conversions. The e-commerce-centric way of thinking about conversions just doesn't work for mobile. Most users don't transact on their smartphones. They go into stores -- where 95% of retail spending happens -- or they follow up on PCs and tablets later to buy. 

Because marketers can't generally track in-store transactions or later PC/tablet conversions they assign a low ROI to smartphone based queries. This in turn causes them to bid less on those keywords.

In the local segment, there's a shift going on from PC map-based queries to smartphones. A Google representative recently said that up to 50% of mobile search queries carry a local intent. And comScore recently documented that trend and argued that map-based search on the PC had peaked and was now in decline: 

In the past six months alone, according to comScore Mobile Metrix, the number of smartphone visitors to Maps websites and apps has jumped 24% to 92 million unique visitors – a monthly penetration of 83% among smartphone users . . .Searches with a Mapping/Navigation intent on the Big 5 Engines are down 34% over the past 15 months, going from 74.8 million to 49.5 million in August. comScore Search Planner shows that search clicks to Map/Navigation sites show an even steeper decline, down 41% to just 55.2 million in August.

We're likely to continue to see a flattening of local search volumes on the PC and a continuing shift to mobile devices (mobile web and apps). Nobody really knows how much local search query volume is flowing through mobile apps. However a January 2012 survey found that half of smartphone owners conducted local search in apps, with Google Maps being the leading app.

Once marketers more fully embrace mobile and get more sophisticated about ROI we should see the price of mobile advertising and mobile CPCs increase. Google of course will be one of the chief beneficiaries of such a development.  

TeleNav Buys Local Ad Platform ThinkNear for $22.5M

TeleNav has been generally in the business of personal navigation devices and smartphone apps. Over the past couple of years the company has also gotten into mobile advertising, taking ads from the YP and xAd networks, in addition to increasingly selling its own ads to brands and franchises. The ads are all location based or geotargeted.

TeleNav decided it wanted to get into local-mobile advertising in earnest and has announced the acquisition of ad network ThinkNear. The price was $22.5 million in cash and stock. The ThinkNear team now joins TeleNav.

ThinkNear offers precise geotargeting and what it calls "situational targeting," which is a mix of context and audience targeting:

ThinkNear helps advertisers reach consumers within 100 meters of any location, which is more precise than the zip code and designated market area (DMA) targeting typically offered by most ad networks. The ThinkNear network reaches tens of millions of customers across more than seven billion impressions per month. The precision and scale of ThinkNear allows advertisers to take advantage of the most distinctive aspects of mobile phones, which more than 85 percent of American adults now own.

ThinkNear's targeting technology also enables Situational Targeting, which takes into account where consumers are, what they are doing, and what is happening around them. For example, a sports memorabilia store can target an NFL fan with an advertisement for a nearby sale on branded jackets, blankets and umbrellas while the fan is tailgating on a cold and rainy day. Hyper-local Situational Targeting provides consumers with ads that are more relevant to their real-time needs and interests as they go about their day.

The company also announced that ThinkNear would become Scout Advertising, which includes search and display inventory. (Scout is TeleNav's smartphone app/consumer navigation brand.) ThinkNear sources some of its inventory from the various mobile "exchanges."

Scout Advertising is essentially a more complete and extensive version of the "hyper-local" ad network Navteq (Nokia) was trying to build. However Navteq appears to no longer be in the business of advertising.

In addition to the usual metrics, Scout Advertising can also tell a marketer whether the consumer actually arrived at his/her destination. Thus business models can be click, impression and arrival-based. TeleNav also says that its CTRs are "well above online and mobile industry averages, and over 40% of customers who click on an ad will ultimately take action to drive to an advertiser's location." 

While most ad networks offer geotargeting, with varying degrees of accuracy (but generally not lat-long), TeleNav/ThinkNear join a short list of ad networks that can deliver much more granular location targeting. Indeed, its current (or perhaps former) partners, YP and xAd, are now its most direct local-mobile competitors.

Mobile Ad Revenues $1.2B for the First Half, Heading toward $2.5B for the Year

The IAB released its half yearly digital ad revenue report for the US market earlier today. Total "online" revenues were approximately $17 billion, compared with $14.9 billion a year ago. Search was the single largest revenue category and has been for some time. It accounted for 48% of total digital ad revenue in 1H 2012 or $8.1 billion (vs. $6.8 billion in 2011).

Mobile revenue for the first half was $1.2 billion or 7% of total digital ad revenue. That compares to $636 million for the same period in 2011. Ironically the MMA is recommending that brands and marketers devote 7% of their ad budgets to mobile. 

As might be expected, the IAB said that mobile was the fastest growing of the various digital ad categories it was tracking.  Screen Shot 2012-10-11 at 4.32.50 PM

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If we extrapolate from the numbers in the report we can project that full-year US mobile ad revenues will come in between $2.4 and $2.6 billion depending on how good Q4 is this year. 

Will US Mobile Advertising Really Be $20B by 2015? Really?

This week at the Smarter Mobile Marketing event in New York -- I didn't attend because I was at a competing search marketing event -- Millennial Media CEO Paul Palmieri made the case that mobile ad revenues would inevitably grow to keep pace with consumer time spent on mobile devices. Accordingly he projected, based on a Gartner formula, that by 2015 US mobile ad revenues would be approximately $13.5 billion. 

Palmieri also pointed out that traditional media grab a much larger percentage of ad spend vs. consumer time spent. However, the underlying assumption is that there's a seemingly inexorable or inevitable logic to the notion that ad spend will catch up with time spent. 

In discussing reports that many mobile ad clicks are unintended, Dow Jones newswires cited a very casual projection earlier this year from Mary Meeker -- based on a similar time spent vs. ad spend formula -- that mobile advertising in the US was a $20 billion opportunity. While I don't think Meeker herself assigned a particular time frame for getting to $20 billion Dow Jones stated that would happen by 2015.

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Meeker's slide does point out that time spent and ad spend are now almost at parity when it comes to the Internet. However that has taken essentially a decade to come to pass. And even though the mobile market is developing much more quickly than the Internet did, the notion that US mobile advetising (not all spending on mobile marketing) will be $20 billion or even $13.5 billion in three years is just too aggressive.   

It's much more likely that US mobile advertising will still be below $10 billion in 2015.

Although consumers have embraced mobile in a big way, there are more than 120 million smartphone users in the US today, marketers are moving much more cautiously and seem to be slow to fully understand the implications of what's happening. There are also "mechanical" and organizational barriers to mobile marketing within agencies and corporations. These behind the scenes "politics" and culture issues are often a bigger obstacle than anything in the broader marketplace (such as fragmentation or the general absence of mobile cookies). 

Recently the MMA issued a mobile ROI report that argues 7% of media budgets should be dedicated to mobile -- despite the fact that at least 10% of consumer media time, if not much more, is being spent with mobile. However at the Smarter Mobile Marketing event in New York agencies reportedly said that the 7% figure was too high and suggested that 2% to 3% of budgets was more appropriate. 

Reports like the one from Dow Jones mentioned above and others that suggest mobile ad clicks are the product of consumer mistakes or click fraud merely reinforce complacency among marketers who don't want to have to worry about yet another digital platform. They've already got social media, search and display to deal with, without compounding their problems by bringing additional form factors and behaviors into the mix. And while many marketers have done something in mobile often that effort is weak or perfunctory.

The challenges around mobile tracking and attribution, the challenges of the new multi-platform environment and the cultural-organizational issues I alluded to together suggest to me that mobile ad spending and revenue will grow more slowly than the simple time spent vs. ad spend formula argues. The fact that traditional media have maintained a much larger percentage of ad spend vs. consumer time spent is another indication this will take longer than expected. Marketers understand traditional media more than they understand the much more complex digital landscape. 

Though consumers will increasingly use smartphones and tablets as primary Internet devices, and while startups and innovation will continue to accelerate the mobile segment, brands and agencies won't necessarily keep pace with consumer behavior and technology development. My guess is that it will probably take at least 5 years to as many as 7 or 8 years to get to the kinds of numbers that Millennial's Palmieri and Mary Meeker are projecting. 

Geofencing Gets New Push With Urban Airship 'Location Messaging'

In-app messaging provider Urban Airship has just introduced a very interesting new product: Location Messaging. This is the fruit of the company's acquisition of SimpleGeo last year.

Geofencing (Placecast) and ad geotargeting (xAd, YP) have existed for some time. However Urban Airship's new product offers very precise location targeted messaging -- with the ability to mix in other audience segmentation data as well:  

  • Preferences: tags based on user-stated characteristics
  • In-app behavior: tags you’ve defined based on explicit and implicit actions users have taken
  • Location history: where they are now and where they’ve been

As a result publishers/developers are able target specific types of users by location. There's a wide array of possibilities in terms of the way this can be deployed, for loyalty or yield management purposes or to stimulate new sales. There are two qualifications: users must have the publisher's app installed and s/he must have opted in to receive push notifications.

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Urban Airship has created 2.5 million "pre-defined geofences" for publishers. However they can also define (or exclude) their own custom geofences. These can be as wide as a metro area (or larger I suppose) or as precise as a park or city block. 

There's lots of hand-wringing going on about publishers being unable to sufficiently monetize mobile. However, mobile push notifications offer a terrific opportunity for brands and offline businesses to drive increased sales -- if used judiciously. Accordingly the company shared some performance data with me. It was impressive. 

Urban Airship said it beta-tested Location Messaging this summer during the Olympics. The company reported on its blog that "The Official London 2012 app . . . utilized Urban Airship Location Messaging to send more than 10 million location-based push messages to people in . . . Olympic venues." In addition, "Nearly 60% of app users had location-sharing enabled and location-based pushes achieved clickthrough rates of around 60 percent."

Urban Airship CMO Brent Heiggelke pointed out that despite the potential effectiveness of Location Messaging brands and marketers must be extremely careful about the content of messages they send and their frequency or risk having their notifications shut off or apps uninstalled by end users.