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Mobile Advertising: A Rapid Growth Market

What’s Happening and Can Investors Take Advantage?

by Anton Aleksandrov

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Advertising has become an inseparable part of everyday life and a major propeller for consumption. With the development of technology, advertisers’ firepower to reach/bombard consumers has greatly expanded and there are now seven main channels to push ads through: TV, print, radio, outdoor, cinema, online and mobile. Out of these channels, mobile has the advantage of always being with the consumer, sitting in their pocket, at a hand’s reach throughout the day, and as such is fast emerging as the current focal point of both brands and marketeers. A study by Time magazine concluded that 68 percent of the people sleep with their phones right beside them. They are the last thing a person looks at before going to bed and they wake him up in the morning. According to Nokia the average person peeks at their phone at least 150 times a day. Smartphones can now substitute any other carry-on device - they are watches, music players, internet browsers and notebooks.

Mobile advertising has however notoriously struggled to live up to its seeming potential thus far. Although by far the fastest growing advertising medium, advertisers have faced challenges in effectively using mobile advertising to reach consumers in a targeted, mainstream and not overly intrusive manner. We’ll take a look at the mobile advertising market and some of the technology and companies which are at the vanguard of solving the challenges still faced.

Back in 2010 Apple co-founder Steve Jobs said "Mobile advertising really sucks." Indeed, many users feel irritated when ads are seen as invasive and impact on their usage of their phone’s functionality. But love them or loath them, mobile ads are surging and will soon take up a major share of the advertising industry. The challenge marketers are faced with is how to increase exposure to their ads without turning those receiving them against the brand and how to match them with users’ interests without violating their privacy.

The Mobile Ad Industry in Numbers

With the rise in popularity of smartphones and tablets, mobile advertising is becoming increasingly important for companies, which are now rapidly expanding their mobile ad budgets. According to PricewaterhouseCoopers’ Internal Advertising Bureau (IAB) report, half-year global spending on mobile advertising has almost doubled year to year to $1.2 billion (£750 million) from $636 million (£397 million) in the comparable 2011 period.

The Guardian reported that in the first two quarters, mobile advertising in the UK grew by 132 percent to £181.5 million. Mobile video and display advertising nearly doubled to £50 million yet mobile search saw the largest increase in spending – more than 150 percent to £132 million. Analysts believe total internet advertising in the UK will pass £5 billion in 2012 after for the half year it rose by 12.6 percent to £2.95 billion.

Mobile Ad Spending in the UK as quoted by The Guardian: 2008: £25.45m 2009: £37.6m, up 32% year on year 2010: £83m, up 116% year on year 2011: £203m, up 157% year on year 2012 – First 6 months: £181.5m, up 132% year on year.

Who Cares?

Figuring out where mobile advertising is heading is crucial for a all companies, but a few, noteably Facebook, have more than most riding on it. The social network has 550 million monthly mobile users and no coherent mobile marketing strategy to prove that it is able to capitalize on the enormous traffic. These uncertainties resulted in the worst performing IPO of more than $1.5 billion since 2007 – Facebook shares have plunged by 45 percent through 5 October. Without monetizing its growing mobile user base, the company will see slow revenue growth and shares could slide even further.

On the other hand there are companies who are doing well in the mobile ads business. Jeff Lanctot, global chief media officer at Razorfish, sees Twitter, Pandora and Foursquare as being able to weave in mobile ads in their apps without alienating their customers.

Pandora inserts audio commercials into its music stream, Foursquare lets advertisers try geofencing and Twitter puts paid ads into the tweet streams. “The advertising on all three is a very natural part of the user experience. It’s not intrusive.” said Mr Lanctot for the New York Times.

Good Strategies

Search ads account for nearly 50 percent of all US mobile ad spending and Google has a 95 percent share of all mobile-search revenue in the US. These ads contain only text and a hyperlink to the product the ad is selling.

Macy’s and Kraft Foods are experimenting with ads that are supposed to be fun for the customer, offer rewards or help them find useful information.

Blippar, an augmented reality company, uses its application to “give life” to products and ads by providing users with relevant information wherever they go. Pointing your phone at a bottle of Heinz Ketchup will trigger Blippar which will recognize the product and display interactive content including types of flavours, nearby stores from which you can buy it or nutrition facts. When flipping through a magazine the app allows the user to instantly make an online purchase and removes the need of physically going to a store or even opening a web page. Tesco, the giant UK retailer, ran a campaign which allowed consumers to use an advertising board at Gatwick and order groceries or other merchandise through their phones. It goes to show that mobile ads can be combined with other types of advertising channels to create a powerful environment which allows consumers to interact with the brand.

According to marketers so-called “takeover” ads, which fill the whole phone screen, have also found some success. Fotopedia, a San Francisco-based app company, lets the user flip through beautiful high-quality photographs of landscapes, cities or wild animals and every ten pages or so a full-screen ad appears. Those ads are on the expensive end as companies including National Geographic, Expedia and Jetters pay between $1 and $1.50 for each user who clicks on them. According to the senior vice-president of Fotopedia Christophe Daligault, some 18 percent of the people who see the ad click on it, which proves they are effective when used sparingly.

Bad Strategies

What seems to not work so well with consumers are banner ads, which are featured on many apps or mobile websites. These ads are often crude, cheap and don’t fare well with users yet they are widespread and account for $2 of every $10 spent on US mobile ads. According to marketers, banner ads will slowly die off similarly to how online advertisements such as pop-ups and “dancing cowboys” fell from grace with companies and users alike.

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