The Shape of Mobile Advertising to Come

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mobiletv2.jpgADOTAS – Was it opposite day? On the same day Google jumped into the waters of consumer hardware with its Nexus One handset, Apple announced it was acquiring Qauttro Wireless, immersing the hardware/software company into the world of interactive advertising.

Even though they are expansions for these two big names,  these developments exemplify the consolidation we are likely to see all year in the mobile space as more advertising dollars head its way. Media companies, advertising platforms and hardware manufacturers are merging as firms fight for control of both user experience and advertisers.

“The convergence between technology (software and hardware), telecommunications and retail with media assets is incredible, and this acquisition exemplifies that trend,” said Anne Frisbie, head of North Americas for InMobi.

Now Apple and Google truly face off on the mobile plain — both companies have the hardware, the software and the ad platforms.

According to Michael Chang, CEO of Greystripe, 2010 will be when we see mobile take over as consumer’s main platform for web usage, not just via smartphones but also e-readers, tablets and gaming devices. In effect, mergers like Apple/Quattro and Google/AdMob (if approved) will accelerate the pace of adoption of brands entering the mobile ad space.

All signs suggest that 2010 will also be the year mobile advertising explodes — J.P. Morgan analyst Imran Khan estimated that during slow 2009 mobile ad revenue jumped 62% to $2.6 billion and is expecting 80% growth this year to $3.8 billion. Granted, this is only a fraction of the revenue that goes into search, but the amount spent on mobile is growing at a clip.

Since the Google/AdMob merger was announced, the players in the mobile space have been positioning themselves for the coming battle royale. The launch of Nexus One and Apple’s Quattro acquisition suggests that the games have begun.

The Quattro Advantage

Unlike the Google acquisition of AdMob, which was a consolidation of ad networks essentially iced a competitor for independent networks, Apple’s Quattro buy inserts a mighty rival into the independent space since the company had no network before.

“Apple wants a piece of the action. Big players want to get into the mobile ad space because they see the value,” said Krishna Subramanian, Mobclix co-founder. “The easiest way for Apple to play in the space without taking a major risk was to acquire someone already in the space.”

In particular, Apple is catering to app developers with the Quattro acquisition, Subramanian noted; as developers prefer free apps in building a user base, Apple is headed to source of inventory, and the direction the market is headed.

The benefits of this are multifold, especially as apps increasingly soar in popularity and the monetization potential trails close behind via app creation and in-app advertising.

“[Apple] now has a mechanism to share in the revenue potential, monetize free apps and even offer a free ad supported device,” said Paran Johar, CMO of Jumptap.

However, Frisbie noted that “[o]wning every piece from hardware to software to retail to advertising is an absolutely huge challenge…. [A]ny concept of an AOL-type walled garden won’t work.”

Also, Subramanian said that Quattro’s relationship with Apple might hurt some of its business as mobile ad companies will be expected to be able to cross platforms. Being too homogeneous with Apple could be a weakness as Google’s Android operating system wins over consumers.

Enter the Nexus

Most mobile advertising revenue comes from SMS, but the proliferation of smartphones is sure to wake up the search and display markets. In particular, Google’s Android 2.0 swelling popularity as an operating system on numerous devices and carriers is putting a dent in the iPhone’s dominance — since its launch in November, Motorola’s Droid, featuring the Android surged in popularity with potential phone buyers according to a survey by ChangeWave.

Twenty-one percent of those in the market for a smartphone wanted an Android phone, a 15-point hike from the previous survey taken in September — before Droid’s launch. However, the iPhone remains the most popular smartphone choice with the love of 28% of potential buyers.

In addition, according to Quantcast, Android-powered phones have passed BlackBerrys in taking 12% of mobile web share in North America, trailing only the iPhone (which still maintains 65% of that share).

Google’s new handset, manufactured by HTC, is called the Nexus One because there will be a Nexus Two, Three, etc. It will be available on more carriers and the Internet giant will partner with more manufacturers.

TechCrunch’s MG Siegler noted at the unveiling, “Today was not about one device, it was about Google’s first step in helping to reshape the mobile landscape in the U.S.”

Normally it’s choose your carrier then your phone — now Google has flipped that paradigm. The device is for sale through Google’s new phone store — buy one for $528 (ouch) and insert your own SIM card. Sweet carrier freedom! (But the price you pay… literally.) In addition, a CDMA version is coming to Verizon in the U.S. and Vodafone in Europe come springtime.

Android’s sprawling across carriers and devices may leave the iPhone in the dust as it is still tethered to AT&T — and users are not very fond of the carrier. As for advertising, Android will likely offer far more outlets as smartphone ownership increases. Factor in the AdMob acquisition and it appears Google has fortified itself quite the stronghold.

Further Consolidation

With the 2010 explosion in mobile advertising is a likely M&A boom in the space. After Google’s and Apple’s plays, large media companies like Yahoo! and Microsoft (which reportedly was also interested in Quattro) are in the market to build their mobile ad strategies, something they will likely achieve through acquisitions.

However, Johar noted, there are more suitors than eligible brides.

“The next wave of acquirers will be looking at those that with a strong technology platform who can differentiate, scale and sustain a long-term viable business,” he said. At the moment, those opportunities are few and far between.

Innovation is the mother of necessity. “Mid-size players will be forced to innovate with better product offerings to force advertisers to jump on board,” Subramanian said. “A regular banner ad is no longer enough; it’s clear behavioral targeting and better ad units will be critical.”

The smaller, independent players in the space have little choice but to consolidate and form larger networks, Subramanian said. The only other option is to create niche networks for specific verticals.

Frisbie noted that many marketers are shifting their mobile advertising budgets from “emerging media” to their overall marketing mix. This year appears to be the guinea pig year in which marketers plan, test, measure and learn how to assimilate mobile marketing into their general strategy.

Mobile advertising especially has great potential worldwide, where laptops are less prevalent than the U.S. and many traverse the web via their smartphones. However, despite the larger-than-life spectacle of Google and Apple wrestling, other mobile device makers shouldn’t be counted out, especially on a global scale.

“Everyone in the U.S. is focused on an Android vs. iPhone battle, but Nokia, RIM and Microsoft are main contenders on the global playground as evidenced by InMobi’s data in over 125 countries,” Frisbie said.

Following Google’s announcement it was buying AdMob, Adotas ran a poll asking readers for their take — only 6% saw the acquisition as a sign that further consolidation was coming. Now it seems merger fever has caught on, and we’ll see a great deal more of hardware makers, software companies and ad platforms banding together on the mobile front.

“The mantra these days is dual revenue streams and this is true if you make hardware or provide services,” Chang said.

2 COMMENTS

  1. As use of mobile devices increases, advertisers are bound to change the way they think about their business. Online advertising will of course be affected as you note, but it’s likely that a variety of other advertising segments will also transform and even integrate with mobile devices. The digital out-of-home and digital signage fields for example, have been seeing increased interest in interactivity over the past year. It’s likely these segments will begin increasing work with consumers’ mobile devices to further interactivity with their target audiences and hard to reach consumers. As a result, the segments may see further consumer engagement and increased growth. We recently posted a blog post on mobile and digital advertising that has some more thoughts on the topic: http://a2amedia.com/.

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