Mobile Advertising’s Dawn of The “Big Boys”

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Is it déjà vu all over again?

The mobile advertising industry is consolidating in much the same way that desktop did. We are on the fast track to a few dominant mobile players, coupled with a second layer of hyper-niche businesses that usually piggyback off the “big boys’” services, just like in desktop advertising.

Mobile’s morphing landscape represents archetypal capitalism, but it is also categorized by factors that are unique to the space. Let’s examine the industry, compare and contrast it to desktop, and consider the good and bad ramifications of a monopolized mobile advertising space and a sea of niche providers.

Mobile’s Road To Consolidation

2017 will mark 10 years since the launch of the first iPhone, and with it, a massive rush of entrepreneurs who saw potential in the medium. Desktop advertising was met with enthusiasm from startups, too, but the onset was even faster with mobile. It exploded into our lives, and so did the surge of new companies ready to capitalize on its opportunity.

The app economy fuels a lot of this growth. A developer can take an app from creation to monetization very quickly. This poses a lot of problems that need solving—by providers like ad networks, ad servers, data companies, CRM companies, attribution specialists and more.

As the mobile market matured, we saw consolidation quite quickly, with some familiar giants (Google!) gobbling up market share, as well as the dawn of new players, typically mobile-first companies or businesses that did a commendable job adapting to mobile. Desktop advertising leaders AOL and Yahoo don’t have the same reach in mobile. It is Facebook that is king. The latest proof of its dominance is the launch of Instant Games, which allows game developers to create HTML5 games that play directly in Facebook Messenger. While this sounds like a great opportunity for developers, it is Facebook that truly stands to gain, as these gamers will invest in Facebook advertising, resulting in a walled garden reminiscent of Facebook’s desktop gaming strategy. This is dangerous. Developers will rely entirely on one company—a company that also happens to control the prices.

The Rise in Niche Providers

Just like in desktop, the emergence of market leaders and advertisers’ unique needs gave birth to a generation of niche players catering to specific purposes. Typically, an advertiser works with a digital giant (i.e., Google, Facebook), as well as a smaller vendor that caters to a specific vertical, region or ad format. These niche players often layer their offerings on top of existing technology in an effort to bring clients an edge.

So is all of this a good thing? For the few “big boys” it certainly is. For the rest of the industry, the answer is yes and no.

Consolidation is a natural business pattern in almost every sector. Take insurance. It started with tons of players, then gradually consolidated to a few big companies and many smaller ones that cater to niche needs and/or resell for the big agents. Often, the businesses that “disappear” aren’t the strongest players. Consolidation can be a good thing for market hygiene.
Making sense of the resulting sea of smaller players is challenging and can even affect campaign performance. Most app development companies don’t have enough staff to manage tons of vendor relationships. They will probably stick with the same few partners, which limits them from testing new technology and inventory and potentially stunts their growth. Or if they have a larger team, they may experiment with lots of different players but struggle to grasp how all of their marketing efforts intertwine. They will probably lack a holistic view and fail to understand how campaign A (say, desktop video) actually impacts campaign B (say, mobile native campaign).

The Global Role of Supply & Demand

In mobile, we are dealing with true global monopolies, which is particularly worrisome. You don’t have large regional players like you do in desktop, i.e., GMX in Germany or Walla! in Israel. With mobile, monopolies do not need to have a tie to the local market. A company could be based in Russia or China even though 90 percent of the traffic it sells is in the U.S. A consolidated industry in which the dominant players are the same across the globe threatens competition and pushes up prices. There would be a real risk of mobile media becoming a premium game if it weren’t for one crucial factor that complicates that—the mobile inventory surplus.

Unlike any other media, mobile has more inventory than demand. With desktop advertising, TV, print and radio, supply and demand tend to match. In magazine advertising, there is even more demand than supply! But mobile exploded on the scene so quickly. Demand just hasn’t caught up, and this inventory surplus provides some security from a total monopoly jacking up prices. That there is still all of this inventory on the table also keeps some of these smaller players afloat for longer, although the writing is on the wall. Soon enough, they will find it too hard to keep competing with the big boys, so perhaps they will pivot and become niche players catering to unique needs. Déjà vu all over again.

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