We all know mobile advertising is big today and will only get bigger (read Mary Meeker’s internet trends if you need to be convinced). As consumer time continues to shift to mobile devices, more dollars will shift to mobile advertising. While mobile ad spend lags behind today, it will eventually catch up and surpass desktop and television if you believe, like I do, that Facebook’s 59% of Q1’14 earnings from mobile are the bellwether. Best of all, this rising tide will only get higher as mobile ads evolve in their format and targeting abilities.
Because of all of the above I view the mobile advertising landscape as having three distinct phases:
Phase I (before my time to 2012)
- Traditional IAB units shrunk to fit inside a small screen, resulting in a bad user experience
- Targeting mobile ads was difficult because every app was its own silo with no cookies, re-targeting
- Incentivized advertising dominated because of volume of installs they could drive and the nascent understanding in app purchasing
Phase II (2012 to 2015)
- Native ads took off with a better user experience, but largely the same content and goals as previous ad formats
- Targeting improved to match levels of web-based ad targeting (including cookie equivalents, re-targeting, and real-time bidding).
- Facebook — and soon, others — created world class self service ad tools to attract large amounts of direct marketing / user acquisition marketing spend.
Phase III (2016 to beyond)
- A class of mobile-only advertising units such as sponsored push notifications, try before you buy app previews, and other to-be-determined formats emerge and take off.
- Mobile-only targeting data where the data mined originates from our device sources, such as current location, current apps installed, calendar, and address book data deliver massive value to marketers.
- All the big players (Facebook, Alibaba, Yandex, etc) make piles of money through direct monetization and via mature ad networks that share 90% of revenue with publishers.
So, where are we today, mid-way through 2014? I believe we are firmly into Phase II and starting to see some evidence that Phase III is ~24 months out. As an investor, I am trying to find key opportunities around products that will support large businesses once Phase III is in full swing. Like the web, large communities of users and communication applications are the early winners, but there will be more variety as mobile devices grow and our time spent on them increase. Can you think of others? If you have ideas in this area, of course, please drop me a line.
Note: Tomorrow I’m on a panel talking about Mobile Native Ads at Grow.co so decided to prep for the discussion by blogging my current thoughts on Mobile advertising. Feedback before I go on stage tomorrow at 2:15pm PST is much appreciated. 🙂
bubba.vc 
Interesting post, although I’d put Tencent instead of Alibaba as the big player from China to watch.
Absolutely share those views. Companies that could take advantage of Phase III, besides large networks of engaged users, might be data providers for those mature ad networks. For example, if a company can manage a huge amount of Estimote Beacons and sell back to ad networks the data on which users went to a specific retail store and which products they were looking for.
The challenge is making the fill (the actual content of the ad (image, banner, video, native ad, etc)) relevant, authentic, and contextual to the app/game/media its being served in. Authenticity to the experience is key, ads that are contextual to platform, audience, and brand (app) they are being served into. Facebook is out ahead on this front in their proprietary app, how do other app and game developers create a platform for ads to be served into their experience so they feel authentic, native, contextual?
Don’t disagree. I think it will be really interesting to see what folks do with FB FAN XML feeds to adapt ad creative to their app experiences. Think others than FB are doing interesting things – for example TextFree, by Pinger, does native advertising in the form of inserted messages that open interactive experiences. Seems plausible to work at scale across any app with messaging usecase.
I agree with Andrew – on mobile, relevant, authentic and contextual to the underlying experience is absolutely key. I’ve blogged a lot about this in the context of native ads on mobile games and photos – the two biggest categories of mobile engagement, which is exactly where advertisers need to be. I hope this link is helpful as you prep: http://tobiaspeggs.tumblr.com/post/65013203441/photos-is-the-next-massive-mobile-vertical-to-monetize
Full disclosure, i am CEO of Aviary – the photo editing platform. We connect brands to millions of mobile photographers, right in the middle of the *creation* process (which is distinct from monetizing *consumption*)… so we have to be completely harmonious with the underlying experience for users to accept the format, which in turn gives brands what they are paying for (i.e. engagement and the ability to tell their story).
It’s fun stuff 🙂
I agree photos seem big area for native monetization.
The evidence indicates that ad spend, overall, is a flat to declining category. When thinking about phase 3, it might be useful to think about the possibility that the real opportunity is in the destruction of ad spend, powered by mobile.
Provocative. Expand!
IMO, some quick comments:
1. Although, native ads have gotten the premium and have enabled more integrated ad units/experience, the spend is loosely mimicking where the usage is, in that native app usage is greater than mobile browser usage. This tide could turn (eg Firefox OS / Chromium ~= where the OS is the browser).
2. The problem w/ native is targeting -> although you may have time, location, you can’t really do any of the AdSense like targeting. Yes, companies like FB have a ton of data but most publishers and even ad networks don’t nor have the capacity to do any real targeting beyond simply location and maybe A/S/L (demo data).
3. Mobile today seems be comprised of brand advertising (eg movie releases) and performance based ads. Whereas desktop performance based ads is a combination of SEM/affiliate-mktg type ads (maybe 30-35%) + eCommerce (eg Amazon, Ebay etc), mobile is seeing a very different split. Mobile performance based ads has for the most part been relegated to CPI/PPD (Cost per Install). Yes, companies like Braintree/Stripe are making the payment process more seamless, but until it achieves similar to conversions to that of desktop, I don’t see large eCommerce/SEM spends moving mobile (and yes, there have been many clever work-arounds from companies like Moolah Media that are putting call centers in front of transactions to brick/mortal eCommerce sites that can complete the forms for you via the phone). Although that being said, the mobile pie split will likely look different to desktop (eg mobile will certainly achieve higher local advertising spend than desktop).
4. The ad units you are describing as future, IMO, have all been tested before. In ’03 for example, Cingular had a try before your buy model in the App Store w/ ringtones and even some J2ME games. Sponsored push notifications are not too dissimilar to the SMS spam we used to receive that has slowly stopped b/c it became cost prohibitive.
As you have said, I think there will be continued innovation with targeting and creatives (ad units) but I think the big next disruptor (from a spend perspective) is more seamless payment workflows as an enabler and/or online/offline advertising leading to transactions.
Love the knowledge bomb, Raj!
On 2, I think targeting has been improving and FB’s FAN is going to move things to next level for the ecosystem. But overall agree that targeting is not like adsense / search on mobile and much more like display advertising.
On 3, totally, once paying via mobile works a whole new level of ad spend is going to rip open.
On 4, what is old is new my friend. The circle of life. 🙂
Thanks for the insights! I’m curious to get your thoughts on how “try before you buy app previews” are going to work? Correct me if I’m wrong, but doesn’t the data show that pay up front app downloads are pretty much a thing of the past? If an app is free to download, what is the need to try it out? If it is SaaS, many of those have a free tier or x day trial. I suppose things like games could allow you to try out the next level upgrade to your character, for instance, to see if you want to purchase the upgrade, but I would love to get your thoughts on how you see this type of model working in practice. Thanks!
Not sure to be honest. Been pitched them a bunch though so think there might be something there. Advantages over installing include no install delay and less data usage (esp gaming). Suspect quality of conversions to installs would be super high too.
Makes a lot of sense for mobile games (esp free-to-play) when you think about segmenting installs based on value. A consumer who has tried the game and THEN installed is more likely to activate (i.e. open the app and play once downloaded) and persist (keep playing) compared to a consumer who installs blindly (or *gasp* does so on an incentivized basis). Thus, the advertiser can see where the “good” installs are coming from and concentrate their spend there.
I’ve been told by some smart mobile game operators that these ad units (from mNectar http://www.mnectar.com/ with whom I have no affiliation) are their best-performing based on expected lifetime value of the installs.
All “I”s are not created equal. Paying the same CPI (or eCPI) across every source is not a smart way to market. Same with CPC in search. The smart folks are optimizing based on their best estimate of (CLTV/eCPI).
And to the Aviary CEO… why did you get rid of Myna 😦
For me, the beauty of mobile advertising is that marketers can reach people ‘when’ they are most likely to want/need to consume the content you are promoting. I strongly agree with your point on mobile-specific targeting data as it can add a time + context layer that previously wasn’t possible.
We’re building a suite of data powered Social Ads tools to add this dimension, for example “activate these ads when it’s raining (Uber/Hailo etc)” or “activate these ads 1 hour before and one our after Game of Thrones airs”
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Great write up. I agree with you that we’re in the middle of phase II.
2013 was the year most mobile marketers started to measure more than just installs (e.g. event tracking, engagement analysis, and ROI optimization). The advancement of all the MMPs (i.e. MobileAppTracking, Ad-x, Kochava, etc.) was a big contributor to this.
Because of this richer data set, 2014 seems to be beyond just buying installs and increasingly moving into re-engagement.
Btw, I’ve written previously about the evolution of mobile advertising here: http://gordonbowman.com/post/72780149652/tapcommerce-the-evolution-of-mobile-advertising
Look forward to hearing your thoughts on Phase III opportunities as they come along.
Great comments in this thread. Excellent stuff.
I have heard from leading (top 10) game developers that they would be interested in and have experimented with white-labeling their apps and doing things like sponsored levels in games but the friction of dealing with brands and agencies was so high that they abandoned the approach… Anyone doing anything interesting out there to make an approach like this to monetization for developers more efficient?