Back to top

Mobile Advertising: New-Age Money Minter?

Read MoreHide Full Article

According to the latest data from independent market research firm eMarketer, mobile advertising spending in 2014 is likely to continue moving north after more than a two-fold increase last year. A paradigm shift is observed in the digital marketing industry as mobile ad spending is expected to hit $31.5 billion in 2014, an increase of 75.4% over the prior year. This follows a staggering 105% increase in 2013 to $17.96 billion.

The overall number of smartphone users across the world is predicted to surpass 1.75 billion in 2014. Advertisers thus feel the need to remain visible on the always-on always-there platform to gain a top-of-the-mind brand recall.

An August eMarketer research report claimed that the adult U.S. population spent 19.4% of their time on mobile devices compared to 19.2% on computers. This has led to a mad rush among advertisers for a bigger piece the market pie. Subsequently, mobile advertising has suddenly become the money-vending machine in the advertising industry.

The Undisputed Leader

With a 49.3% market share in the mobile ad industry in 2013, Google Inc. (GOOG - Free Report) is the undisputed leader in its category. Although its market share declined from 52.6% in 2012, the company still has a sizable lead over its nearest competitor, Facebook, Inc. (FB - Free Report) . With targeted ad models like Enhanced Campaigns and Product Listing Ads that feature product information without requiring additional keywords, Google has held on to its lead position through increased click share on mobile throughout 2013.

According to a report by Marin Software Inc. , mobile devices are expected to account for almost half of Google paid search clicks by Dec 2015. This offers a lucrative option for advertisers as the average U.S. click-through rate (CTR) of smartphones and tablets were respectively reported to be 64% and 18% higher than the average desktop CTR. The conversion rate of search ads on mobile devices in the U.S. also enjoyed a significant improvement in 2013, with the respective tallies for smartphone and tablets increasing 57% and 67% year over year.

However, despite a competitive advantage, Google is facing headwinds as users gradually begin to visit specific apps from Yelp, Inc. (YELP - Free Report) or Inc. (AMZN - Free Report) to find product information rather than using its search queries. This has probably eroded its market share and eMarketer forecasts Google’s stronghold may dip further to 46.8% in 2014.

The Challenger

From a paltry 5.4% market share in 2012, Facebook has taken rapid strides to garner 17.5% market share in 2013. As consumers largely shifted toward mobile devices, the social media giant began to subtly place ads directly into users’ news feeds. Thus, they could sell more mobile-native products like ads that let users install a new app with just a few clicks.

This quickly translated to faster money and mobile ad revenues increased from 11% of the total revenue in 2012 to 45% in 2013. This played a huge role in boosting the share prices to newer highs with the current year-over-year return hovering at a healthy 157.4%.

With 1.23 billion monthly active users and 757 million logins on a daily basis at year-end 2013, Facebook offers a large platform to advertisers to reach a wider audience. The company has further inked an advertising deal with advertising major Omnicom Group Inc. (OMC - Free Report) to monetize its online photo-sharing service provider Instagram. With the deal, Omnicom will be able to showcase various promotional videos and pictures of associated brands of its clients in Instagram to increase brand awareness and attract more customers.

As diversified brands increasingly take to Instagram to attract new customers and deliver visually pleasing contents to users, mobile ad revenues are poised to swell. In 2014, eMarketer forecasts Facebook to rake in $6.8 billion in mobile advertising revenues for a 21.7% market share. Although the projected revenues are comparatively lesser than Google’s estimated $14.7 billion, the chasm between the two players is closing fast.

Others in the Fray

As Google and Facebook own the lion’s share in the market, other players in the industry like social media giant Twitter, Inc. (TWTR - Free Report) , Internet radio service provider Pandora Media, Inc. , and mobile advertising firm Millennial Media Inc. have a much smaller presence. Unless these companies come up with something extraordinary, the industry is set to remain oligopolistic with the two biggest players calling the shots.

The Pitfalls

The ubiquity of mobile devices, speedy growth of technologies and massive proliferation of consumers’ engagement have made mobile advertising an integral part of the marketing campaign. However, any intrusive or irrelevant ad within the personal mobile space is likely to become counteractive. Advertisers face the risk of losing their appeal in the clutter unless the messages are cleverly integrated within the content.

In addition, mobile advertising entails huge costs as advertisers need to modify the ad format to incorporate rich media to make it more appealing. So instead of jumping onto the mobile bandwagon to buy as many mobile ad slots as possible, advertisers need to judiciously and meticulously plan an effective mobile ad campaign for a healthy ROI.

Consequently, as advertisers realize the importance of the quality of the view over quantity, newer metrics such as Cost Per Engagement (CPE) and Cost Per View (CPV) have become the main purchasing models and Cost Per Mille (CPM) have began to fade into the oblivion.     

The Road Ahead

Matt Ackley, chief marketing officer at Marin Software, perfectly summarizes with the following comment: "We're at the cusp of mobile becoming the dominant channel in search marketing. Consumers are becoming much more comfortable using their smartphones and tablets to complete transactions online, and as we see that comfort level rise advertisers will follow suit with continued investment and optimization in mobile."