Can Anyone Make Money from Mobile Advertising?
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As discussed previously, the future of many technology and social media firms such as Facebook (NASDAQ: FB) lie in mobile. The same may be said of the advertising industry. One of the world's biggest media buying agencies, Carat, forecasts that the overall global advertising market will grow by 5.8 percent next year after a 6 percent rise this year. However, Carat says that most of the industry's growth lies in digital advertising (including mobile advertising) with a forecast rise in spending this year of 16.5 percent and 13.5 percent next year.
Carat may be a bit too optimistic about ad spending when compared to a forecast by GroupM, part of WPP PLC, that was revised down to 5.1 percent growth in global ad spending in 2012. However, GroupM does agree that the future for the industry lies in digital ad spending. It raised its projection for global digital ad spending to $99 billion this year, up 18 percent.
Keep in mind that the fastest growing segment of global digital ad spending is mobile advertising, which is forecast to soar 64 percent in 2012, but to only $6.4 billion. So the move to mobile advertising may be under way, but it is a slow slog.
Many advertisers are reluctant to switch to mobile advertising because of the uncertainty surrounding whether advertisers are getting the bang for the buck they expect. Just look at the whole controversy surrounding the pulling of its ads by General Motors (NYSE: GM) off Facebook because of the lack of performance metrics. But many in the ad industry expect that GM ads will return to Facebook in the near future. Especially after General Motor's marketing chief who pulled the ads, Joel Ewanick, was ousted in late July.
Advertisers reluctance is understandable, but they need to keep the big picture in mind. Mobile is growing rapidly and has risen now to 10 percent of all global internet traffic. In India, mobile traffic has already overtaken desktop PC traffic. Yet mobile advertising spending currently is only a fifth of the level seen on PCs, only 0.9 percent of all media spending in the U.S., and less than half the amount spent on purchasing mobile apps by consumers.
Mobile advertising is already important to some industries such as the online music industry. Pandora Media (NYSE: P) told the Financial Times that it is one of the top five beneficiaries of mobile advertising. But even it has to admit that right now while mobile accounts for 70 percent of its users, it only accounts for about a third of its advertising revenues.
That's the story here...the mobile advertising industry is still in its infancy. Rates for mobile ads are so low (because no one is really sure they work) that it is affecting not only the traditional advertising agencies but also firms like search leader Google (NASDAQ: GOOG). The average amount the company makes each time someone clicks on an ad has fallen in each of the last three quarters. In the latest quarterly results announced last month, Google revealed the decline accelerated to a 16 percent rate.
Ad firms need to develop the proper format which will reach mobile users and make them click on the ads. Perhaps Facebook's new mobile ad experiment – pay-per-download – will be one solution. Although analytics and ad performance data has to be the key to the growth of mobile advertising. Mobile has the major drawback that cookies cannot be placed on mobile devices as they are on PCs.
The bottom line here is that the industry will be big...eventually, just not yet. Perhaps in a year or two, all types of advertisers will jump on the bandwagon once the medium matures similarly as with what happened with the internet. For now, perhaps the best way for investors to play the move to the mobile internet is not through the advertisers but through e-commerce companies. For example, Ebay (NASDAQ: EBAY) last month told Wall Street analysts that the company is expecting $10 billion in purchases on its site to take place from users' mobile devices. That is double the level of last year.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend eBay, Facebook, General Motors Company, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.