Following last week’s post detailing our webcast, we held it yesterday with lots of discussion around the trends driving mobile innovation and investment. This comes in the midst of preparation, programming and speaker recruiting for our upcoming MLM San Francisco.
You can download the slides or watch the streaming webinar replay here. As a bonus, the webinar had a discount code for conference registration, which can be seen in the replay. You can also see summary points below (and more after the page break) for the “10 Trends” from the webcast.
And we’re close to announcing a new batch of conference speakers, which should really round out the program (a great lot so far). Stay tuned for that, and we hope to see you at the conference.
Trend 1: Mobile Ad Revenues Take Off
We see ad revenues growing a great deal, partly driven by evolving mobile usage patterns and smartphone penetration. The latter just surpassed 50 percent of all U.S. mobile subscribers according to Nielsen.
Meanwhile, our forecast indicates that U.S. mobile ad spending will go from 1.7 billion last year to about 7.7 billion in 2015, which is a CAGR of about 39 percent (and affirmed recently by the the IAB).
There are also some interesting dynamics unfolding with the economics of mobile ad rates. Mobile usage is outpacing advertiser demand, so you see greater supply of ad inventory than ad spend.
So ad rates such as CPMs and CPCs are going down. We believe that trend will continue, but will normalize at a certain point over the next couple of years as advertiser demand picks up.
Trend 2: Local Dominates Mobile
Breaking down the top-line mobile ad revenues mentioned above, the dollars going toward location targeted ads will be a major driver. They will go from just under half of mobile ad spend to almost two-thirds by 2016.
This will result foremost from usage: Google reports that 40 percent of searches on the mobile device have local intent, and that compares with only 20 percent on the desktop.
The second reason is Madison Avenue’s evolution to come around to that reality and start to build campaigns that are more geo-centric. We’re already seeing that happen with evidence such as Millenial Media, which reports a 50 percent increase year over year in the campaigns on its network that are geotargeted.
And the third reason is the premium ad rates we are going to start to see develop for location targeted mobile advertising. Those premiums will develop from the higher performance of location targeted mobile ads that are already making themselves apparent.
Trend 3: Action! Mobile Ads Come Into Their Own
That leads directly into the third trend, which is mobile ad evolution. We see data from xAd and others that mobile local ad performance (both search and display) outshines non-location targeted advertising.
Search CTRs for example are about 8 percent on average. But more important than the click is what is happening after the click. This is what we like to call secondary actions, which are things like phone calls and local directions.
So after the 8 percent CTR, 37 percent of those clicks are resulting these secondary actions. This is important because these are very tangible actions that get further down the path to a clearer sense of ROI for merchants.
Going further down that road, we’ll see lots of development around transactions and payments because that really closes the loop on a discernible ROI, and conversions tracked all the way down to the cash register (see trend 6).
Trend 4: Yelp, Foursquare & Facebook: The Mobile Leaders Monetize
Much of the above leads into trend 4, which is the more defined mobile monetization among some of the leaders in the mobile local space. Companies like Foursquare, Yelp, some YPs and Facebook all have varying levels of success building usage in mobile, but they haven’t yet directly monetized it.
We believe that will change over the next 18 months, and involve a few monetization models. These include pay-per-call, management of local deals and loyalty program (similar to what Foursquare now provides for free), and the creation, hosting and management of mobile landing pages.
This is becoming more imperative for companies like Yelp which has 10 percent of its monthly users access the service from mobile. But those same users account for a disproportionately high 40 percent of searches. That says a lot about the engagement levels of those mobile users.
But more important, this means more and more Yelp users are engaging the service from an access point that isn’t monetized. That means its ARPU goes down. This is a similar challenge facing Facebook, which has been given a great deal of attention over the past few weeks.
Speaking of Facebook, its moves in mobile will be a big wild card, and an influential factor on how this all evolves, given the company’s sheer size and influence. So what it does in mobile monetization is worth watching very closely.
In other words, its ability to educate users and advertisers about different forms of mobile ads will shape their view and comfort levels. That will signal where this market is heading and what types of mobile ad units, delivery, targeting, calls to action will become industry standard.
So far for Facebook that’s involved sponsored stories in the mobile news feed. This will develop a great deal involving payments/transactions and the development of an ad network. The latter will be huge, for mobile and online publishers that want to place targeted ads on their sites.
The targeting enabled by Facebook Connect and Open Graph will be the backbone for what will be a powerful competitor to Adsense, both on desktop and mobile (the subject of an entirely different post!).
Trend 5: Native Content Will Win the Day
This trend has a lot to do with an evolving mind-set to build things “mobile first.” In other words, utilize the unique aspects of the native form factor rather than porting over desktop product models and mindsets.
The aforementioned sponsored stories is a good example, as is Apple’s iAd (though it might be a bit before its time). The latter builds advertising features that reside fully within expandable ad units.
For example, tapping into the phone’s acceleration, compass or GPS chip to launch a map right within the ad. This is important because it doesn’t send users outside the app — a gating factor to publisher adoption of mobile ads.
So we’re seeing more interactive ad units develop from not only Apple but ad networks like Greystripe. These will be important to watch and keep track of and it’s happening both in-app and also in the mobile browser, using HTML 5.
The native development concept also takes form in utilizing what I like to call the eyes and ears of the device. Audible input (i.e., voice search) and visual search (i.e., augmented reality, barcode scanning, etc.) are good examples of this.
Trend 6: Mobile Shopping & Payments Close the Loop
Barcodes are a good segue to the next trend, which is mobile shopping and transactions. The “showrooming” phenomenon is forcing lots of retailers (and the vendors that emerge to serve them) into being innovative with mobile apps that help them maintain ownership of their customers.
EBay is an example of a company doing this right, bringing together lots of acquired companies and feature sets to be present throughout the stages of the purchase funnel (or as Walt Doyle calls it, the “Purchase Pretzel”). That’s then tied together with a transaction through PayPal.
Where this is all heading is providing a software layer for businesses to better track purchase behavior as a foundation for loyalty programs. A big part of this is analytics that allow merchants to iterate on what’s working and what’s not working, in terms of transparency of what’s making the cash register ring.
This is pretty powerful and is the very reason Google is pushing so hard on Google Wallet; it similarly wants to provide analytics of what advertising presence on Google resulted in conversions. This is the holy grail of advertising.
As such we’re seeing lots of companies chase this market and lots of competing standards such as card linked offers; NFC; barcode-driven solutions like LevelUp and Starbuck’s Card Mobile; and SMB-geared solutions like Square.
Trend 7: Mobile & Social Collide
Social media is now the category with the greatest time share of mobile usage. It just surpassed gaming, which says a lot. The biggest reason is that social media has found a natural home in mobile.
One way this has played out is through sharing media that’s natural to the mobile use case and form factor. This includes songs (Soundtracking), Pictures (Instagram), Location (Highlight), and status (Twitter and Facebook).
These are the foundation for lots of monetizable moments when users are raising their hand to indicate where they are and what they’re doing, things they are liking.
And this will continue to develop through more ambient location services. Look out especially for Facebook’s monetization (as previewed above) in combination with the assets acquired from location tracking app Glancee.
Trend 8: The Mobile Web Enters Adolescence
As mentioned earlier, the mobile Web is woefully under-optimized, which is out of whack with user behavior and growing levels of mobile search. Duda Mobile reports that less than 2 percent of overall websites are optimized for mobile screens.
Some examples of bad behavior are when mobile banner ads lead to a sub-optimized corporate home page instead of a deep link that pertains to the ad content. Or when the layout isn’t optimized and contains tiny links that you can hardly see, much less click on. Or when there are flash components that don’t play on iOS.
Basically it’s a mess out there, so the opportunity lies in providing services to optimize and host mobile Web pages for small businesses (and some large businesses for that matter). This involves design and calls to action that apply advertisers’ goals for the actions they want to drive (calls, commerce, foot traffic, etc.).
In other words, these are not only the design principles that will keep users engaged, but the very positioning of calls to action that are the basis for monetizable events for merchants.
Trend 9: Investment in Mobile Ratchets up
We’re seeing an uptick in the investment in mobile companies as sector is moving into adolescence with discernible business models and (some) real revenue.
So far, we’ve seen high multiples in not only funding rounds but exits such as Instagram. There’s much to discuss here with regard to not only early stage funding but also strategic investments made by traditional media companies to help them better navigate a transformative time in media consumption.
We’re also seeing a lot of talent acquisitions or aquihires, in this environment where there is a serious shortage of top-notch programming and developer talent. These investment criteria are often leading indicators of the marketplace innovation we can expect to see in the coming months.
Trend 10: What’s Next in Mobile Local Media?
Speaking of which, a view to the future is always good to maintain. All of the above trends have been under way for the past few years and the most successful mobile strategies have moved quickly to get out in front rather than play catch-up.
That probably sounds obvious, but it’s still not happening. The mobile marketplace is so nascent and fast moving that large companies with debilitating layers of compliance will get left behind. The Facebook motto of “move fast and break things” will be a winning formula.
That goes for both experimenting with product design, user proclivity and advertiser demand, as well as gaining an early mover advantage in terms of product positioning. You want to always be thinking about next year in addition to what’s going to happen tomorrow.
Google’s Project Glass is a good example — it’s a few years out but useful to examine. Mobile won’t always mean the 4-inch screen in our hands but will evolve into a wearable and biometric technology of various forms. That’s what Steve Jobs really meant by “Post PC era,” and it will develop rapidly.
Again, you can check out the webinar replay for more color on all of the above and to get a sneak peek at our MLM San Francisco conference. I can be reached for any questions at mbolandATbiakelsey.com.