The coming explosion in mobile media Ad spending is forecast to soar to $3.1 billion by 2013

By Diego Vasquez Feb 26, 2009
The iPhone isn’t just boosting Apple’s bottom line. By ushering in the era of the smart phone, cells that are able to perform multiple tasks like surfing the web, taking and sending pictures, watching movies and listening to music, the iPhone and other devices like it may finally help deliver on the long-held promise of mobile advertising. It’s one of the few areas of media poised for big growth over the next few years, according to a report released this week by the Kelsey Group, a research and analysis firm that's part of BIA Advisory Services. The report predicts that U.S. mobile advertising revenues will balloon to $3.1 billion by 2013 from $160 million last year, with local search generating roughly one-third of the total revenue. Advertisers will be attracted by the huge jump in mobile data consumption, driven by the adoption of smart phones with those multitasking abilities. Michael Boland, senior analyst at the Kelsey Group, talks to Media Life about why local search is hot, how small businesses will help drive growth, and why mobile is rising while other sectors are falling.

What did you find most interesting or most surprising about this forecast?

I guess one top line data point is that the growth of the mobile web will be tied to increased smart phone penetration. Smart phones outpaced the rest of the mobile device market in the fourth quarter and will continue to do so.

This has correlated to more data consumption overall and the growth of the mobile web, which currently stands at about 54 million users, or about 25 percent of mobile users in the U.S. This will drive the mobile ad revenues we project, and the fastest-growing portions will be those that are tied to the capabilities of these devices.

Search, for example, will grow at a faster rate than SMS (short message service, or text messaging)-based mobile advertising, which is the current leader. Local search will grow at an even faster rate due to the ties between local search and the mobile use case. Locally targeted ads will also demand higher premiums, meaning that local search growth will outpace overall search growth in both query volume and revenue.

What's the most important thing media buyers and planners can take from it?

In quantitative terms, the growth of the mobile web holds promising opportunities to reach tens of millions of users in a targeted way over the next five years.

In more qualitative terms, mobile users are much more engaged than online users. This has been proven out with higher click-through rates for all forms of mobile advertising when compared to online equivalents.

Lastly, the location awareness and portability of the mobile device opens up lots of opportunity for local targeting, which likewise sees higher engagement due to greater relevance.

Just about every other segment of media is forecasting big ad spending declines in the coming year or two. Why is mobile different?

Mobile is still seen as experimental by lots of advertisers, so we won’t see large volume increases in mobile marketing until 2010 or 2011. But it is still gaining some advertiser interest in the face of recessionary ad budget cuts because it is measurable.

Ad spending is not just decreasing in the current economic environment, it is shifting to ad formats that are more efficient and measurable. This is why the ad formats with the largest projected growth for the next five years are search and mobile.

What makes mobile search such a hot category?

Right now, the larger opportunity is in SMS marketing because the primary inputs for the majority of mobile users are voice and text. However as smart phone penetration continues to grow and this correlates to the growth of the mobile web and mobile data consumption, search will gain share.

Among all of the ad formats in our survey, search is the fastest growing with triple digit compound annual growth rates. If you drill down to the local portion of search, it will grow at an even faster rate, both in query volume and in ad revenues.

The latter results from a higher premium being placed on advertising that is locally targeted and thus more actionable.

Why are you forecasting such strong growth for local mobile marketing and how long will that continue?

This local portion of the forecast grows at a faster rate because of the inherent qualities of the mobile form factor. The location awareness and portability of mobile devices make them a natural fit for local search.

The volume of online searches that have local intent are about 20 percent. In mobile, this local intent will be higher. Conversely, all the other things we do online like search for images or video, research for term papers, social networking, etc., will represent a smaller share of mobile search activity – due again to the form factor.

How important will small business advertising be to the growth of the mobile ad market?

Right now it’s a very small share because of the lack of tools available for small and medium sized business (SMBs) to advertise with mobile. It’s also seen as experimental by many SMBs, which doesn’t bode well in times of economic uncertainty.

But like the web six or seven years ago, the barriers will be lowered for SMBs to engage mobile marketing. This will happen through tools that are integrated with Google’s Adwords to run mobile search campaigns as an adjunct to online search campaigns. Google has already started to do this.

Another factor is that local mobile marketing is currently confined by a lack of inventory. In other words the relatively small amount of mobile search activity is spread thin when you divide it into lots of specific search terms and locations for specific locally oriented businesses (i.e. hardware store, Omaha).

There are only so many searches happening for these types of queries, which limits the available inventory against which to apply locally targeted advertising. This is worse in the U.S. compared with places like Europe, where you have a greater portion of the population living in urban areas. Here we’re more spread out, which increases this effect.

This will be alleviated over time as mobile web usage and search volume scales up. Right now, we’re not quite there though.

What factors will drive mobile web growth over the next four years?

The iPhone was the catalyst for the growth of the mobile web, and it will continue based on the availability of devices inspired by the iPhone, which have full web browsers. The market will flood with such devices that will compete on price.

Carriers will also see the hunger for mobile web use and will continue to subsidize the front-end costs of these devices in order to drive longer-term data contracts. This is already being seen with smart phone sales outpacing the rest of the market.

Beyond the hardware will be great mobile apps that will drive the utility and appeal for these devices. Apple’s opening up the market to third-party innovation will be huge and will compare to the level of open innovation that we see on the web. There is finally a system that incentivizes this innovation and gives it a hospitable environment.

This is contrasted with the carrier control that previously stifled this innovation from reaching the market and caused the subpar mobile products that kept the mobile web stuck in early-adopter phases for years. That’s all starting to change -- Apple came first and many others are following, including application marketplaces from Microsoft, Nokia, Palm and RIM.