It is fair to say that there were a few raised eyebrows amongst analysts, advertisers and the world's media back in July: Facebook announced its Q2 results for 2013, stating that a mere 18 months after launching its mobile advertising product, it had seen over 40 percent of its advertising revenue attributable to mobile. No doubt that same group of people, myself included, are eagerly awaiting Facebook's third quarter results, due to be released soon, and wondering to what extent that percentage has trained on. Will the company have begun generating more revenue from mobile advertising than desktop? It certainly seems to be moving in that direction.
In order to get a clearer idea of where the mobile advertising market currently stands, it's probably best to backtrack somewhat. Juniper's recent report--Mobile Advertising: In-App, Mobile Internet & Messaging Strategies 2013-2018--found that at present the annual spend on mobile advertising is over $13 billion: however this is expected to increase three-fold in the next five years, reaching almost $40 billion by 2018. This growth is allied to--and partially driven by--a number of factors, most notably the introduction of more innovative ad formats, as the industry finally moves away from ineffective banner adverts, and new payment mechanisms.
Mobile banner ads are incredibly prevalent in mobile apps--but why? They're easy to implement, take up a small amount of space on the screen and are a proven method of advertising online. However they are, in their current form, implemented in a fashion which is, say we, often highly wasteful and ineffectual. They are often irrelevant to the person viewing them, and are frequently perceived as a penance by the end user--I want my content for free, therefore I must be obliged to wait between levels of my game until an advertisement for a product which I have no desire to purchase and is in any case ideally suited to a demographic to which I do not belong. And which lives in another country.
This perception is reinforced by that fact that numerous apps allow you to pay around $1 for the privilege of removing advertising from the app! Is this really the kind of consumer perception of mobile advertising the industry should be promoting? Research has found that consumers are more likely to survive a plane crash than click on a banner ad!
Facebook's success owes much to the fact that they have advantageously employed native advertising--this is paid-for advertising which blends seamlessly into an app or mobile website, such as Facebook's News Feed adverts. This type of advertising is much more effective because it fits in with the workflow of an app or mobile site. And it is not only utilised by Facebook--Twitter's promoted Tweets take up a small amount of a phone's screen, however they are noticed by users as they scroll through their feed. Furthermore, both Instagram and Pinterest's recently announced advertising products will be native. Of course these companies all have a great advantage in that they have granular data on their users, which is incredibly appealing to advertisers.
Native advertising is not the only new format which we are seeing currently--interactive rich media advertising is growing in usage, as advertisers look to further engage users. Rich media advertisements have higher click-through rates and higher brand recall than display advertising. Facebook has certainly found this; the announcement that the company is going to add videos to their app install ads highlights this trend. DoubleDown Casino found that using video in their app install ads "resulted in increased install rates and decreased costs per install. We are looking forward to making mobile app ads even more engaging with rich media like video."
But of course the trend for new ad formats is not the only development in the mobile advertising industry. In fact, one feature which has been successful on desktop which is translating well to mobile is RTB (Real-Time Bidding). This purchasing mechanism, which allows advertisers to bid on an incoming impression and serve them an ad in a matter of milliseconds, has grown in tandem with the harnessing of 'big data', which allows advertising to be better targeted to users. While RTB works in another way on desktop, as cookies function differently on mobile, it is finding a home on mobile also. The mobile advertising value network is extending as a result of this, with DSPs (Demand Side Platforms), Ad Exchanges and SSPs (Supply Side Platforms) coming to the fore. There is a huge supply of mobile advertising inventory in apps and on the mobile web, and RTB enables publishers to more simply sell their inventory. As some of this inventory is remnant--ie low cost and difficult to sell--it doesn't make sense for a publisher to expend resource attempting to sell it. As RTB is algorithm-based, it requires minimal effort on the side of the advertiser or publisher to buy or sell inventory once a system has been integrated. This is enabling more publishers to sell their inventory, albeit at low costs, hence pushing up in-app ad spend.
The trend for data also provides operators with an opportunity--not only in the context of RTB but in other areas of mobile advertising as well. Initiatives, such as those from operator joint venture Weve, are promising, as they enable the operators to achieve the scale which they need to compete in the advertising market.
So while next week will be exciting as leading-player Facebook is announcing their results, one must remember there are plenty of other exciting trends bubbling under the mobile advertising industry's surface.
Siân Rowlands is a Research Analyst with Juniper Research. Her areas of focus include mobile content and applications.