Special Report: Mobile, Part 2

Mobile Rev: High Prospects, Big Challenges

Mobile ad sales have been slow to take off, but some experts say the market will near $10 billion by 2016. The growing number of smartphone users has marketers looking beyond local search to new ad unit types such as RSS ads, pre-roll and interstitials. Yet, mobile needs to overcome a few persistent problems before it can compete with other screens for ad dollars. Part two of a two-part special report on local media's mobile strategies. Read part one here.
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Mobile advertising revenue projections have never been higher or more promising, so where are all the mobile sales?

Recent studies have pointed to a $4 billion mobile sales market for 2013, pushing toward $9 billion-$10 billion by 2016. Smartphone users are edging tantalizingly close to critical mass. Local search has been a powerful driver in moving the mobile ad revenue needle. And new ad unit types such as RSS ads, pre-roll and interstitials are enticing advertisers.

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So why does it seem to many publishers that mobile revenue is like the old joke about soccer in the United States — it’s the sport of the future and it always will be?

Much of that is down to mobile’s persistent hindrances including unmotivated sales reps, inconsistent ad rates, the slow realization of geofencing’s early promise and a glaring supply and demand problem. Mobile will need to overcome all of it if the smallest screen on the field is ever going to compete with the big boys.

If it does, there’s serious growth on the horizon. A just-published Gartner report predicts global mobile ad revenue will rise 16% from $9.8 billion in 2012 to $11 billion this year, more than doubling to $24 billion by 2016. According to the report, North America will see $3.8 billion of that this year and $8.9 billion by 2016.

The Gartner report tracks closely with BIA/Kelsey’s projections for the U.S. released last year that see mobile ad spends hitting $4.2 billion nationally in 2013, climbing to $9.9 billion by 2016. According to BIA/Kelsey, $2.1 billion of the 2013 mobile ad spend will be local, climbing to $5.8 billion in local by 2016, or 58% of mobile dollars.

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BIA/Kelsey’s Mike Boland, senior analyst and program director, said that local will claim the biggest section of the pie because much of mobile’s usage is locally oriented. “One proof point there is that Google has already announced that 50% of the search volume or queries that it sees on the mobile device are local or have local intent,” he said.

Largely behind mobile’s growing ad spend projections are its proximity to adoption critical mass. Sandy Martin, mobile director for Schurz Communications, is confident that mobile adoption will hit 60 % by the end of 2013 “and then we have enough people to make it interesting for local businesses to reach them,” she said.

“I believe that within the next year or two that mobile usage is going to overtake desktop usage,” added Allen Klosowski, senior director of social media and mobile for Digital First Media.

And once users are on their mobile devices, they’re going to be driven largely by search, Boland said. “Search is more conducive to the kind of lower funnel activity of the mobile use case, [which] tends to have a mediated intent,” he said. “Because of that intent, mobile search ad performance tends to be higher and tends to have higher conversion rates.”

Also in mobile’s favor is a greater variety of ad units from standard display that have seen encouraging returns. Chief among them are interstitials, which Martin said perform strongly on Schurz’s mobile platforms.

“I see a huge demand for interstitials,” echoed Chris Manaro, senior director of advertising sales for StepLeader, a mobile vendor. Jason Gould, senior VP and GM for Inergize, a CMS and mobile provider, also agreed. “I think you’ll see more opportunities for interstitials and some more obtrusive ad units,” Gould said. “The question is how obtrusive do you want to be.”

RSS ads have also been extremely popular said Wade Beavers, CEO of app developer DoApp. “The click-through rates are running 7%-8%,” he said.

Martin agreed that RSS ads, which show up in a feed between stories and have a “story-like” look to them, are also higher performing, though such ads are held to more restrictive rules. “We only run things that aren’t salesy,” she said. “It has to be an event or some sort of big offer.”

And then there’s much sought-after pre-roll. “There’s such a scarcity of pre-roll inventory on the Web that whoever gets it in mobile will start making money, particularly in television,” Martin said.

“We’re seeing video used at a much more increasing rate among our local partners,” said Bill Ganon, senior VP and GM of local markets for Verve.

Verve’s Loren Donelson, director of product management, also said that the increasing adoption of responsive design is also making for better quality ads in mobile. “As ads start presenting on different resolutions of Android phones, being displayed in portrait or landscape, maybe being shown on tablets, what we’re going to want are ads that format themselves depending on the display characteristics of the device,” he said. That will also mean streamlining the creative, not having to design separate ads for a myriad of different form factors.

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