Looking at current earnings, the mobile ad market is wildly overvalued right now. Only $416 million was spent on mobile advertising in 2009. Meanwhile, Google recently paid $750 million for AdMob and Apple shelled out another $250 million for Quattro Wireless. What gives?
Well, Google and Apple made those investments based on how much they think the mobile market will be worth in the near future. But a lot of people think that mobile will never reach the potential that mobile optimists are predicting.
One of those people is Gilt Groupe's chairman Kevin Ryan. Speaking at an event in New York this week, Ryan expressed skepticism that brands — and consumers — will flock to mobile advertising. The comments are interesting because his own company, which sells luxury items at steep discounts, is part of a mobile segment that is poised for massive mobile growth — digital commerce.
Ryan was the CEO of ad platform DoubleClick until 2005. He founded Gilt Groupe in 2007, and the company has gone on to become one of the fastest growing companies on the web, selling luxury items at discounts for a limited time online.
At a conference held by financial-services firm Jefferies, Ryan had no kind words for mobile advertising. According to The Wall Street Journal, he said:
“Even today … there is almost no mobile advertising.”
That assessment holds water when you compare the mobile ad market to the rest of digital advertising pool. Mobile ads brought in only $416 million in 2009, compared with $22.4 billion in overall online advertising, according to eMarketer.
But with the advent of the iPhone and other smartphones, many brands and publishers are convinced that mobile advertising is poised to take off. Ryan disagrees: "The screen is just too small."
So far, he's right. Mobile marketers have been like a broken record for years, saying that each coming January will begin "The Year of Mobile." And yet, it never comes to fruition. Even with the runaway success of the iPhone, mobile ads have not yet proven themselves.
For instance, eMarketer predicted that the mobile ad spend would reach $760 million last year. The actual number was over $300 million short of that bar. But there are technological shifts that point to a change coming soon.
Ryan admitted that the iPad is the first mobile device he’s seen that could deliver compelling advertising to consumers. And mobile ad companies large and small are seeing a boost from the recent launch of Apple's iAd platform. Michael Chang, CEO of mobile ad platform Greystripe tells BNet:
“We saw demand go up 100% [quarter over quarter] after the iAd announcement."
Increased ad prices, of course, are not the same thing as increased interaction with those ads. But Greystripe says their ads get better click-through rates than online display ads, with conversions higher than 1%.
There's also plenty of reason to believe that as consumers start using smartphones and mobile devices to access the internet, marketing and advertising will shift with them. But Ryan says “there’s no inherent reason why advertising has to drive everything.”
And his own company is proof of another trend in mobile. Consumers are increasingly going to mobile to make purchases. Gilt Groupe itself receives about 10% of its purchases from mobile devices.
According to a study out this week from research Coda Research Consultancy, it's mobile commerce, not mobile advertising, that is set to take off this year.
Coda forecasts that mobile ad spending will increase 37% annually in the next five years to hit $2.2 billion by 2015. That's pretty bullish, but the company is more impressed by mobile commerce, expecting that sector to grow at a 65% rate each year until 2015, when it will reach $24 billion, or 7.7% of all digital commerce revenue.
Of course, once consumers are in mobile, brands will follow. They may not arrive with banner ads in hand, but there will certainly be money spent on reaching consumers in the mobile marketplace.