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The battle for mobile ad revenues picked up pace last week as Google and Apple both amended their pricing models ahead of Facebook’s imminent entry into the marketplace.

Google shifted its AdMob platform to an AdWords-style auction, where the winning price is determined by the quality of the ad and the other bids on that impression.

It also removed minimum bids and targeting fees so that inventory is sold according to supply and demand.

In response, Apple slashed its cost per campaign from $400,000 to $100,000, down from a whopping $1m when iAd first launched in 2010.

Apple also improved the percentage of ad revenue it pays to developers, and removed the additional fee that marketers were forced to pay when a user clicked their ad.

So why has Google chosen to revamp AdMob now? Is it all to do with the threat posed by Facebook’s ad platform? And what does the pricing re-structure mean for advertisers?

To get an overview of the issues we spoke to Somo’s international CEO Thomas Schulz, who is the former MD of EMEA at AdMob.

Why has Google chosen this moment to change its mobile ad pricing? Is this entirely because of Facebook’s new mobile ad platform or are there other forces at play? 

Google will probably have been planning this for some time. It will have had many triggers and in many ways it is a natural evolution in a maturing market. 

Facebook’s move into mobile advertising will have been some motivation, though not exclusively, the same as with LinkedIn. 

Smartphone penetration is only around 50% in developed markets, so mobile web traffic will only increase as more and more people buy new handsets. 

It is also a logistical migration, from AdMob to a Google stack, bringing everything in line.

Will Facebook now be forced to redesign its forthcoming mobile ad platform?

Nobody is entirely sure how they are going to do it, so we can’t really know if this prompts a redesign. 

On Facebook's mobile platform it doesn’t look like there would be any real estate for top and tail banners, while full page interstitial would likely be too intrusive and not in keeping with Facebook’s ‘user-centric’ content policy. 

Market sources suggest that it will be sponsored stories, which wouldn’t necessarily be competition, as they would be using their community as brand ambassadors as opposed to pushing messages.

Facebook’s size is the frightening thing! As you know, it's predicted to make $1.2bn in the first year from just six markets. It gets 40% of UK mobile traffic. It’s disruptive stuff.

You’ve said the change to AdMob’s pricing will likely turn the industry on its head, why is this?

Before this change, it was a settled market. It wasn’t pure supply and demand, instead controlled by minimum $0.10 bids where various areas were falsely inflated, like iPad traffic. 

We’re seeing an inventory explosion which means everyone taking another look at their prices. 

As the market continues to mature, supply and demand will even out, along with improved tracking and better optimisation, all contributing to a better ROI for advertisers.

How will the changes to AdMob prices affect marketers and the price they pay for mobile ads? 

In the early stages, we have seen prices declining. In the short-term there should be improved efficiency, which will then make the platform more profitable and attractive to advertisers. 

In the longer-term, a combination of new advertisers entering the market and current advertisers spending more should mean prices rise again.

In 2011 Google reportedly took 24% of the US mobile ad market, up from 19% in 2010. By how much do you expect it to expand its market share in 2012 and just how dominant can it become in this industry?

We would expect it go up, as the influence and take-up of Android is pretty good worldwide, with more than half of market share of smartphones in the UK. 

Last year, according to Eric Schmidt, nearly 80% of Google’s biggest advertisers weren’t mobilised. 

They are making their own efforts to mature the market – encouraging brands to create mobile optimised sites and new ad formats, as well as richer formats becoming easier and cheaper in general.

Is Apple’s decision to slash iAd prices a sign that it got its pricing structure wrong and overestimated demand, or has it just been forced to re-evaluate in the face of growing competition?

When Apple launched iAd, it was a premium proposition and so they felt they were pricing it accordingly high to make it sought after real estate. And it created a lot of hype. 

At the time, and even today, the market isn’t mature enough for them to have enough $1million advertisers. 

They were probably considered too restrictive in terms of the creative control as well. 

As a publisher, although they could deliver high eCPM, they had low fill.

Apple’s closed platform is often seen as one of its strengths, but could it also fatally undermine iAd as advertisers will instead look to networks like AdMob and Millenial which have a larger cross-platform reach?

iAd might well be the default for brand advertising that requires reach and targeting, as they have access to a wealth of information from iTunes data. 

Apple’s potential for retargeting is also really excellent although they are more limited in terms of demographics. However, I think Google will still win for performance marketing.

David Moth

Published 21 February, 2012 by David Moth @ Econsultancy

David Moth is Editor and Head of Social at Econsultancy. You can follow him on Twitter or connect via Google+ and LinkedIn

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