Mobile Advertising: Not If, But When And How

People seem to fall in two camps with respect to mobile advertising: those who see it as an imminent opportunity of significant size and those who say it’s a few years off. No one is willing to say that mobile advertising won’t work.

Certainly, there is a lot of experimentation in the space. MS toyed with Third Screen Media. Yahoo is experimenting with mobile advertising in search and yesterday announced graphical ads for e-mail and news. Google has tested mobile ads in Japan. AOL allows sponsors on AOL mobile search.

The publishers (both carriers and brands) are jumping in the mix, attracted by CPMs in the $25-50 range (anecdotal data I’ve heard from people in the industry). Since, especially in the US, they control the users, the carriers will definitely make a lot of money from mobile advertising. Not just through SMS but also WAP (data I’m getting from carriers suggests 40+% of new plans sold include HTTP access) and branded downloadable applications.

The user experience will be figured out–there is too much money at stake. The good news is that mobile as a platform is even more measurable than the Net. Therefore, many mistakes can be made quickly and relatively cheaply. (As an aside for entrepreneurs, follow Esther Dyson’s “always make new mistakes”.)

So it’s no surprise that there are the slew of mobile ad startups entering the space, teased by predictions of $1-10B (yeah, that’s quite a spread) market size for mobile advertising by 2010 and month-to-month growth rates in excess of 50% (according to AdMob). There are too many companies to list here. The ones I’m tracking have teams with deep experience in both online advertising and the carrier world, which is a rare combination. The typical pitch is that locking up relationships & inventory early offers lasting advantages. I’m not so sure about this. The Net has taught publishers a lot about optimizing ad revenues by playing vendors against one another and making real-time decisions about which ad to show when and to whom. That creates an opportunity for technology companies to offer the equivalent of DART for Publishers on mobile.

At the current pace of company formation, within two years, I’d expect the mobile advertising platform and technology space to be quite crowded and experiencing some margin pressure. As on the Net, the best place to be would be as a large publisher–it’s the only guaranteed way to make money.

Who will be the large publishers in mobile? Certainly the carriers and certainly the big brands. What about everyone else? On the Net there is a Long Tail of content providers. You don’t need to be a Top 5 brand in a category to do very well. There is no such thing in mobile. The hits make money. There is no Long Tail. In fact, there isn’t even a short tail. Something worth thinking more about…

About Simeon Simeonov

I'm an entrepreneur, hacker, angel investor and reformed VC. I am currently Founder & CTO of Swoop, a search advertising platform. Through FastIgnite I invest in and work with a few great startups to get more done with less. Learn more, follow @simeons on Twitter and connect with me on LinkedIn.
This entry was posted in Mobile, startups, VC, Venture Capital and tagged , , , , , , . Bookmark the permalink.

4 Responses to Mobile Advertising: Not If, But When And How

  1. Vijay says:

    Interesting post… while print Ads are diminishing, online and mobile Ads seem to be the in thing. As you say the $1-$10B spread is large.

    Another interesting space (for us at least) is the service opportunity here which is the opportunity to create Ads for online and mobile content. Not everyone can go to an Ad Agency.

  2. Pingback: The Walls Are Starting to Come Down « HighContrast

  3. Cellufun has bet that advertising, particularly of the product placement variety, will be a huge driver for mobile. We are seeing the types of growth AdMob has been seeing, and of course, entry by the Google’s of the world is poised to jump the market orders of magnitude

  4. Pingback: chavito10 | Blog | Vysledky.cz

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s