Summary
Executive Summary:
Although mobile device usage is growing, the % of advertising dollars being spent on mobile is not proportional to the growth. Several smaller companies are trying to position themselves to bridge the gap.
Key Point #1: Standardization will drive more growth.
Key Point #2: Currently there are room for 3rd parties to provide innovative services in the Mobile Advertising Value Chain.
Key Point #3: Carrier fees and distribution have limited innovation.
Analysis
Key Point #1: Standardization will drive more growth:
Mobile advertising product penetration has experienced issues both upstream and downstream. Advertisers have voiced interest with real dollars, but the current products do not offer enough branding exposure due to screen size and other limitations, and the ROI has been extremely difficult to measure with so many phone-specific metrics, campaigns and goals. Just as in the internet-advertising industry, as standardization increased (ad sizes, reporting metrics) campaigns could be compared in an apples to apples scenario. This means an advertiser can compare the effectiveness of a mobile campaign to a print or online campaign and justify spends.
Eventually this bodes well for interactive agencies focused on mobile campaigns, 3rd party mobile platform, and mobile content companies
Key Point #2: Currently there are room for 3rd parties to provide innovative services in the Mobile Advertising Value Chain:
As in the internet advertising market, inefficiencies exist both in margin as well as operation or processing. 3rd parties solve several key goals by consolidating efforts, providing reporting or allowing a broad exposure for less cost via partnering. As advertisers still experiment in this space, these third parties become resources.
Third parties become trusted and *industry experts* As they are able to influence up and down the value chain (to advertisers and to publishers) they garner higher margins and multiples in consolidation or merging scenarios.
Key Point #3: Carrier fees and distribution have limited innovation:
The majority of larger advertising or product distribution deals have involved serious revenue splitting between carriers, technology providers and publishers or content owners. When margins for the technology providers dip into the 40% (in terms of gross revenue share) the business model makes less and less sense, and significant R and D is done. This is why you see more bootstrapping technologies in a proof of concept scenario. I have set in agency meeting where they are will to put 2MM into a mobile product, but the scope of distribution and scale they are looking for usually cannot be achieved by just 1 company. It becomes chicken and egg: Advertisers tell the publishers to provide them with a good ad product in the mobile space, the publishers ask them to spend first. The first seamless ad product, integrated correctly to provide reporting and equal to other campaigns will jump start other technologies. Think Rich-media flash providers in 2000 (Eyeblaster spawned Point-roll, spawned Unicast).
