The complexity and “the bright future” of mobile advertising

One of an analyst’s critical tasks is being able to develop a solid forecasting model and spell out market trends. This exercise becomes more complex when the issue at hand pertains to an emerging market. Mobile advertising is at the moment, giving me a migraine! My colleagues assure me that I am not alone in this painful journey. At least my forecasts thus far have not been too far off the mark (so they say!).

Chetan Sharma, Joe Herzog, and Victor Melfi, the authors of “Mobile Advertising. Supercharge Your Brand in the Exploding Wireless Market”, compared forecasting models about mobile advertising in the USA from different research companies. The period analysed was 2000-2005. The different forecasts were then compared with the actual revenues from mobile advertising in the USA in 2005. They concluded: “Within four years, the market was projected to become a $4.8 billion industry. The real number ended up being less than $200 million by most estimates. The point of this discussion is to show the perils of forecasting a young industry; you just don’t know how things might grow” (Sharma, C., Herzog, J., Melfi, V. 2008. Mobile Advertising. Supercharge Your Brand in the Exploding Wireless Market. John Wiley & Sons).

The “perils of forecasting” the mobile advertising industry reflects the complexity of this segment. This intricacy can be described through three main features.

1. The enormous power of the mobile phone. For advertisers, the mobile device is a new medium to address, but a medium with enormous power. Their ubiquity is unique. They are always on and always in users’ hands. They have a diverse set of user interfaces: keyboards, cameras, and voice. They have built-in intelligence. All this means that the mobile device can be used in a variety of ways for advertising purposes. Consequently, this implies the theoretical existence of numerous business models. And this brings us to the next feature.

2. Many channels for many business models. Different business models can exist for different advertising channels. Ads can go with messaging. They can be included in downloads. They can be part of mobile videos and mobile TV programmes. They can be included in voice mails. They can be banners on community websites and so on. The question is how do we monetize these channels? And how is the pie divided in the value chain? Currently, there are diverse business models such as cost per click, cost per mille, click through and revenue sharing. This variety of approaches implies the use of different metrics for measuring the effectiveness of advertising campaigns. And this brings us to the last feature.

3. Measuring mobile advertising. Measuring the return on advertising has always been a critical task for advertisers. Similarly, there has not an easy answer in the mobile space too. Nevertheless, the availability of a clear set of metrics could provide the market with strong element of consistency and transparency. Industry groups such as GSM Association, Mobile Marketing Association, and IAB are working to reach this.

Despite the features described, analysts seem to have a common belief: advertising on mobile devices has the potential to reinvigorate the mobile communication market by introducing a rich source of revenues. In the UK, the market is in its infancy, as IAB UK states in its recent report on mobile advertising, but “…the future is bright” (IAB UK. 2008. Mobile Advertising: The Emerging UK Market). It is time for analysts to show this brightness!