Mobile Ads: Wait Until Next Year

The ink had barely dried on Google’s $750 million deal to buy mobile ad network AdMob before some were saying it heralds “the year of mobile.” Of course, the year of mobile has been predicted virtually annually for the past decade.

There is compelling evidence that this time it’s different. Overall, there are now more mobile phones in the world than personal computers. There are over 4.6 billion mobile subscribers worldwide, according to eMarketer. Yet mobile advertising remains a tiny market. eMarketer expects it to generate $416 million in U.S. ad spending this year, about the same amount spent on search marketing in two weeks. This will undoubtedly change, although perhaps not as quickly as mobile’s biggest boosters hope, according to agency executives, analysts and mobile veterans. Here are the key reasons why:

Stepping on the Scale: For all the big numbers bandied about in mobile, the opportunities today are quite small. Think about smartphones. The typical person in San Francisco or New York could be forgiven for believing everyone is toting around an iPhone. That’s not the case. In fact, fewer than one in five Americans has a smartphone, according to most estimates. That knocks out the most advanced ads like applications — and greatly cuts into the opportunity to reach mobile consumers.

That’s meant that while iPhone applications and mobile display ads get the most attention, the best way to run a mobile ad program with scale is through the humble text message, according to mobile ad tech provider Placecast CEO Alistair Goodman. “You’ve got to be able to run on all phones, not just on smartphones,” he said. “Eventually everyone will have one. Today that isn’t the case.”

Hunt for the Killer App: Current mobile formats borrow from the Web, treating mobile phones as little more than tiny computer screens rather than highly personal devices that physically accompany a person as they go through their day.

AdMob is an example of an early iteration of mobile advertising. Most of the ad impressions it serves are tiny static billboards.

“I don’t think the ad formats we see now are the killer ad formats,” said Jonathon Linner, CEO of Brightkite, a location-based mobile service and a founder of early mobile ad net Enpocket.

What’s more, targeting ads to mobile phone users is still in its infancy. The carriers sit on a trove of user information and location data that is largely unavailable to marketers. Brightkite hopes to change that by showing ads to users based on their physical location. In a campaign launching this month, it’s combining location and prior user behavior with augmented reality to show users on-screen product offers from nearby retail outlets.

Apps, Not Ads: The decision by Volkswagen to launch the new GTI exclusively on mobile would appear to be a seminal moment for the mobile ad market. And it has been a roaring success: the GTI iPhone app has been downloaded over 2 million times in three weeks. But VW didn’t buy mobile ads for the launch, plowing the money instead into app development.

The same is true for many brands. They’ve gone app crazy with the popularity of the iPhone platform. Apps offer what ad networks currently can’t: persistent engagement with users and this seriously restricts the dollars flowing to mobile advertising proper.

This is part of a larger shift to pull marketing, but it’s also reflective of data that shows low acceptance of mobile marketing messages. BIGresearch concluded in a study released last week that two-thirds of users objected to mobile text ads. Over half said all mobile advertising was an invasion of privacy. That’s meant many marketers want to take a soft-sell approach that avoids ad messaging in favor of creating content and utility.

“We’re leaning less on mobile marketing,” said Scott Shamberg, svp of marketing and distribution for Critical Mass. “We want to allow consumers to find us rather than pump out [mobile] banners.”

Plumbing Problems: The mobile Web is much like the Internet in its early days: a small market without standardized methods and simple ways to run and measure campaigns. There’s one other glaring factor missing from mobile that holds it back: an easy transaction option. Much is made of Pizza Hut generating $1 million from orders placed through its iPhone app. Yet consumers are jumping through hoops to do so: they need to enter credit card info rather than just hit a button.

“When mobile phones become a payment option, it will be the year of mobile,” said Ian Schafer, CEO of Deep Focus. “Until that happens, it’ll be another display medium.”

Even as a display medium, mobile advertising has its share of growing pains. For one, it isn’t easy to track campaigns alongside Web display pushes in third-party media planning tools. That’s made post-click tracking hard, said Paran Johar, CMO of JumpTap, a mobile ad network.

Still, mobile Web surfing continues to increase, churning out more impressions — AdMob boasts serving 10 billion ads in September from over 1,500 publishers. Susan Wojcicki, vp of product management at Google, said the acquisition should be seen as an endorsement of where mobile is going.

“Part of the challenge is perception,” said Omar Hamoui, CEO of AdMob. “People are used to online and this massive market and they want to see [mobile] as that massive market today. We’re at the beginning and it’s frankly growing a lot faster than online did.”

See also: “Good News, Bad News for Mobile Marketing”