Guest Column: Too Soon for Gloom on Mobile Advertising

[Editor’s Note: This is a guest column by Mike Vorhaus, President, Magid Advisors. The column first ran USA Today on January 5.]

There has been much doom and gloom written about the prospects for mobile advertising revenue for companies like Facebook and others. For many months the consensus on Wall Street was that the “mobilization” of Facebook was a disaster for the company’s potential advertising revenue. Then in the last month or two, Facebook has rallied as analysts begin to see signs of mobile advertising success.

While small banners and boxes will be of modest value as a smartphone ad, that is just a small part of what savvy observers should be thinking about when analyzing the opportunities for companies to drive revenue from mobile advertising.

First of all, not all ads on mobile have to be little banners and boxes. A huge number of consumers are watching video on their tablets and a considerable number are watching video on their smartphones. This content can all come with VIDEO mobile ads – which are much more engaging than little banners. Furthermore, video ads come with higher CPMs than non-video mobile ads – in some cases mobile video ads will get a CPM readily 50% more than a non-video ad.

The key point is each platform – PC/laptop, tablet, smartphone, connected TV, etc. – has different types of ads. Radio ads are different than TV ads are different than newspaper ads are different than billboards. You get the point.

So mobile ads will be different than Web ads on your PC. Smartphone ads will be different than tablet ads. What has worked on the Web with advertising will not be directly replicated on mobile. Ads will look and act differently on mobile devices than on the Web on PC.

Secondly, we are in the very early stages of mobile advertising based on location. Geo-location ad targeting may well turn out to be a profitable marketplace for advertisers particularly those offering coupons and deals. Certainly many advertising executives and marketers talk about this a lot and have indicated to us that they intend to explore this area deeply.

Thirdly, not all mobile devices are small – remember tablet devices are considered mobile devices too, not PCs, and traditional online advertising looks good on tablets and does not have the “smallness” problem of smartphone mobile ads. Furthermore, tablet ads are getting a premium relative to smartphone ads. MoPub indicated in a recent release from Goldman Sachs that iPad ads had a 70% premium over smartphone ads.

In this current year, U.S. consumers are using about 10% of their media consumption time on mobile devices, yet advertisers are spending only 1% of their ad spend on mobile. This reminds me of the early days of the Internet when I was working with AOL, Excite and other major dot.coms. For years there was a huge disparity in the amount of time consumers spent online vs. the tiny amount of advertising money spent online.

Now, today, that gap has closed and consumers are spending about 26% of their time online and 22% of the advertising dollars in the U.S. now go to Internet sites. The Internet ad spend vs. consumer time spend closed and I believe mobile advertising revenue will rise and close that gap too.

Mike Vorhaus is President of Magid Advisors and a member of the Advisory Board of Digital Media Wire, Inc.