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Mobile-Ad Market Still Faces Hurdles

The growth of tablets and smartphones with bigger screens will help to spur the nascent mobile-advertising industry, but hurdles remain before it contributes more than a trickle to the flood of global ad dollars.

To be sure, big companies have made strategic advances in the area in the past couple of years, not least Google Inc. paying $750 million for AdMob in 2009, followed by Apple Inc.'s acquisition of Quattro Wireless last year, which it has since absorbed into its own iAd network.


Last summer Google blasted Apple for imposing new rules on developers that could bar it and other rivals from selling ads inside iPhone and iPad applications, underscoring both the growing importance of mobile advertising and the intensity of the turf wars between the two.

The idea of targeted advertising within location-based services is also gaining traction, and the proliferation of mobile apps, in which advertisers can place banners or more eyecatching rich media, has continued unabated.

Sir Martin Sorrell, founder and chief executive of WPP PLC, the world's largest advertising company by revenue, in a keynote address at the recent Mobile World Congress in Barcelona, described mobile apps as the "holy grail" of the industry.

"Mobile advertising has definitely gained weight. People are absorbed by it and want to experiment with it," said Mr. Sorrell in an interview, but "it's still [got] a long way to go."

"The problem is, it's highly fragmented," he said.

One hurdle: the battle between handset makers and different operating systems. Every new smartphone unveiled here was based on Google's open-source Android. Apple doesn't attend the conference, but its iOS platform, the engine behind the iPhone and iPad, is a closed system over which it exercises tight control. Meanwhile, Nokia Corp., the world's biggest handset maker, last week threw in its lot with Microsoft Corp.'s Windows Phone 7.

And while apps are pouring out of all corners of the world, advertising inventory—the amount of traffic or impressions that a publisher can sell to advertisers interested in targeting users that visit a publisher's site—is too scattered, says Gartner analyst Stephanie Baghdassarian.

However, she said she left Barcelona with a strong feeling that all players, including mobile operators, advertising firms and content providers, now strongly agree that the future of mobile advertising lies in newly emerging tools.

Opt-in advertising, in which users agree to receive targeted ads, will be key, as they will allow advertisers to use more information about where people are and at what time, what they like and search for, helping to offset concerns over data privacy and regulation.

"There is absolutely no doubt mobile advertising will take off, and opt-in and location-based [services] will make this happen," she said, naming as an example the opportunities offered by Foursquare, a U.S.-based company that allows mobile users to interact with friends and social networks based on location.

Hardware developments will also spur growth in the segment. This year's congress underscored how handset makers are racing to produce ever better smartphones with bigger and higher definition screens, faster processors and easier access to social networks, as consumers spend more time interacting with their peers and within their local environment. Prices for the devices are also coming down, and tablets are set to pour into the market in great numbers this year, enhancing the opportunities to display more visually appealing ads.

"More and more clients are asking us to build and define a mobile strategy. Brands get the fact that mobile is everywhere now but most of them are still totally lost in this area," says Alexandre Mars, head of mobile at France's Publicis Groupe SA and chief executive of Phonevalley, a U.S.-based mobile marketing agency owned by the Paris-based advertising giant.

While a few years ago, clients would invest maybe $50,000 or $100,000 dollars in a one-off mobile advertising project, such as a short-message-service campaign for the launch of a new product, brands have now shifted to more strategic, longer-term thinking, spending budgets of around $1 million to $3 million, Mr. Mars said.

Still, right now mobile advertising only represents around $2.7 billion of the global $500 billion advertising market, according to Interpublic Group of Cos.' ad forecaster Magna, but global forecasts remain scarce. According to research firm eMarketer, in the U.S. alone mobile advertising spend is expected to more than double by 2014 to $2.6 billion, from around $1.1 billion this year.

"The market still needs more consolidation before we have a clearer view," said Thomas Labarthe, head of mobile advertising at telecom-equipment maker Alcatel-Lucent SA, which earlier this year launched Optism, a tool that helps telecom operators get permission from users to receive targeted ads.

The future may also see more alliances and partnerships as the industry tries to embed location-tracking with social networks and mobile phones. "If people manage to link all the elements together, it can be a very powerful medium," said Paul Lee, global director of TMT research at Deloitte. "There is no other advertising medium that makes it so easy for a target consumer to respond."

"We're at the tip of the Iceberg" in terms of what can be done with mobile, said Naveen Tewari, CEO and founder of InMobi, an independent mobile-ad network.

 

Ruth Bender, The Wall Street Journal. February 18, 2011

Copyright © 2011 Dow Jones & Company, Inc.. All rights reserved.

 

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