Advertisers have had a hard time keeping up with changing technology and the need to put their messages where consumers are spending time. This is especially true for mobile where consumers allocate 10% of media time to this channel but marketers are spending only 1% of ad budgets here. A review of this channel by Kleiner Perkins shows that once media companies and advertisers conquer some of the current problems with mobile, the growth trajectory will be steep, providing industry players with great opportunities and return on investment.
At the recent D10 Conference, Kleiner Perkins analysts noted that one of the biggest problems with mobile is the low payoff for media space providers. Media companies have been bemoaning the fact that advertisers pay less to buy online space than they do to buy traditional ad space in newspapers or on radio. The traditional formats had a fixed inventory that could be bid up when demand increased. In the online world, space increases to fill demand. Currently, in the digital desktop space, the cost to appear in front of a thousand viewers with a typical display ad is $3.50. When marketers want to reach the same number of consumers on mobile, their cost is a paltry $0.75.
There are some places that cost more for mobile though. Here’s a snapshot of the cost per thousand for a display ad in the mobile environment:
- Weather $1.24
- Education $1.17
- Lifestyle $0.89
- Utilities $0.68
- Health/fitness $0.68
- Entertainment $0.68
- Medical $0.63
- Reference $0.55
- Games $0.51
- Navigation $0.49
U.S.-based companies that rely on advertising revenue all face a similar problem regarding the low ad rates in mobile. For example, Pandora reports its average revenue per user on desktop is $6.62. For mobile, that figure drops to $3.87. Even at Facebook, as quarterly ad revenue increases, the year-over-year growth rate is dropping. Earlier this year, the quarter-to-quarter growth rate for annualized ad revenue per user dropped from $4.59 to $4.00. The company doesn’t break out mobile figures but analysts suspect they are lower than the social media giant’s average.
These statistics might make industry watchers nervous, but many believe that as critical mass builds and applications interest more users, revenue per user will increase. Kleiner Perkins analysts checked out the success of CyberAgent, a Japanese social/mobile gaming company that was eventually able to grow mobile revenues on a per unit basis until they exceeded desktop unit revenues and believe U.S. companies can find similar success.
It’s all about offering consumers what they’re looking for. At the same time, several key agents for growth are falling into place. As media space providers make better connections with users and advertisers, they’ll also be rolling out mobile commerce and payment system technology, along with in-app monetization strategies. When all this comes together, growth in mobile is likely to happen much more quickly than it did for desktop in the U.S.[Source: Internet Trends. D10 Conference. Kleiner, Perkins. 30 May 2012. Web. 8 Jun. 2012]