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Whether you're an internet giant like Google, Microsoft or Facebook, or a small publisher trying to carve out a niche, chances are one of your biggest priorities is solving the mobile monetization riddle.

The good news: there's little reason to believe that the future of mobile advertising isn't bright.

How big will it be? That remains to be seen, but even if it's not as big as the staunchest bulls believe, it's still going to be big by virtue of volume.

Now for the bad news: mobile isn't, by and large, generating incremental ad revenue for ad publishers. Instead, it's forcing them to replace lost ad revenue from the desktop.

Replacement versus incremental revenue

Can mobile drive increased user engagement (read: more visits)? In some cases, yes, and this, in theory, may eventually create new revenue opportunities, challenges around mobile ad formats, inventory glut, and fat fingers notwithstanding.

But even so, the shift to mobile is still mostly, well, a shift. Existing users are choosing to visit their favorite websites via mobile devices more frequently, but many are visiting less frequently via desktops and laptops as a result.

In other words, the fact that 50% of a publisher's traffic comes from mobile doesn't mean that a publisher has doubled its traffic. It simply means that more of the publisher's traffic is mobile. Put simply, the mobile traffic has, to a varying but typically significant extent, cannibalized non-mobile traffic.

Running to stand still

This means one thing: when it comes to ad revenue, many if not most publishers are effectively running to stand still. The rush to figure mobile monetization out isn't an exercise in exploiting a new gold mine; it's an exercise in trying to monetize mobile traffic well enough to offset the ad revenue from the displaced non-mobile traffic.

This should be somewhat obvious, but it's something that many industry observers seem to be missing. Case in point: in the wake of Facebook's well-received Q3 earnings, some are suggesting that Facebook is finally starting to figure mobile out and could soon be generating north of $1bn per year from mobile ads.

That would be great news for the world's largest social network, but it wouldn't necessarily be all that meaningful in the overall scheme of things. In establishing that it can make money from mobile ads, Facebook will allay fears that its growing mobile traffic will hamper its ability to generate ad revenue.

On its own, however, it will do little to demonstrate that the company can monetize users -- regardless of whether they're mobile or not -- at a significantly higher clip, something the company will have to do if it is ever to justify its current valuation now that user growth is slowing.

On this point, Google provides a helpful contrast. The company's shares were hammered last week after the search giant missed analyst estimates. Interestingly, mobile, we're told, was a contributor to the disappointment. But compared to Facebook, Google's mobile business looks incredible. According to Google CEO Larry Page, the search giant is on pace to drive $8bn/year in revenue from mobile, most of it from advertising, up from just a third of that just a year ago.

So why did investors frown? While Google is monetizing its skyrocketing mobile traffic, that traffic was a big reason the company saw a 15% decline in average cost-per-click, a powerful reminder that mobile ad revenue is not incremental.

Of newspapers and record labels

At the end of the day, companies grappling with mobile monetization should not forget the challenges newspapers and record labels have faced over the past decade.

Both have seen dramatic shifts to digital channels and while many large newspapers and record labels are finally getting their legs under them, the shifts they've seen are characterized by replacement revenue, not new revenue.

In the case of the newspaper industry, which has arguably been hit the hardest, significantly less replacement revenue than hoped for has been generated, hence the expression, "trading print dollars for digital pennies".

Will mobile force publishers to trade desktop ad dollars for mobile ad pennies, or will mobile traffic eventually be monetizable at rates similar to or greater than publishers became accustomed to in the pre-mobile days?

Time will tell, but companies hoping to survive and thrive in a mobile world would be wise to accept that there is a trade taking place.

Patricio Robles

Published 25 October, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2355 more posts from this author

Comments (2)

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LocalResults

Maybe I'm taking too much of an "engineering" view on this topic, but I wonder if a lot of the problems involved with mobile advertising are technical in nature.

What I mean is that tech-savvy users tend to only tolerate ads that are highly relevant. So, it seems that the real challenge is to stick an ad on a mobile screen when people want what you're selling, AND when they're in proximity to you...or are about to be in proximity.

The "want" part is easy to determine. If somebody is searching specifically for your product, they're probably interested. The proximity bit is a lot harder. How can you find out where the phone is, or in what direction it's traveling, without having an app in residence on the phone? How can you do this without violating the user's privacy? (Maybe there is a way, but I haven't done enough research.)

I guess what this comes down to is relevancy + immediacy. Relevancy is great everywhere, but I'll bet that unlocking the potential of mobile advertising really hinges on the "right now" aspect.

over 3 years ago

Ashley Friedlein

Ashley Friedlein, Founder, Econsultancy & President, Centaur Marketing at Econsultancy, Centaur MarketingStaff

I think this does highlight a big problem... the 'elephant in the room' for publishers and mobile. Whilst ads may not be welcome on a desktop version of a site, at least the bandwidth and screen resolutions have increased to make ads more viable from a user experience perspective.

However, on mobile where screens are small, interaction is via fingers, and bandwidth is limited, it is much harder to see how ads can be anything but annoying/intrusive. Text ads, especially when geo-targeted and search related, no doubt work fine from a UX standpoint which is good news for Google (their challenge is more that the advertisers haven't caught up with the opportunity yet). But larger format display ads and mobile don't seem to mix well at all.

over 3 years ago

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