The speed at which Internet users are switching from PCs to tablets and smartphones is causing big problems for companies that rely on advertising. Take Facebook for example. Facebook’s IPO snafu has its roots with their caution to potential investors about the threat of mobile devices to its ability to monetize the site and who was warned and when.
The rapid switch to mobile devices is a world-wide phenomenon. Ad revenue has not kept pace with this rate of change. There are two factors impacting ad revenue for companies like Facebook. The first is real estate. The smaller real estate associate with mobile devices limits the number of ads that can be displayed. The second factor is supply and demand. A huge amount of available mobile ad inventory is depressing prices.
Add to these ad issues the fact that mobile advertisers must deal with a multitude of devices, operating systems and browsers and the problem gets worse.
Facebook is the only one being impacted. Mobile advertising produces about one-fifth of the revenue of their counterparts displayed on a desktop PC. That’s true for Facebook, Google and other companies that use advertising as a way to monetize their website. They are seeing a decline in ad revenue per user because of this shift to mobile devices.
The Internet Advertising Bureau (IAB) reports that mobile experienced the fastest growth of all Internet advertising categories. Mobile ad revenue for 2011 was up 149 percent to $1.6 billion from $0.6 billion in 2010. Internet ad revenue as a whole grew 22 percent to $31 billion during the same time period.
Mobile advertising revenue will continue to grow very rapidly as advertisers attempt to follow the eyeballs of consumers who are displacing desktop PCs with mobile devices to access the Internet. In India, mobile Internet traffic surpassed desktop Internet traffic in April of 2012. Expect the U.S. to experience the same shift in the next several years.
Strategy Analytics reports that the U.S. advertiser spend on mobile media is projected to more than double again in 2012 to approximately $4.2 billion.
Apps Driving Mobile Advertising Growth: Consumers are downloading and using apps on their mobile devices. Consumers in the U.S. are projected to spend approximately $6.7 billion on mobile apps in 2012.
comScore in its first “Mobile Metrix 2.0" report that 81.5 percent of time spent with mobile media happens via apps compared to 18.5 percent via the mobile browser.
Advertisers are taking note. According to Strategy Analytics, U.S. mobile app advertising revenue is expected to reach $1.2 billion this year. This would represent a 118 percent increase over 2011. In-app advertising expenditure projections are more than double the projected expenditures for mobile web display advertising which is estimated to reach $556 million by the end of 2012.
Based on the percentage of time spent interacting with media channels versus the percentage of advertising revenue spent on various media channels in 2011, Mary Meeker, partner at Kleiner Perkins sees mobile advertising in the U.S. as a $20 billion opportunity.