Last fall, my colleague Stephanie Baghdassarian and I found ourselves in an interesting situation. We were working on our annual mobile advertising forecast (subscription required), and the data was telling us that mobile advertising revenue worldwide was growing almost 60% faster than we had predicted the previous year – a difference that amounted to almost $3 billion in 2012 – and it looked like 2012’s North American revenue would come in 90% higher than we thought. This was ironic for two reasons: first, our 2011 prediction was widely received as aggressive, and second, we also knew mobile display ad rates were only 20% of online and most of the mobile publishers and developers I spoke with didn’t seem to be experiencing an ad revenue bonanza. Even more curious, our surveys showed little indication that advertisers were shifting significant media ad funds to mobile from other media. If demand was this weak, how could growth be so strong?
After further analysis, we developed a theory that this discrepancy was largely due to:
“…a situation in which a significant portion of mobile ad inventory is taken up by app developers paying for ads to promote their apps and get them more downloads, a category known as “paid discovery.” While the revenue basis of paid-for app store downloads provides some economic justification for this category, for many developers the outlay for ads is close to their maximum ad income or even exceeds it.”
Based on this, we forecast that in-app display advertising growth would nearly stall in 2013 as the app paid download economy ad bubble deflated.
Enter Millennial Media, by many measures the leading independent mobile ad and data platform, which, in its latest earnings call, attributed revenue below guidance to its decision not to participate in what it called “lower end performance segments” – and, elsewhere “lower value incentivized downloads.” We have confidence in our forecasts; still it’s relatively uncommon in my experience to get a signal this clear so close to a non-linear prediction.
But what does this mean to mobile marketers and developers? First of all, the good news for publishers is that mobile ad prices and fill rates are both rising, a sure sign that brands are starting to take the medium more seriously. For marketers, the good news is that mobile ads still look like a bargain compared with other media, and the availability of desirable features like location-based targeting and real-time bidding is on the rise. One source tells me that supply of location-targeted ads is growing at 36% month over month, while real-time inventory is growing about 83% per month. The combination of these two capabilities gives marketers a great deal of flexibility in structuring agile targeted campaigns that really do get the right message to the right individual at the right time.
We’re still in the early stages of the mobile marketing revolution, but it looks like 2013 is shaping up to be the year that quality apps and premium advertising start to displace a lot of incentivized pitches for more app store downloads.