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There are too many reasons to doubt that mobile monetization will work in the long run — disparity in media consumption and ad dollars, innovation in handsets and applications driving changing customer behavior, publishers facing the mobile cliff.
And there may be many paths to extracting economics — advertising, payments, location services, etc. I know advertising the best, so I’ll focus on that.
Google and its $8 billion in ad dollars would suggest mobile advertising is working today. However, if you don’t enjoy Google’s monopoly in mobile search and its oligopolistic position in Android distribution, you’re resigned to hacking it out with the rest of us in mobile display and in-app monetization. This appears to be a much smaller (~$2 billion outside of Google) and earlier market, comprised primarily of endemic categories (gaming and other mobile apps) and recycled venture money chasing install numbers.
As a later stage growth equity investor, I find the early momentum in mobile advertising intriguing. In particular, I’m waiting for mobile budgets to mature from experimental spend to a core channel in the overall marketing mix.
Here are a few mobile monetization areas I’m keeping an eye on:
“Does it Work?” — Direct Response
While many point out that brand budgets are much larger than those of direct response, shifting offline brand dollars online has been much more difficult than direct response dollars. Even large online channels, such as display and Facebook, can be too small to show up in the media mix models, let alone tiny mobile campaigns. So you’re constantly trying to appeal to intuition and one-off data points, which to a disinterested media buyer compensated on campaign scale may not be enough — despite mobile’s current shiny appeal.
I’m more focused on direct response attribution because if marketers “know it works,” budgets will flow. For this to occur, there must be more powerful instrumenting and analytics. There’s a lot of attention being applied to this space, and a number of interesting startups seem positioned to solve this problem over time, assuming the platform players are willing (Google seems to be, Apple not so much).
In addition there needs to be a “response” that is economically valuable and comparable to media spend to calculate ROI. Some response signals that appear to be growing:
Endemic mobile commerce: The most direct economic signal is transaction dollars. Ebay, Gilt and Fab all report high mobile commerce numbers showing that this segment is growing quickly. Further, as uniquely mobile endemic subscription and transactional services, such as Uber, HotelsTonight, etc., continue to explode and become economically viable (i.e., generate cash flow), they add to the value of mobile inventory and a set of mid-market advertisers.
CRM: Marketers who have a strong understanding of lifetime value, such as Netflix and Geico, enjoy well-proven models to relate the value of an email address to transaction values and contribution margin over time. It’s a short leap in my opinion for these marketers to correlate the value of app installs, extraction of email addresses, and mobile engagement to real transaction values and therefore ROI.
Alternatively, for marketers who may not have as strong an understanding of their customer — offline retailers, restaurants, consumer packaged goods companies, for example — mobile may offer a way of capturing customer email addresses and phone numbers. On its own, this has value to a marketer seeking to understand its customer segments and behavior. In addition to providing a permissioned channel to message to the customer base directly.
“Can I get it to work?” — System Friction
If Google Adwords is the bar on easy to use, mobile has a long way to go. Numerous infrastructure and standardization advancements will be required to make it easier for an average marketer.
Just building a mobile presence requires a fair amount of thought given the fragmentation: App vs. mobile Web vs. hybrid? Apple iOS, Android, or both? What about Firefox? How do I render my site to thousands of distinct devices? How do I measure the results?
Compounding those challenges, advertisers need to figure out ad formats, aggregate inventory across multiple ad networks and publishers, hack various forms of user identification/targeting/data appending, optimize creative, and measure success. It’s just a very big effort in what is primarily an experimental channel.
There are a lot of brain cells, sweat, and venture capital money trying to create point solutions today, so I’m watching how these segments mature and consolidate into more holistic platforms. Beyond that, I am monitoring real-time bidding (RTB) and retargeting. RTB is critical infrastructure that will help marketers aggregate across multiple publishers and ad networks to easily achieve campaign scale. For publishers and ad networks, RTB unlocks large pools of demand which can increase fill rates. By automating the buying and selling process, RTB will also free ad networks and agencies to focus on optimizing creative, and developing targeting algorithms and data strategies—innovation that truly provides lift and value to both buyer and seller.
As a corollary, retargeting in my opinion marks a point of arrival. In the desktop display world, retargeting has increased click-through rates and therefore the economic value of the underlying media by 10x. I don’t see why it wouldn’t be similar in mobile. While it’s hard in desktop display, it’s twice as hard in a mobile environment given the current infrastructure. So retargeting marks a point of arrival both for lifting the value of mobile inventory and simplifying the adtech stack itself.
“Does it Matter?” — Scale
Half of advertising spend flows through the agency holding companies, and the media buying units of these companies are compensated on a percentage of spend. Therefore a key metric of profitability is the campaign size. (It may take the same head count to run a small campaign as a big campaign.)
While mobile can be the sizzle of an agency pitch today, the real way these folks will ultimately get paid is campaign scale. Marketers face similar challenges and are strapped, both in terms of headcount and development resources, to optimize core online and offline channels. They need to balance mobile priorities with the general media fragmentation and growing number of experimental channels such as Facebook, Twitter and Pinterest, to name a few.
Agency margin pressure, marketer headcount, and time constraints all will continue, so for them to engage real thought and attention, mobile needs to offer the buy-side scale. Scale is about showing quantified performance and getting to direct response, always-on budgets. It is also about ease and efficiency, getting RTB beyond 20% to make inventory aggregation programmatic, and offering higher fill rates and monetization to publishers.
And the rest
What makes mobile fun and frustrating is that there’s a long list of other players and factors that can move the market. The big “other” is the three elephants in the room: Apple, Google, and Facebook — each with distinct agendas, who can and have shifted the market with relatively small moves. A long list of “others” also will shape the market. In no particular order Samsung, Amazon, privacy, network infrastructure, desktop/mobile bundling, and competing business models.
David Yuan is a general partner at Technology Crossover Ventures (TCV), a leading provider of capital to growth-stage technology companies, providing funds to later-stage private and public companies. He currently sits on the boards of AppNexus, ExactTarget, Merkle, and Sitecore, and he is active in TCV’s investment in Facebook.
Photo: Devindra Hardawar/VentureBeat