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Adam Landis is the Vice President of Business Development for LifeStreet Media.

A day doesn’t go by without news of some record-breaking funding round for a hot mobile advertising start-up, or a new analyst report forecasting that mobile ad growth will be even more dramatic than expected. Indeed, the numbers are staggering: almost 2 billion smartphone users worldwide and 1.5 million apps for iOS and Android alone.

Despite robust industry growth, a number of mobile companies are floundering, in part because advertising has yet to realize its full potential. Reality check: it’s really tough for mobile publishers to make money through advertising. Although 4.5 percent of media consumption in the U.S. occurs on mobile devices, this only translates into 1.7 percent of media ad spend. On one hand, this indicates real potential for growth in the mobile ad market.

But in the short-term, while this discrepancy exists, it spells lower payouts for the millions of mobile publishers looking to monetize their inventory. In fact, ad rates (CPMs, or cost per thousand impressions) are lower on mobile than on any other major media channel; while newspapers command $51 CPMs, TV $29 CPMs, and online $4.70 CPMs, mobile averages a measly $1.31 CPM.

What’s driving down publisher ad payouts? I’ve spoken to literally thousands of publishers, and there are three primary factors driving down monetization rates. I’ve also learned how a few savvy publishers have figured out how to turn these challenges into winning propositions.

First, the challenges responsible for lower mobile ad rates:

Technology fragmentation

The major players including Apple, Google, Microsoft, Amazon, Blackberry, and Samsung are creating a plethora of platforms, operating systems, device types, and device sizes from which consumers can choose. While this brings greater options to consumers, it generates complexity and technical challenges for publishers who have to adapt their systems to support all of these rapidly changing platform versions, hardware capabilities, and screen sizes. Publishers spend an exhausting amount of energy distributing content and remaining relevant in the marketplace. This is time that otherwise could be spent building great content and acquiring users – two factors that directly impact inventory monetization potential.

Self-inflicted monopolization of ad sources

Many mobile publishers don’t invest the resources to experiment with multiple monetization sources. They choose a single partner, typically an ad network, and give complete control of monetizing their inventory to that sole partner. This provides asymmetric pricing power to that partner, who gains monopoly control over the publisher’s inventory. Without competition, the partners have little motivation to provide competitive monetization rates after the initial “review” process, and then publishers wonder why their monetization rates start decreasing.

“Worthless” disruption

Disruption is a widely used term in the technology industry, and typically refers to the reimagining of a system that is broken or flawed. There is “positive” disruption – the use of technology to improve the way we conduct our lives or our businesses. Unfortunately, what I see on an almost daily basis in the mobile sector is what I call “worthless” disruption. This is disruption for disruption’s sake; innovation because something is possible, not because it makes lives better or businesses more successful.

Too often I speak with publishers who bet on the latest, greatest new ad technology, ad unit, or incentivized solution that takes an inordinate amount of time and resources to try — and then ultimately flops miserably when that company goes out of business the next day. The result: wasted inventory, misused development time, and a heap of skepticism about the industry’s potential at large. When the market is fragile, “disruption” can be simply that: a disruption.

Now the good news: the winning publishers have found solutions to these challenges:

Solution to fragmentation

Choose wisely and focus. Leading publishers have established a defensive position against the confusion: first they stick with proven, winning platforms—such as focusing on iOS and Android only— and will wait for new platforms to prove success before taking on the risk of development. Just think about what happened to those developers who bet heavily on Windows 7 or the old Blackberry App World. Second, leading publishers are leveraging development resources across multiple platforms and titles – such as using the Unity 3D game engine for multiple platform code generation. The winners know it’s necessary to consolidate efforts to maintain success.

Solution to a monetization monopoly

Diversification. The winners have moved away from relying on a single ad network to monetize their inventory. Some of the more advanced publishers – like Zynga – have even gone so far as to build their own ad platforms; while most gaming publishers don’t have the variety of games nor the resources to make this type of investment, even smaller publishers can afford to spread their supply across multiple sources to encourage ongoing competition for their inventory by using mediation platforms such as MoPub. Competition drives monetization levels up, keeps monetization partners “honest,” and prevents the development of asymmetric power between supply source and monetization partner.

Solution to “worthless” disruption

Innovate, but take calculated risks, and let others take the risks for you when possible. Innovation is a must. The winners do their research and place their bets carefully. They focus on solutions that will bring them enduring and sustainable revenue models. The winners also often opt for partners who will take on a lot of the risk for them. For example, while the concept of video ads has been around for years, publishers who bet too heavily on earnings from those ads have been disappointed with monetization results; it has taken years for technology stability and fill rates to make for a sustainable publisher business model based on video advertising. Winning publishers let their partners experiment with the latest technologies like audio, RTB, and MRAID (mobile rich media) at their own cost, without expecting publishers to focus on anything beyond creating great content.

There is no doubt that mobile advertising has a gleaming future: audiences are growing, the technology is improving, and increasing numbers of advertisers are investing in the medium. But only the companies that carefully tailor their mobile monetization strategies will live to tell the tale.

adam landis lifestreetAdam Landis is VP of Business Development at LifeStreet Media, the leader in in-app display advertising for Facebook and mobile developers. Using a new kind of optimization technology called universal object serving, LifeStreet’s RevJet platform engages in high velocity testing of visual and logical objects to increase the value of ad impressions for advertisers and publishers. L

Photo: Daniel Go/Flickr


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