The “Mobile Value Exchange” and why it works

[This piece was contributed to VentureBeat by Mihir Shah, CEO of mobile app company Tapjoy.]

We have reached a major tipping point in mobile marketing. And I’m not referring to reach, as massive as it already is in these early days. I’m referring to an advertising model – what I call the Mobile Value Exchange – that relegates traditional cost-per-impression models and display advertising to remnant fill.

Display advertising, especially on mobile platforms, doesn’t work for users. Period. Hear me out.

Last year, there were almost 5 trillion display ad impressions. Less than one-tenth of a percent of these impressions led to a click through, let alone a conversion or a transaction. And that’s with all the investments in tracking and targeting technology. In one recent study, 84% of user respondents said either, “It’s creepy to have advertisements based on sites I’ve visited,” or, “Wouldn’t even notice the advertisements, just ignore them.”  Wow.

For those of us who are close to the data and intellectually honest with our conclusions, user behavior has already begun to swing away from display advertising and towards the Mobile Value Exchange as the premium ad model. Every day, millions of global users engage with advertisers in exchange for value – currently in the form of premium content.

The concept of a value exchange is nothing new; search advertising is arguably the most successful interactive advertising model ever created (thank you, Google) and by definition, a clean value exchange. Consumers raise their hands and receive content that’s relevant to the moment, a question, or their lives, and in exchange they reward advertisers that deliver.

And unlike display, where advertisers make huge buys and hope it works, we know search advertising works. Of the expected $35 billion in 2011 US interactive marketing spend, about 60% will be spent on search marketing, according to Forrester Research. Search marketing consistently backs into ROI-positive conversions and transactions. Interestingly, the average click through rate of a sponsored ad is 95% of that of an organic result, according to a Yahoo Research and Cornell University’s report.

The Mobile Value Exchange ad model evolves this transaction to address the most personal device in the world – our phones. The model offers consumers premium content in exchange for ad engagement. As with search, these consumers raised their hands and requested the ad. And similar to the early days of search, the reach is massive, with 250 million mobile users already engaging.

Why is consumer sentiment and utility so different between display advertising and search marketing? And how is this relevant to the Mobile Value Exchange?

I like to think about the user affinity to a value exchange in three main buckets – Intent, Self-Selection and Sponsorship. In that order.

Unlike traditional display advertising (even when targeted), search marketing and the Mobile Value Exchange interact with a user at the point of intent. A search user requests results for a keyword term. A mobile user selects an ad to unlock premium content. It should be no surprise that these interactions drive the highest user satisfaction, engagement and overall utility.

And then there’s self-selection. With both search and the Mobile Value Exchange, a user literally chooses the advertiser they’d like to engage with from a relevant list. Imagine if TV viewers could select what ads they watched in exchange for content? How might that impact recall, purchase intent and, most importantly, ROI?

Finally, there’s the concept of sponsorship. It’s time we give consumers credit for being smart enough to understand that an advertiser is paying to be a sponsored link in Google or an advertiser in Tapjoy. And they appreciate it — they know these sponsorships help them get access to content they want.

Here’s an interesting example from the traditional TV world that applies to this model: In 2010, Nielsen data showed that World Cup sponsors – those brands that actually sponsored the event, in addition to solely running advertisements – generated 55% higher Net Likeability compared to commercials from non-sponsors. In fact, these sponsors saw a 16% higher Brand Recall than similar campaigns without sponsorship. Extending this concept to the Mobile Value Exchange, it’s easy to see how brands sponsoring premium mobile content can increase their brand recall, awareness and overall ROI.

Intent, self-selection and sponsorship are even more important on mobile, because mobile devices are so personal. They are not only our phones—they are a full expression of who we are. They are our contact list, our family photos, our favorite media. They are personal in a way that the PC could only aspire to be. Would you rather lose your phone or your wallet?Tapjoy’s Mobile Value Exchange puts increasing power into the hands of the consumer with striking results. Literally millions of mobile users raise their hands every day requesting advertisements to help them unlock content. Intent, self-selection, and sponsorship represent the trifecta of long-term value between users and advertisers in the new mobile economy.

I’ll fully own that I’m biased. But I’ll say it anyway: the Mobile Value Exchange is the future of advertising for the billions of smartphone users globally. And the good news is, it’s simply the evolution of a proven model that respects a consumer’s ability to choose.

At the risk of tweaking Clayton Christensen’s words a bit too much, you can hate the theory of evolution, but evolution doesn’t care.