The mobile ad market is booming. By some accounts, the mobile sector will account for almost all the growth in the worldwide advertising market in the coming years.

What’s fueling this growth is consumers’ rapid shift in their media consumption habits to mobile, driving marketers to follow. Mary Meeker looks at the disparity between consumer's media consumption time and marketers’ media buying share and according to the 2016 report, Desktop/Internet advertising has notably reached equilibrium.

While the mobile ad market still represents a $22 billion opportunity. Yet, if the market is going to reach its full potential and fill that gap, it will have to address a unique set of challenges and obstacles first.

Advertisers increasingly want to see a justified return from their ad dollars before further investment. Return is a combined effect of the ad dollar spend, the number of transactions driven by that spend, and advertisers’ ability to measure it - captured through Return on Ad Spend (ROAS). Depress the number of conversions or lose some of them in faulty attribution, and the appetite to spend will largely be diminished. Unfortunately, today’s ads industry is doing just that by not adequately addressing the following issues.

1. Suboptimal ad experience for mobile users

In the digital era, many businesses tend to find their best customers to be their mobile app users, rather than mobile web visitors. For the e-commerce industry specifically, studies have shown apps outperform the mobile web by 3x conversion and 2x retention. Ad campaigns to these customers, however, drive them to visit the mobile web, which provides a sub-optimal experience. A bad user experience hurts conversion, and also reduces that user’s likelihood to respond to an ad from the brand in the future.

2. Outdated advertising technology

The technology stack that advertisers use for their mobile ad campaigns are not well suited to today’s mobile environment. Take linking for example, some DSPs wrap destination URL links with click-tracking tags that break those links on mobile. None of the links allow for a click on the link to open an app directly (deep linking) from an ad click across all OS platforms. This should be standard practice given the higher conversion performance in the app. In Criteo’s 2016 mobile commerce report: In-app conversion rates are three times higher than that of the mobile browser, and AOV in app was $127 compared with $91 in mobile browser. These metrics speak to the need for a smooth click-to-app experience, leading to better campaign results and higher return on spend in mobile.

3. Ineffective mobile ad measurement across platforms

As ad dollars flow into mobile, they come from a growing breadth of advertisers with different measurement needs. These advertisers are increasingly challenged to attribute downstream ROI activities back to the source campaign on mobile, especially when that activity happens on a different platform than the original campaign platform. Got a click on a mobile web ad that resulted in a purchase two days later in the app? You’re lost to the advertiser (or at least the campaign). And vice versa. Without the ability to accurately attribute downstream activity to a campaign across platforms, the results of that campaign will be artificially depressed and advertisers will be less likely to increase spend going forward.

4. Need of more “mobile-friendly” ad types

The way people interact with their mobile devices is dramatically different from how they interact with websites on desktop. However, the industry is still in its infancy when it comes to being mobile-first for ad serving. Companies like Facebook have been experimenting with new ad formats that better fit the user behaviour and are already seeing positive results. Marrying these new creative formats with better post-click user experience and measurement will help ensure advertisers maximise results.

Grow the market together

In a world where these challenges are addressed, the total market value will grow. Let’s assume there is a 10% app adoption rate across the board. Given the positive impact this would have on conversion rates based on the Criteo study discussed above, this would increase conversion rates for the market overall to 19.4% (see breakdown below).

Applying this to the $20.7bn mobile ad market then the mobile ad market would have been 19.4% bigger in 2015, or $24.7bn* (and I didn’t even take into account the increase in AOV reported by Criteo). Of course this would only apply to a portion of the market, but the point is clear: the market will grow as a function of its ability to produce more effective mobile results for advertisers.

Based on Criteo's Mobile Marketing Report, here's how I came to that conclusion:

  • Actual ad spend in 2015 - $20.7 billion
  • Percentage of users with app - 10% 
  • Mobile web conversion - 1.44% 
  • Mobile app conversion - 4.24% 
  • Blended conversion - 1.72% 
  • Increase in conversion - 19.44% 
  • Implied increase in ad market - $4 billion 
  • Total implied ad market - $24.7 billion
There is no doubt that consumers will continue to migrate to mobile, a growing percentage of them will prefer to engage with mobile apps on their smartphones and marketers will continue to demand solutions in order to better engage and convert them on mobile.
 
It is a $22bn opportunity in mobile advertising which will attract lots of innovative, mobile-native solutions to help the industry get there.

 

By Eric Stein, CRO at Branch


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