Will Mobile's Massive Growth Ever Equal Real Revenue?

Three years ago Andy Wasef, head of mobile and emerging platforms at media agency MEC, sat on a panel exploring how to drive mobile ad growth. He issued a charge to his fellow panelists -- executives at ad agencies, marketing trade groups and publishers: Let's learn from the mistakes of how advertising appears and is measured online and not duplicate them on mobile phones. So much for that . "Despite our best efforts, the industry has mostly just followed the online model," said Mr. Wasef. "And so much of what is offered from publishers is really an online replication, but at a poorer level." Poorer is the key word. If publishers once lamented that offline dollars turned into "digital dimes" as content and audiences moved to the web, here's what might be keeping them up at night: Digital dimes are turning into mobile pennies. The effective cost per thousand impressions on the desktop web is about $3.50, according to data crunched by Mary Meeker, partner at Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers. On the mobile internet? A whopping 75¢. That should be of particular concern to publishers, given the rise in media consumption via mobile devices. In interviews, media companies from Condé Nast to Gawker Media say visits from mobile phones and tablets have more than doubled in the past 12 months and now account for 20% to 30% of the overall traffic to their content. In many cases, this growth has caught publishers unprepared, with sales staffs often lacking the necessary training or clear strategies to monetize mobile audiences. Some media companies are taking a wait-and-see approach. In a rush to cash in on this shift, others are often relying on what they know best: the banner ad, which is proving to not be much better. The ad experience on mobile phones is challenging for a number of reasons. The smaller screen sizes make most ads unattractive, privacy settings restrict targeting and short user sessions make providing more than one ad in front of a user nearly impossible. Meanwhile, encouraging readers to pay for mobile content has been an equally tough battle for many media companies. "There's no easy way to push 300 by 50 [pixel] ads and build big money off of it," said Mandar Shinde, AOL's senior director of mobile and mail monetization. In general, advertisers haven't specially prepared their messages for mobile and are retrofitting what they know from desktop-web marketing -- with some ugly consequences. As Mr. Wasef and several other media executives noted, one doesn't have to look far to find big brands whose campaigns and ad experiences aren't optimized for the phone. Often they link to broken pages and frustrate users. (On one major mobile publisher's app, this reporter was greeted by an ad for a retailer that sent him to a webpage with an error message; another ad from a popular beauty-products company directed people to a Facebook mobile log-in.) Accidental clicks on touch-screen phones can also add to user frustration. CANNIBALIZING PRICING Meanwhile, media companies have inadvertently cannibalized mobile pricing by pawning off ad sales to mobile ad networks. These networks have gotten their hands on mobile-ad inventory much faster than ad networks did with desktop-browser inventory. As a result, they have been able to build high-volume businesses that sell mobile ads for prices below what many top-tier media companies such as NBC Sports believe is fair market value. "As you go to market and look to bring really interesting sponsorship opportunities to buyers, the objection that does come up a fair amount is the great pricing disparity," said Nick Johnson, head of national sales for NBC Sports Digital. "And that tends to be an objection that is difficult to overcome, which prevents you from having a very strategic conversation." For their part, representatives of mobile ad networks say it's not their fault that they beat many publishers to the opportunity. "Consumer adoption is there, but the reality is many publishers haven't caught up in selling it," Jumptap CMO Paran Johar said. As a result, companies such as Gawker Media and Atlantic Media, owner of the The Atlantic magazine and the new business site Quartz, are banking on building their mobile businesses around branded content more than advertising. Both companies are selling small ads on some mobile properties -- either directly or through a network -- but each have sites where the only monetization is coming via brand-sponsored posts, according to business executives at the companies. "[Mobile] advertising right now, from a pure creative standpoint, leaves so much to be desired," said Gawker Media's chief advertising officer, Andrew Gorenstein. "I don't see that as a huge opportunity." OPPORTUNITY LOST But it's not all doom and gloom -- yet. Mobile content consumption, for the most part, is additive and not yet cannibalizing desktop consumption, making its low revenue per user more of an opportunity lost than a business crisis. Mr. Shinde estimates that about half of all the people who visit AOL sites do so both from a desktop and tablets or mobile phones. AOL is trying to figure out how to show more ads to these users without scaring them away. But Mr. Shinde said that 's hardly a singular solution. AOL will begin adding e-commerce to mobile ad units over the next six months and is working on mobile-commerce opportunities that won't be connected to ad units. And some mobile experiments are showing initial success. The New York Times -- a media property that occupies a unique position in having proved people will pay for its digital offerings -- continues to focus on a combination of digital subscription revenue and revenue from mobile advertising, according to Denise Warren, chief advertising officer of the Times and general manager of NYTimes.com. Ms. Warren said that 24% of all the Times' views in August happened on phones or tablets, with about two-thirds of those specifically coming from phones. While the Times sells much of its mobile-ad inventory through custom cross-platform purchases at premium prices, it also sells ads on its mobile apps through Google and Apple's ad networks. Ms. Warren said the company also plans to work out more relationships similar to its recent deal with Flipboard, which allows Flipboard users to access a certain amount of Times content for free and lets Times subscribers sign in to get its content within the Flipboard app. The Times and Flipboard then split ad revenue for that content. "We want to replicate this kind of arrangement with others and create scale," Ms. Warren said, adding that she's also thinking about mobile e-commerce opportunities. The Interactive Advertising Bureau is pushing a slate of more inspired mobile-ad units, and young companies such as PlaceIQ are trying to bring greater precision to geographically targeted mobile ads. Startups such as Session M have gained some early traction by rewarding mobile users for taking certain actions such as sharing an article, watching a video highlight or viewing an ad. Still, most media companies don't seem ready to make the leap. There is no right strategy yet. "Whenever a medium develops like this, there are solutions not foreseen in the beginning that , I think, may win the day," said Jay Lauf, group publisher of Atlantic Media and publisher of Quartz. It may take time. Nearly two decades after the first banner ad surfaced, executives still debate that format's effectiveness, with Twitter, BuzzFeed and others recently pushing the conversation around "native advertising," a phrase increasingly used as a catch-all for anything that 's not a traditional display ad. So if the evolution of the web is any indication, a solution for mobile may not arrive anytime soon. And when it does, it very well may not be ads.

Will Mobile's Massive Growth Ever Equal Real Revenue?

Featured Stories