As Mobile Web's Ad Potential Soars, Its Pricing Takes a Tumble

With Demand High and Competition Stiff, Apple and Google Have Been Forced to Adjust Their Rates

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Consumer appetite for smartphones might put mobile-ad sellers in the poorhouse.

Almost 480 million internet-connected mobile devices were sold worldwide last year alone, according to Gartner Research, so fast that the ad market simply can't keep up. The result is a flood of ad-supported real estate born from millions of new smartphone users surfing the web and using apps on their shiny iPhones and Androids -- and not enough advertising to fill it.

Credit: ComScore

"There is downward pressure in pricing," said Phuc Truong, managing director of Havas Digital mobile agency Mobext. "Publishers can't keep up with the page views. More people are jumping on the mobile internet; demand isn't meeting supply."

In recent weeks, both Google and Apple have adjusted their pricing models. Apple's hot mobile-ad unit for iPhones and iPads, iAd, reduced its minimum required spend to attract a wider swath of advertisers, namely those not willing to pony up as much as $500,000 for one campaign. Google, on the other hand, brought pricing for its network of in-app ads in line with its search products. It's the first step to selling those mobile ads into the same place advertisers buy its search ads, Adwords. Once there, mobile ads would find themselves in front of a much larger pool of advertisers.

In short, pricing is taking a hit today to stimulate mobile-ad spending over time. For Apple, that amounts to an admission that its gorgeous rich-media ads on the devices iAddicts covet are just not worth as much. For Google, it's a matter of trading higher pricing for higher exposure, at least for the near future.

"It's possible that AdMob advertisers could receive cheaper mobile clicks in the short term," said Clay Bavor, director-product management for Google Mobile Display Ads. "However, as millions of Adwords advertisers increasingly go mobile, we'd expect demand for this inventory to increase and mobile click prices to rise as a result."

Add in that fact that competition is stiff. Apple is up against a growing market of competitors that can provide better tracking and reporting on more devices, said Gabriel Cheng, associate media director at Interpublic Group of Cos.' mobile agency Ansible.

Once demand for mobile ads starts to meet supply, mobile-ad sellers could kick themselves for giving up premium prices today. Some other media are shoring up against the downward pressure. Magazine publishers on tablets, for example, often sell inventory to fewer brand advertisers and charge a premium for high share-of -voice, a standby tactic in print advertising.

Also, a breed of "premium" mobile-ad networks, such Medialets Marketplace, are popping up to slash inventory and to match-make between advertisers and high-end publishers.

It's not that mobile-ad spending isn't growing at a dizzying pace. It's expected to top $2.6 billion this year and skyrocket to $10.8 billion by 2016, according to eMarketer.

But even that kind of growth can't continue.

More than half of U.S. mobile users were browsing the web, accessing applications or downloading content on their phones at the end of 2011, according to ComScore. And that 's not going to stop -- smartphones are driving this behavior and outsell old-breed feature phones faster in the U.S. and Western Europe, according to Gartner Research.

That ad kitty will stretch even thinner when Facebook starts selling mobile advertising against its more than 425 million monthly active mobile users. The social network has already proved itself a powerhouse in online-display advertising. In just a few years, it's become the top U.S. online-display seller, bringing in $2.58 billion and besting online-ad stalwarts like Google, Yahoo and Microsoft, according to eMarketer.

Data could be the saving grace against both the threat of Facebook and the glut of mobile-ad space. Mr. Cheng at Ansible has noticed two trends taking shape in networks: those that focus on sheer reach for lower rates, and a newer breed with more sophisticated targeting that can demand premium pricing.

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