My last LSN column attempted to look at where we are now with the mobile local opportunity: if not entering the oft-predicted “year of mobile”. Since then, the Kelsey Group’s U.S. mobile ad forecast has shed some more light.
The top line figures project mobile ad revenues to grow from $160 million in 2008 to $3.1 billion in 2013 (81.2% CAGR). Current revenues are largely made up of SMS advertising, where the most reach and scale exist.
But growing penetration of smart phones (now less than 20 percent of U.S. mobile devices) and devices that can view full web browsers will cause search to eclipse SMS as the leading revenue category by 2013.
This is also supported by the growth of the mobile web — currently at 63 million monthly users (comscore) . You know the story: The iPhone has raised the bar for mobile hardware, and copycats have begun to flood the market and compete on price.
Carriers have likewise begun to subsidize upfront device costs in order to drive long term data contracts. The price for touch screen based smart phones is starting to settle around $200.
Quickly sprouting application marketplaces will meanwhile provide the killer apps that drive the appeal and utility of these devices. This is all bringing the mobile web within striking distance of mainstream adoption for the first time.
Local Motion
The key point, as examined in the last column, is that local will be a big beneficiary of the resulting search volume growth.
The portability and location awareness of the mobile device is highly conducive to local search, meaning local intent on the mobile device will outweigh the roughly 11 percent of searches online that are local (TKG).
Google agrees, citing that local search on the mobile device indexes higher than the desktop by about 2x to 3x. This lines up with the Kelsey mobile forecast data that show local searches make up about 28 percent of mobile searches.
That figure will grow to about 35 percent by 2013. But more importantly, revenues from local search will surpass 50 percent of mobile search revenues. This is due to the premiums that will be placed on content and advertising that’s location targeted to mobile users.
Given a new form factor, new ways of thinking will be required for content delivery. It won’t just be a matter of transferring online models to a mobile device, and measuring clicks, impressions and the standard set of online performance metrics.
Other content and ad formats will evolve based on the portability, immediacy and location awareness of the device. In addition to the CPCs and CPMs that rule the online world, this could include more pay-per-call models in some categories (i.e., professional services) or cost-per-action models in others (i.e., retail)
This can involve retail data feeds (i.e. Krillion, NearbyNow) which tap into POS inventory systems to indicate prices and availability. The fact that the phone gets you closer to the point of purchase can also bridge the online-offline gap that’s traditionally been a source of uncertainty in local search campaign effectiveness.
Now What?
So the opportunity is there… now how do you tackle it? Application marketplaces have standardized and lowered the barriers to distributing mobile apps. But there are still barriers.
Like lots of things (i.e. writing columns), one of the biggest challenges is figuring out where to start. Given finite development resources, where do you prioritize developing apps for a highly fragmented world of mobile operating systems, devices and formats?
SMS has the most adoption and reach (i.e. all cell phones), but the iPhone has the most engagement. Between the two lies a spectrum of options including web apps, and java apps that have to be customized for a long tail of hundreds of devices.
Yellow pages publisher Dex just launched a series of mobile products that attempt to hit up all the points of this continuum.
“It’s all about extending your reach through different devices and platforms,” Dex director of mobile and personalization Deborah Eldred told me. “We want to make sure we hit the mass of the subscribers but also hit the mass of usage, which is smartphones.”
This represents a common yellow pages attitude lately to jump on the mobile opportunity. They can afford to do so — Though it’s often clouded by valuation declines and dept loads, Yellow Pages publishers still have a fair amount of cash on hand. But what about companies that don’t?
“We’ve had a lot of success with our iPhone app, and we know we have to put more resources into mobile development,” says Sonia Survanshi McFarland, Yelp head of business development. “But you have to quantify how much it’s going to cost from a human resources perspective and weigh that against what else that developer can work on.”
The Short Answer
Perhaps the “short answer” is to look at mobile platforms whose data consumption is growing. These are iPhone and Android according to AdMob data. And what about the Palm Pre? Could it be the dark horse, given the levels of market anticipation it’s seeing?
Yelp’s McFarland points out this is risky territory – iPhone development came with the benefit of 12 months of usage that predated the app store. This meant usage metrics were available in advance of app launch: Not the case with the Pre.
Windows mobile 7 is likewise unproven territory with no guarantee of release date or quality. Many carriers and device manufacturers planning Q4 releases (read: holiday season), could therefore bank on the safer option: Android.
The platform question is still an open one, and like a lot of things “it depends”. Lots of factors come into play: target demographics, advertising goals, verticals, etc. The question also comes down to whether you want to go after reach or engagement.
Over the next month, I hope to answer some of these questions by getting down and dirty with carriers, local media publishers, and app developers. The result will be a TKG report, which I’ll come back and summarize here. Stay tuned.
