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Paul Gelb VP, Mobile Practice Twitter
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Limited Time to Prepare for Unlimited Potential of Mobile

Mobile offers unprecedented reach to marketers, providing access to consumers anywhere and anytime. Mobile is now driving a pace of change that is so fast that projections beyond two years are so unreliable that they can only be considered conjecture. But make no mistake, mobile will one day surpass television’s ad spend. Marketers’ greatest challenge in this decade will be to prepare their companies for a shift in their business that is unparalleled in terms of speed and scale.

Mobile media has reached a crossroads reminiscent of Bill Gates’ famous insight from 1996, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.” This trend was evident in the evolution of online media and appears to be repeating itself with mobile. Unrealistic short-term expectations aren’t met and that leads to dismissive attitudes and underinvestment in preparing for significant long-term change. The unprecedented, dizzying pace of mobile technology advancement and consumer adoption will make mobile the most disruptive mass medium, with wide-ranging effects for both advertisers and consumers. Mobile’s unique functionality creates the potential for more effective and efficient advertising than ever before. Yet, marketers are still struggling to find operational models that can execute effectively and efficiently across traditional media and online. In the face of these difficulties, marketers must learn from the mistakes made a decade ago, because future consequences will be more severe.

We believe that mobile spending will surpass not only Internet ad spending, but also television, and have calculated a forecast for when this could occur based on reasonable assumptions. Our analysis is described in detail at the end of this article. The conservative estimate was 12 years and the aggressive estimate was 10 years. However, we don’t believe that identifying the date has any inherent value.

Mobile forecasts have consistently been unreliable and underestimated. For example, in 2008, the projected number of Apple mobile operating system (iOS) app downloads by 2010 was 200 million.[1] However, the actual number of downloads reached 14 billion, 70 times the amount forecasted just two years earlier. The worst predictions are inaccurate predictions.

More importantly, it won’t matter if this transition occurs in 10 years or 20 years. Recommendations for individual clients have never been contingent on mass adoption by the industry at large. Our decision making process is consistently focused on identifying the right opportunities, allocating optimal resources and executing at a high level to generate the best measurable return on investment. The greatest challenges in mobile have not been related to decisions about if and when to invest in mobile. Rather, our goals have been to enable clients to keep up with rapid shifts in consumer behavior toward mobile usage. If the pace of growth for the mobile channel is higher than it was online, it is more important to determine how to be better prepared this time to execute effectively and efficiently than to focus on an arbitrary industry juncture.

Assessing comparable impact of Internet ad spend

One of the most important parts of preparing for change is identifying what is different and what remains the same. Online growth is a valuable base upon which to assess the potential long-term impact of mobile. Any discussion about the real or perceived impact of mobile must address skepticism of its predecessor. Declarations in the late 90s that the Internet would rapidly disrupt traditional media channels and capture their ad spend are still considered by many marketers to have been unfounded.

However, after just 16 years, Internet ad revenue was $26 billion in 2010. An apple to apples, inflation adjusted comparison shows that in their sixteenth year, broadcast and cable only generated $16 billion and $7 billion, respectively.[2] In 2010 a more significant milestone was reached. Internet ad revenue surpassed several traditional media segments, including newspapers, magazines and radio. It took more than 40 years for TV (broadcast and cable) to surpass newspaper advertising revenue.[3] (See chart below.)

Its growth was as responsible for Internet’s rise in advertising market share as the decline of other media channels. Ad spend on local TV, syndicated TV, newspaper, magazine, radio and directory decreased 35 percent, more than $43.8 billion, between 2000 and 2010.[4] Newspaper advertising had a particularly sharp decline, decreasing 54 percent in just five years. Much of the investment in these traditional media channels has shifted to online ad expenditures as well as digital marketing initiatives that aren’t even included in ad spending figures like email marketing, digital coupons or digital promotions. When these additional segments of digital marketing are counted, online investment nearly mirrored the decline of major traditional channels, totaling $47.6 billion in 2010.[5]

Despite significant growth in online ad spend, traditional media will still account for an estimated 80 percent of advertising dollars in 2011.[6] Cable and network television were notable exceptions to online’s disruption of traditional media. In 2010, TV captured the largest ad spend market share — two times online’s market share. Marketers that could not effectively shift budget to digital retained traditional media channels alternatives. Consequently, even though Internet accounted for 25.2 percent of adults’ daily media consumption time in 2010, it received just 18.7 percent of U.S. ad spending.[7] However, the rate of ad spend shift to digital is growing and TV has become increasingly vulnerable to disruption. Estimated growth in 2011 for Internet advertising is 20 percent compared to 4 percent for TV.[8]

Why mobile is different

By almost every metric, mobile outperforms online advertising. Mobile will be the first truly mass media, offering unprecedented reach efficiency to marketers. Advertisers can also generate greater effectiveness from brand engagement and conversions. The increased value of mobile for advertisers should lead to higher growth rates and larger budget shifts from traditional media.

Mobile subscriber penetration is now 101 percent (average person has more than one mobile phone) compared to 75 percent for Internet.[9] Users are rapidly adopting smartphone and tablet devices, which support consumption behavior and ad formats required for significant ad spending. Apple’s iOS devices have become the fastest adopted consumer electronics products in history. By early 2012, there will be 54 million tablet users and 50 percent of mobile subscribers will have smartphones in the U.S.[10] By 2014, the number of mobile Internet users is projected to surpass desktop Internet users.[11] Recently, several carriers began offering smartphones for free with a two-year contract, eliminating any price impact on the smartphone versus feature phone purchase decision. Thus, smartphone growth will continue, making the ownership of smartphones or tablets nearly ubiquitous in the U.S.

Mobile offers unique access to consumers; capable of reaching them anywhere and anytime. Subscribers frequently access Internet on their mobile device from home (89 percent), at work (66 percent), in the car (66 percent), outdoors (69 percent) and in retail locations (71 percent). Smartphone users spend 100 minutes a day on mobile Web and apps, a 100 percent increase since December 2010. Tablet usage varies, but a reasonable estimate is two hours a day. Thus, mobile is rapidly approaching two and a half hours of daily Internet usage.[12] Mobile already accounts for 20 percent of marketing emails opened in 2011 and is projected to generate 20 percent of searches in 2012.[13] Mobile’s share of email and search should grow as smartphone and tablet adoption increases.

Mobile devices also enable the addition of location targeting to demographics, content and time of day. This creates the opportunity to significantly increase contextual relevance with dynamic ads. And touch screen interactivity provides a unique and entertaining lean forward experience. Mobile outperforms online across all of the major brand engagement metrics, including ad awareness, aided awareness, unaided awareness, message association, brand favorability and purchase intent. The average click through rate on mobile ads is 8.7 times higher than online advertisements.[14]

Assessing potential of budget shift from TV

Network and cable ad spend resiliency has not been based upon their superior value for marketers. Rather, cable and broadcast networks leveraged large audience inventory scarcity to generate significantly higher prices. From 1980 to 2008 the average number of households viewing TV per minute decreased 71 percent while the CPM increased 692 percent, according to Nielsen. TV achieved this unique advertising paradox by reducing lower paying advertiser categories through attrition and increasing the share of revenues from higher paying advertisers. The remaining advertisers place a considerable value on being able to reach a broad national audience in a time sensitive manner.

The increase in price has been larger than losses from audience decline. This tradeoff cannot be sustained indefinitely. Even the least price sensitive marketers will eventually become unwilling to pay for annual TV CPM increases as the audience size of the networks and their shows decrease. The 0.8 percent average annual rate of decline from 2004 to 2010 clearly shows that TV ad economics are approaching a breaking point.[15]

Mobile is better positioned than online to capture market share from TV. However, it is important to note that this discussion of mobile and TV ad spend is limited to the context of devices. Many of the leading networks and cable Multiple System Operators (MSOs) are well positioned to capture ad spend that has shifted to smartphones and tablets. By 2020, digital revenues are projected to generate 26 percent of total broadcast network advertising, compared to only 4.1 percent of total network ad revenues in 2010.[16]

Mobile consumption is increasingly aligned with TV consumption. More than 86 percent of mobile Internet users surf the mobile Web while watching TV.[17] Consumption while watching TV now accounts for 20 percent of smartphone use and 30 percent of tablet use.[18] Tablet consumption in particular aligns with traditional TV viewing behavior. Just as households often share the TV watching experience, 50 percent of iPad owners share their iPad.[19] Remarkably, 30 percent of applications on mobile phones owned by parents were downloaded by their children.[20] In addition, primetime occurs during the same hours for both channels. Mobile traffic, search volume and click through rates now peak from 7p.m. to 11p.m.[21]

The most compelling support for mobile engagement superiority over TV comes from multitasking behavior. Admittedly, there have been just as many studies that claim that mobile has the highest engagement rate as there are studies that make the claim for TV. However, when mobile and TV are consumed at the same time, mobile appears to capture the user’s attention. An Interpublic Group (IPG) study found that 94 percent of TV viewing is distracted by multitasking with another media. Notably, smartphones were the largest distraction, accounting for 64 percent of user attention diversions from TV. It appears that a significant share of the attention decline occurs from distractions during commercial breaks. For example, Yahoo! measured 5 to 20 percent increases in traffic during ad breaks for large TV events like the Academy Awards.[22]

As the scale efficiencies decline on TV, advertisers will increasingly look for opportunities to reach the most consumers where engagement is highest. As users continue to integrate mobile devices into TV consumption, the engagement and thus the ad spend will shift from the TV screen to mobile devices.

Priority preparations for the long-term shift to mobile

Reassessing incentives. Most organizations have established, over many years of traditional media-focused marketing, incentives for internal marketing departments and external agencies to promote behavior that maximizes performance. These incentives may not reward behavior required to execute on mobile or across an increasingly fractured landscape. Internal and agency incentives must be evaluated and changed to align with the new marketing objectives.

Evaluating talent. Many marketers and agencies have spent decades focusing their expertise on cost reduction. Traditional media has become commoditized and the benefit of a commodity cannot be increased. Also, the gains from a marketing campaign are harder to measure than a reduction in cost. Thus, ROI increases on these channels have come predominantly from reducing costs. However, the selections of internal team members and agencies that will be accountable for a strategic shift to mobile marketing must take into account the required skills and expertise needed to create a completely new marketing product. Individuals and organizations must be creative, entrepreneurial and capable of working in an unstructured environment. Thus, mobile teams must have expertise in increasing the benefits side of the ROI equation.

Realigning organizational structure. Brands and agencies are often large organizations, which consist of specialized, siloed departments. This structure is intended to increase the efficiency of executing an unchanging workflow process. However, determining how to execute a new type of marketing in a dynamic environment requires more information sharing across disciplines and the flexibility to respond to unforeseen challenges and opportunities. In a rapidly changing industry, horizontal integration, rather than vertical siloes, increases efficiency and speed. An internal cross-disciplinary leadership team should be created to facilitate information sharing. However, a decision maker must be selected. Input is valuable but accountability is essential. Similarly, marketers are best served by a single agency that has a large number of experienced professionals in each discipline required to engage consumers on mobile. The value of this structure was substantiated in the early years of TV, when creative and media services were provided by the same agency.

Securing resources. Marketers will undoubtedly face organizational resistance to the uncertainty that accompanies a transition from the familiar traditional media to a transitional state of mobile media. Convincing stakeholders of the value of a shift in budget to mobile is not sufficient to initiate action. Even if every executive agrees in principle, action is not guaranteed. Taking funds away from one part of the organization requires indisputable evidence of an increase in ROI. The best process to provide a performance-based case is through an iterative approach. Mobile executions should not be experiments. Each mobile initiative must be viewed as a potential proof point in support of mobile. The ROI calculation of the performance from the campaign or development project should be outlined before it begins. This output is an essential requirement for maintaining momentum and obtaining access to larger investment resources as mobile needs increase exponentially over time.

Identifying unknowns. At this stage in the evolution of mobile, knowing what you don’t know is just as valuable as what you do know. It is important to measure and obtain as much information as possible. Not every result can be predicted by a model, and many gains will not be immediately measurable. Yet, it is important to identify what you want to know, so that you know what to look for as measurement capabilities improve, processes are established and infrastructure is created. The pipes of the mobile ad industry aren’t broken — they are in the process of being built. In many instances new ways of calculating performance must be created as intermediary solutions. For example, it may not be possible to determine the value of a lead generated from mobile. To ensure that this outcome from the marketing program is included in the ROI, the cost of generating the lead on another channel can be used instead.

The speed of change in media, technology and marketing has redefined the causes of uncertainty, from doing something new, to doing nothing at all. In this dynamic environment, success will not be the product of accurate short-term and long-term market predictions. Rather, industry leadership will come from companies that made sure that they didn’t have to. As Ray Kroc, the founder of McDonald’s, prophetically said, “I don’t know what we’ll be selling in the year 2000, but whatever it is, we’ll be selling more of it than anyone else.”


 

Notes

  1. ˆ Horace Dediu, “More than 60 Apps Have been Downloaded for Every iOS Device Sold,” asymco.com, January, 16, 2011.
  2. ˆ A.K. Palit, “Internet Ad Revenue Data Shows Signs of Re-Acceleration,” www.iab.net, April 13, 2011.
  3. ˆ Nieman Journalism Lab, “http://www.niemanlab.org/2009/08/can-newspaper-publishers-survive-this-revenue-freefall-perhaps-if-they-embrace-a-digital-future/”.
  4. ˆ Harold L. Vogel, Entertainment Industry Economics, Cambridge University Press.
  5. ˆ Jack Myers Media Business Report 2020 Vision: Media, Advertising and Marketing Economic Health Report 2000-2020.
  6. ˆ Nicole Perrin, “Traditional Media: Dollars and Attention Shift to Digital,” eMarketer, May 18, 2011.
  7. ˆ “Ad Dollars Still Not Following Online and Mobile Usage,” eMarketer, March 31, 2011.
  8. ˆ “Comparative Estimates,” eMarketer.
  9. ˆ “Comparative Estimates,” eMarketer.
  10. ˆ “A Portrait of Today’s Tablet User,” Online Publishers Association (OPA), June 2011.
  11. ˆ “Internet Trends,” Morgan Stanley, April 12, 2010.
  12. ˆ “Mobile Apps Put the Web in Their Rear-View Mirror,” Flurry, June 20, 2011.
  13. ˆ “Jack Myers Video Report: $54 Billion in Digital Advertising and Marketing: Where is it Coming From?” Jackmyers.com, June 15, 2011.
  14. ˆ “Mobile Ads Outperform Standard Banners,” eMarketer, July 13, 2011.
  15. ˆ “U.S. Advertising and Marketing Spending, by Media, 2005-2011 (billions),” eMarketer, April 14, 2009.
  16. ˆ “Jack Myers Video Report: $54 Billion in Digital Advertising and Marketing: Where is it Coming From?” Jackmyers.com, June 15, 2011.
  17. ˆ “Mobile Internet — Delivering on the Promise of Mobile Advertising,” Yahoo!, March 2011.
  18. ˆ “In the U.S., Tablets are TV Buddies while eReaders Made Great Bedfellows,” Nielsen, May 19, 2011.
  19. ˆ “Tablet Opportunities for News Publishers,” INMA, January 26, 2011.
  20. ˆ “U.S. Parents Say Almost a Third of the Apps on Their Phone Were Downloaded by Their Children,” Nielsen, April 27, 2011.
  21. ˆ Kunur Patel, “When’s the Prime Time in Mobile?” TVWeek.
  22. ˆ “Mobile Internet — Delivering on the Promise of Mobile Advertising,” Yahoo!, March 2011.
  23. ˆ “The Social Commerce Economy,” Jack Myers Media Business Report, August 23, 2011.
  24. ˆ David Hallerman, “U.S. Online Ad Spending: The Floodgates Are Open,” eMarketer, June 29, 2011.
  25. ˆ Harold L. Vogel, Entertainment Industry Economics, Cambridge University Press.
  26. ˆ "U.S. Advertising and Marketing Spending, by Media, 2005-2011 (billions)," eMarketer, April 14, 2009.