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It's no secret.

The most exciting, fastest growing and most profitable segment of the internet world is mobile. And while eulogizing the PC may be a tad premature, certainly sales of new wireless devices have grown like gangbusters in the last few years. Who could have predicted that smartphone sales would overtake desktop computers in 2011, while this year total mobile sales would grow to an estimated 1.7 billion units worldwide.

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Explosive.

Folks are clearly choosing to spend more and more of their online hours on their favorite mobile devices.

How much so?

The following chart makes clear that in just the last year there has been an overwhelming migration to mobile devices from PCs- and that the trend is clearly unstoppable.

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Between Q4 2011 and Q4 2012 there was an 84% increase in the amount of web traffic originating from mobile devices, and that is only the start, according to most analysts. By 2016, some analysts predict sales of smartphones alone will top 1.5 billion units.

This revolution away from the desktop and toward smartphones, tablets, netbooks and (next in line, perhaps) the mobile multi screen living room, has far outpaced the ability of online businesses to exploit the move. Mobile based advertising revenues last year amounted to a mere $1.2 billion. This year they're expected to climb to $3.2 billion.

And yet those figures still represent a drop in the total U.S. advertising expenditure bucket.

Why so?

The reason for the failure to capitalize on what's clearly an exploding new medium is not monolithic. In this writer's opinion, it can be boiled down to two essential difficulties

First, no one has quite figured how best to monetize the mobile customer. There exist today several models and a number of different platforms that offer businesses large and small an opportunity to push their wares via mobile. But moving product via smartphone is not just a matter of shrinking the advertising rubric from twelve or fourteen inches down to four - which in itself requires a certain genius, admittedly. It's also difficult for structural reasons.

Consider: desktop ads come to you regardless of who your ISP is or which brand of PC you purchased. The system has generally agreed upon protocols and standards that open the advertising playing field to all.

Not so with mobile. Selling Jack's Psychedelic Midnite Pizza Trip via iPhone is a far more complicated affair.

The sheer volume of players currently inhabiting the mobile universe creates permutations and combinations for the average advertiser that are enormously difficult to navigate. Between the type of device used, the operating system employed and the specific wireless operator in play, a unique matrix is created that determines when, where and what any particular tablet carrying Bob might receive by way of advertising on his mobile device. The diversity of the mobile 'ecosystem' also means that it may be a while yet before the streamlining that occurred in the desktop world reaches into mobile.

The Effect is Negative

The current reality, of course, is also having a detrimental effect on potential advertising sales, as the growing time spent by consumers on mobile devices is clearly not attracting commensurate revenue. Have a look at the chart below:

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For the amount of time that consumers are spending on their mobile devices there's a yawning gap in the amount of spending that advertisers are devoting to the medium.

Something's clearly gotta give.

Mobile is attracting just under a quarter of our media attention time, yet accounts for just one percent of gross ad spending. That's a big problem. How it will be remedied will be determined in large part by how much confidence advertisers place in the platforms and strategies now being developed across the mobile universe.

For Example…

Here's how a number of companies are approaching the issue.

Facebook Inc. (NASDAQ:FB) Investors expect a tremendous amount from Facebook, and whether they deliver on mobile advertising will likely have more impact on the company's stock price than any other single variable. True, the company's mobile revenues have grown admirably since they began just over a year ago, and Facebook is expected to post the fastest mobile revenue growth in the industry, according to most analysts, in the coming year. But their platform is not without its glitches.

Because Facebook provides potential advertisers with the tools to create their own ads on its space, there's room for a less than savory experience for individual users who open the Facebook app. Ads can take up the entire screen and if they're not targeted well enough, can result in a great deal of annoyance.

The test for advertisers will be to employ the demographic info that Facebook avails them of to target potential customers in a clear but unintrusive manner. The challenge to Facebook will be to keep those who use the tools improperly from becoming a pain in the mobile arse. It's Facebook, after all, that has more to lose from the annoyance.

Google Inc.(NASDAQ:GOOG)

Google possesses the lion's share of mobile ad revenues; at present, nearly two thirds of mobile advertising moves through the Google's coffers.

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Google is at the bottom of the chart in red, and the market is clearly theirs to lose.

But while Google is still using search to send small banner ads to mobile users - as it does to desktop searchers - the company would love to find a solution to better target mobile users where they are. That is, to get them an ad for Jack's Psychedelic Midnite Pizza Trip when they're just a block away and searching for munchies. As it is, Junior still has to search for an all night pizza place on his smartphone in order to get see an ad pop up for Jack's.

Mobivity Inc. (OTC:MFON)

A small startup called Mobivity may have an answer to Google's local mobile dilemma. They've enabled local business owners like Jack to create a database in order to better reach existing clients when specials are on offer, or when birthdays or other special occasions warrant a two-for-one deal. And they've seen strong growth in the number of businesses large and small using their technology. Professional sports teams, especially, have found the platform a great boon - with an eager market of fans ready to communicate via SMS when ticket specials, MVP voting or other contests are pitched.

Mobivity's issues are those of all early-going small caps - remaining sufficiently capitalize to continue business. And while their balance sheet is also growing, primarily via acquisitions, it remains to be seen from where financing will come and whether current shareholders will face dilution.

Groupon Inc.(NASDAQ:GRPN) and Yelp Inc. (NYSE:YELP)

Online deal distributor Groupon's stock price has risen sharply off its early November lows, but it's hard to say if that's reflective of anything material in the company's business or just a technical bounce after being oversold. With a current market cap of $3.5 billion (half of what Google offered to buy them for two years ago) Groupon is growing profits while cutting staff, but still garnered the dubious distinction of being voted most likely to go out of business in 2013 in a poll conducted by bizjournals.com. Local businesses will prefer to own their advertising database going forward, and Groupon doesn't afford them that advantage. Our hunch is that Mobivity's David is a potentially better bet for investors than mid-cap Goliath, Groupon.

Yelp is currently an online restaurant review site whose model will be difficult to maintain due to the intensive effort and massive sales force required to sustain it. We simply don't give it much of a chance.

Apple Inc. (NASDAQ:AAPL)

Apple's mobile problem is rather enviable. Its iOS operating system now holds 52 percent of all mobile traffic (Android is next at 43 percent), putting it in a position to determine exactly how the mobile marketing landscape will converge and streamline in years to come. That hasn't helped them yet, to be sure. Apple's share of mobile ad revenue is a paltry 5%. But betting on Apple's innovation and aggressiveness in the past has paid off wonderfully to date.

To Close

In the end, mobile as an idea, will prevail, to be sure. But betting on any one company to dominate the mobile marketing space is a gamble, pure and simple.

And if gambling is understood as a tradeoff between outsized rewards for minimal outlays, Mobivity may offer investors the best return on their dollar. The company is not yet out of the red, but their pace of growth is certainly admirable, and the space they're staking out for themselves at the center of the local mobile marketing industry is without any serious competitor.

Source: Motoring Through The Mobile Revolution