Every year around this time and for nearly a decade, a debate opens regarding the feasibility and awesome potential of mobile advertising, and the speculation continues this year unabated. I am "from Missouri" on this one.
Junior exchanges everywhere are littered with the tiny little corpses of mobile advertising start-ups that barely made it out of the incubators. Even the incubators and VCs that are spawning these nascient Googles are backing up with the sick, the dying, and the "redefining". Public entities lucky enough to have relatively strong balance sheets heading into the recession are reinventing, or more likely, getting acquired as fast as Management teams can find a willing buyer.
There is no denying that the mobile screen is a platform for advertising with outstanding potential. It is an even better platform for integrated marketing. The question is, is there a viable new industry to emerge from this potential. For the most part, the answer is probably "no".
The Reuters article linked above suggests that the business models are not well understood and that there is some "heavy lifting" remaining before there is a breakthrough...or is there?
The primary reason why the online advertising industry evolved into the relative giant that it is (some market analysts estimate it to be worth $70 billion to $80 billion now) is because it was a substitute for other media such as radio, print and television. More importantly, it operated within its own separate technical infrastructure (Internet Protocol). New players could emerge with new business models with protected technical property that incumbents failed to recognize initially.
Ventures such as Google (NASDAQ:GOOG), Yahoo!(YHOO) and others had the protection of time to perfect business models and become major Companies. Others, whose shareholders often benefitted no less, were gobbled up by traditional media players such as News Corp (NASDAQ:NWS), Disney (NYSE:DIS), and Viacom (NYSE:VIA) once the high margin models showed promise and became a threat. Even still, independent online publishers and advertising networks remain sustainable, profitable small-cap and mid-tier operations.
So why isn't mobile advertising an even bigger opportunity? With ten times more mobile susbcriptions worldwide than Internet connections, the potential should dwarf the current online marketing industry. It may someday, but current entrenched publishers and ad networks are likely to reap most of the benefit. This leaves little room for new specialized entrants, and here is why:
1. The mobile screen is not a substitute for the internet connected screen, it is an extension. Even more so now with advances in small screen resolution and wireless network capacity, there is no discernible or sustainable gap in the technical infrastructure to allow for a specialist to have the benefit of time to emerge. An eyeball viewing a website on an iPhone is measured the same way as an eyeball viewing a website on a Dell (DELL) laptop, or an HP (NYSE:HPQ) desktop. To an advertiser, it does not matter. As a result, there is no long-term need for a middleman; which is what most of the failed Companies were positioned for. For a very short time frame, there was a gap, but the window has closed, or is closing quickly.
2. There is no clear economic gap to be filled. Most business models and processes are already determined, and publishers and advertisers can simply extend their contracts to include mobile activity. Again, there appears to be little room for another layer of middlemen that could add significant value to the ecosystem.
The mobile data channel offers significant upside to new ventures in payment systems, stored value, integrated marketing, content, and applications. There is massive potential and economic benefit to be gained. However, for now, unlike online advertising that preceded it, mobile advertising does not appear to be a big sector. In fact, it may not be a sector at all.
Disclosure: I do not own shares in any of the Companies mentioned in this post.