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Thursday, May 29, 2008

Google CEO on mobile advertising: Golden Goose or Dead Duck?

Based on this article, it appears that Google's CEO Eric Schmidt does actually appear to believe that mobile advertising will be larger than that on the PC Web. I'd heard various people quote him before, but I'd dismissed that as out-of-context rhetoric.

The question in my mind is how can this really become true?

The current online advertising market is c$50bn - ie about $40 per Internet user per year (there's about 1.3 billion users), or $3 per user per month. That will continue to grow even as mobile ads are introduced, so realistically by the time of any cross-over, it's likely to be at least $5, $6 or greater, per user per month.

Now obviously at the moment mobile has a greater number of total users (2.7-3.0bn, depending on how you deal with multiple devices, non-phone devices etc). But a lot of those will be inaccessible to anything but *very* primitive adverts for a long time to come.

Probably a billion or more are on $10 ARPU or less, with 2G handsets and no likelihood of getting data access any time soon - basically SMS ads only, or perhaps voice-insertion messages. Another big group have OK handsets, perhaps $10-20 ARPU, but also mostly prepay with limited use of data, except occasional browser use. (The future "next" billion to get mobile devices will probably be on <$5 ARPU, so for all intents & purposes I think advertising will be a near irrelevance). Even looking out to say 2012 or 2013, the number of people with iPhone-grade browsers on their handsets, ideally with 3G and flatrate data, is going to struggle to get much beyond 500m I would have thought. And even then it's likely that not all of them will be *active users* of mobile web access. And as the mobile search people are so fond of mentioning, "people don't browse on the mobile web" - ie session times are much lower, albeit more frequent. And there's less screen real-estate, so fewer ads can be seen per minute or per session. Another issue is that PC online ads include both B2C and B2B. I don't know the split (does anyone?) but I have to believe that B2B mobile advertising will be much harder than B2C, ironically, because of the "personal" nature of the medium. So mobile B2C will need to outstrip fixed B2B+B2C for Schmidt's prediction to become true.

And I think that a lot of things that are currently advertised on PC-web will be difficult to translate directly to mobile-web, because they are complex purchases rather than the sort of instant-response or brand-recognition ads that work best on phones. Who's going to want to fill in 100 data fields for a car-insurance quote on phone? Or find jet engine maintenance services?

Sure, there will be things that are *easier* to advertise on phones, and there may be different ways to advertise that overcome the limitations. But I think it will be quite a while yet before we go down the learning curve. Another good thought-experiment is if anyone would ever administer their own Google AdWords account on a phone rather than on a PC.

Let's be very generous and say that there will be 1bn "full mobile web" active & regular users by 2013, with maybe 1hr or 20+ sessions per week. (I reckon 3-400m is more plausible, but let's go for the big round number). Then there will be a long tail of maybe another billion getting text ads, occasional browser ads and so forth, but realistically that's not going to add on a huge extra chunk of revenue compared with all-singing-all-dancing, high-response clickthrough mobile web ads, especially as many of the next bunch will be anonymous prepay users.

And by that time, PC Web advertising should be heading towards $100bn, I would have thought.

So for mobile to catch up, it'll have to be hitting $100 per "full" user per year, or $8 per user per month.

Does Schmidt honestly believe this?

I'm certainly not professing to be an advertising expert, but this just appears to be far too much of a tall order to me. Sure, response rates should be better, but I'd be wary of extrapolating from 100k early handpicked Blyk users to a billion mainstream punters. Especially as, even if m-commerce grows incredibly quickly, it's not going to catch up with PC-mediated e-commerce. (Which as we all know, is a quadrillion dollars per year).

In other words, most of that $8 is going to have to be recouped by people buying products through channels not based on the phone (ie on PC or "in real life"), making tracking of advertising effectiveness horribly difficult to measure. Nobody is going to be buying a car on their handset... and can you imagine the fun politics of tracking churn, when you're changing phone & operator based on an advert seen on another operator's device?

Personally, I think that Schmidt is either deliberately overstating the market to drum up excitement.... or he's about to make a horrible strategic mistake.

The worrying thing for me is that most of the Google folk I've met or heard at conferences appear to have a very narrow view of the mobile industry, heavily coloured by the US market viewpoint (no prepay, people deliberately buy 'smartphones' and are willing to download apps, people want a single device, that 'normal' people actually want the Internet on phones etc). I'm singularly unconvinced by Android based on what I've heard so far.

In fact, if he's staking the company's future revenue growth on this, I wonder if we've just seen the big G hit the high-water mark, and it's all downhill from here.

13 comments:

meetingminutes said...

Without going into a lot of detail or looking at the maths, one thing that needs to be considered is that "Mobile Advertising" does not mean "Mobile Internet Advertising". In other words, there are many more ways of advertising that are made possible with a mobile device, other than putting some words or images on a mobile browser.

JMac said...
This comment has been removed by the author.
JMac said...

meetingminutes you are incredibly understated in your comment which I admire. I will put it a different way:

Dean - if we ASSUME that its all about mobile being 'the next web' and the formats being 'as is' and it all being down to CPM, impressions and ARPU then you are right - it may not stack up.

Trouble is though.....its NOT about that.

Its about something which unfortunately isnt ubiquitous presently thus making it hard for us to fathom entirely.

Sure - based on the logic you use it seems like a 'tall order'.

The thing is, mobile advertising is not to be taken as a snapshot of today. Not in format, context, mechanic or budget. Due to this - although much of your argument is valid (as I recently told you very late at night in a pub), it simply isn't the whole story as the landscape hasn't unfolded to a large enough degree yet.

....nothing to stop passing comment of course - personally, as the web is an un-ending archive, I would be wary of using static thought to predict a volatile and un-predictable future.

Dean Bubley said...

Sure, mobile advertising is about more than the web - look at Puddingmedia, which uses speech recognition to insert ads in the voice stream, for example. Or adverts in ringback tones.

But on the other hand, the article with the Google CEO quotes *him* saying "The next big wave in advertising is the mobile internet."

I don't spend much time looking at mobile advertising per se, so although my gut feel says "it'll be important, but not *that* important", I'm not professing to be an outright expert.

That said, a lot of mobile ad specialists I talk to *do* take the view that 3 billion people are homogenous, and will eventually migrate to smartphones with browsers and flatrate data.

I even meet some people who - against all evidence - insist that the next billion Internet users "will get their first taste of the web on a mobile phone".

This post was specifically about Google. I think that Google has *at the highest level* this type of naive and simplistic view about mobile. And I think it's about to make a huge strategic error (or at least a very convincing bluff).

Dean Bubley said...

.... putting it another way, Steve Ballmer must be breathing a sigh of relief.

Manuel said...

A couple of points regarding this interesting post: mobile advertising is going to be huge (which does not mean greater than internet, not in a 5 yr timespan as you say). It won't be huge by exporting what works in the internet, as you say. And lastly, I cannot agree with the tracking issue: mobile has the conditions to be the best (if not perfect) way to track from online to 'real world'. It's the only channel you can take with you to the store.

AntS said...

Dean,

Agree with much of your analysis here in relation to pure mobile internet display ads. All the numbers point to maybe a $10-15 per user/year ad revenue potential across the primary billion users and that already factors in better mobile targeting, new display formats, etc.

I think where this does get interesting is how mobile is used in the broader ad/marketing mix. Mobile is not a great display format but a brilliant personal response and tracking mechanism - for almost all other ad formats. People won't buy a car on their phone, but they may use their handset to respond to a billboard or press ad to book a test drive.

I'd wager by 2013 we are not talking much about the value of mobile advertising per se, but seeing users participate and respond to a whole range of ad and mktg offers in ways we are only now beginning to explore.

Question becomes how do Google, Microsoft, operators and others monetise that??

Dean Bubley said...

Manuel - well, not quite, you can take paper coupons, direct mail or print adverts to the store too. But I see your point.

However, what I was trying to say was that advert-to-purchase can be conducted end-to-end on a PC for large or complex products. We're unlikely to see people comparison-shopping for refrigerators on the mobiles, and then using m-commerce to get one delivered.

(Or finding, buying & downloading analyst research reports, for that matter)

Ants - yes, good point. Although by your definition, just simply calling the car dealer on your mobile could also count (rather than booking the test drive in the browser).

Anonymous said...

Dean,

I remain convinced that Google's end-play for mobile advertising is in the emerging economies, probably over dual-mode handsets (GSM + WiFi and/or WiMAX) running Android.

Even the cellular operator's voice+SMS ARPU (in emerging economies) remains sub-$10, Google stands to benefit by delivering ad-supported access (WiMAX and/or WiFi) and ad-supported content. Google has made investments in WiFi and WiMAX networks, femtocells, etc, and now talking up "white spaces". It's clear they want to play in all the network possibilities for the future.

Android will finally be about low-cost phones (and related devices, including laptops connected to computing clouds) coming out of Chinese ODMs. Sure, Android is now centered in the US and UK, what's not to say that kids in India, China and Russia will NOT develop Android apps in the future? And the chipsets coming out Intel, Nvidia+Via, Qualcomm and the others will support both mobile handsets and mobile internet devices (< 10-inch displays?). What if the MIDs themselves support all manner of networks (as does Via's recently announced OpenBook) - whether embedded or through USB dongles?

At which point, the differentiation between "mobile advertising" and "PC advertising" will be moot?

Google will oblige with datacenters to serve up the content and applications.

Dean Bubley said...

Anonymous

Interesting concept, but I highly doubt it.

Dual-mode GSM/WiFi phones have no massmarket future in emerging economies: WiFi is useless unless you have it attached to fixed broadband or a company LAN. Public hotspots don't cut it as they only cover a small fraction of locations where users want coverage. Metro WiFi is useless (and dead anyway).

Even if emerging middle-classes can afford broadband, there's a lack of copper/cable in many countries.

WiMAX... hmmm, maybe. In low-cost devices suitable for emerging markets, and combined with GSM? Come back in 2014 or 2015. And even then, much depends on spectrum allocations - 2.5GHz is either going to need tons of cellsites, or it won't go through walls.

Martin Geddes said...

Personal belief? The boundary will blur to the point of meaningless between PC and mobile internets. Google's model will increasingly rely on them being part of the 'act', not just the 'display' and 'click', which means pushing the map/coupon/address/product details/etc to your mobile. Or to put it another way, we're already busy printing stuff out to 'go mobile', so take a little liberty with the definitions et voila mobile e-commerce is already huge (just still analogue).

Anonymous said...

You might find this
http://www.catkeynes.com/CS00013.html
An interesting perspective. Even if the market is as big as Google says, it's not necessarily Googles to take.

VitaminC said...

It is certainly very interesting to see lots [all] of the response are coming from a US-centered viewpoint as Dean has described Google in his original post.

It will be hard failure if Google applies the same PC/Internet mindset to the mobile platform; the behavioral model is simply different.