Why Are Mobile Ads So Cheap?
Mobile may be the future, but right now mobile ad units still command a lower price point on average than print and web advertisements.
Earlier this year, the renowned venture capitalist and former Wall Street analyst Mary Meeker gave her much-watched annual presentation on Internet trends, during which she revealed a startling statistic based on her own research: The effective cost per thousand impressions (CPM) for desktop web ads is about $3.50, while the CPM for mobile ads is just $0.75.
More recently, leading mobile ad platform Opera Software broke down the average cost for mobile ads by device, and found that even the iPhone, which has the highest average CPM for mobile ads of any smartphone, at $2.85, still falls short of that CPM for web ads on a desktop. Importantly, Opera’s mobile ad estimates likely skew higher because its business focuses on mobile display ads rather than mobile search ads, which tend to have a much lower CPM.
Print ads, by comparison, can command rates of as much as $100 per thousand impressions.
To be sure, there are certainly instances when a particular kind of mobile ad costs more than print and desktop ads. For example, when Apple launched its mobile advertising unit iAd in 2010, the CPM was initially somewhere between $10-$15 (or more, depending how you calculate the click-through rates.)
However, in the aggregate, mobile ads continue to be cheaper than web and print, due to a combination of limited screen real estate, a lower price point for search ads and less sophisticated advertising technology to entice marketers to pay more.
The Problem With Mobile Search Ads
At the moment, marketers devote more advertising dollars in total to mobile search ads than to mobile display ads, according to the most recent data from eMarketer. However, the CPM rates of these search ad units tend to be significantly lower than for display ads, for a couple of reasons.
Mobile display ads refer to banner advertisements, video placements and other rich media experiences, which are thought to be more engaging and therefore more valuable to advertisers. Search ads, on the other hand, are basically synonymous with Google listings — in fact, Google currently controls 95% of the mobile search advertising market. According to analysts, these search ad listings have not yet proven themselves particularly effective models for encouraging mobile users to make purchases.
“Advertisers know that consumers are less willing to make purchases — especially large purchases — on their phones, so a lot of the money that goes into direct response advertising that fuels ecommerce on desktops doesn’t move over to mobile,” says Clark Fredrickson, VP of communications at eMarketer. Indeed, Fredrickson suggests that Google is aware of the low conversion rate for search ads and keeps ad prices low as a result.
Google, for its part, wouldn’t comment on pricing trends for mobile search ads, but the company’s third quarter earnings suggest that low mobile ad rates are dragging down its overall cost per clicks. Google reported Thursday that its paid clicks were up 33% year-over-year, but its cost per clicks declined 15% year-over-year. Even so, Google touted the success of mobile ads so far for those marketers who “get the experience right,” in a statement provided to Mashable.
“While it’s still early days, mobile has shown incredible momentum, and it’s become clear that, when done right, mobile works for advertisers,” says Jason Spero, head of global mobile sales and strategy at Google. “We’re seeing this today with immersive brand building and direct response campaigns that take proximity, call and device capabilities into account. When marketers get the experience right and measure effectively, mobile can be a game-changer for them.”
The problem is that getting the experience right is often easier said than done. Not only is the conversion rate lower, but there are concerns that the smaller screen size on mobile devices make search and display ads seem more obtrusive and less appealing to consumers. As a result, publishers and advertisers can’t just shrink down their desktop web ads for mobile and call it a day; they need to rethink their strategies.
Marketers Remain Hesitant About Spending on Mobile
U.S. mobile ad spending nearly doubled in the first half of this year to $1.24 billion, according to the most recent data from the Interactive Advertising Bureau. However, mobile still only represented 7% of total online ad spending for that time period.
“Mobile is something that everyone is excited about, but we’re still seeing a very small share of ad dollars at this point,” Fredrickson says. “You’re starting to see a bigger and bigger gap between the amount of time people spend on mobile devices and the amount of dollars spent there.”
For marketers, a big part of the hesitation is that mobile advertising technology is still in its infancy; many of the tools they’ve come to rely on with desktop web ads have yet to make their way to mobile.
“The desktop industry had the better part of 15 years to build profiles and have cookie exchanges and re-targeting engines that have made display advertising pretty interesting,” says Mahi de Silva, executive VP of consumer mobile at Opera Software. “That technology just doesn’t work in mobile.”
Some of this might never come to mobile. Cookies, for example, are a key way that advertisers have managed to target desktop users with specific ads related to their browsing history, but today’s mobile browsers do not support cookies. This has forced advertisers to rely on other information, such as the mobile device’s unique ID number, which gives the advertiser far less data about the user to go on.
Beyond that, to really make the most of mobile advertisements, marketers need to invest in additional efforts, like building mobile landing pages and a system to capture users who do click through the ads. Combine this with lingering doubts about the effectiveness of these ads in converting clicks into customers and the deficit of targeting tools, and you have a marketing option slow to take off.
The Future of Mobile Ad Spending
While mobile ads may be cheaper on average now, analysts we spoke with expect prices to tick up over the next few years, as advertising technology improves and consumer behavior on mobile devices evolves.
Both Fredrickson and de Silva expect that publishers will roll out more sophisticated ad tools, including better targeting intelligence and profile management, which should persuade marketers to make bigger ad buys and boost CPMs. Indeed, Facebook is already testing a system that lets marketers place mobile ads on third party apps and websites based on Facebook’s data about what content its users have Liked.
While some desktop features like cookies may be difficult to replicate on mobile, there are opportunities for other marketing tools. This could include targeting ads to consumers based on their GPS locations, through geofencing technology. In this scenario, companies would be able to push out promotions to consumers as they they walk by particular stores.
Meanwhile. mobile search ad prices should continue to increase as consumers get more comfortable making bigger purchases on their phones and tablets. “As mobile commerce starts to grow…you are going to see more and more interest from advertisers who are looking to convert people,” Fredrickson says.
Moverover, de Silva argues that increasing tablet adoption should drive up the average CPM rate for mobile ads as well. According to the Opera study, iPads in particular had a CPM of $3.96 — more than a dollar higher the iPhone — but accounted for less than 7% of mobile traffic in the second quarter of this year. As it becomes more popular, it could boost the average rate for mobile ads overall.
Image courtesy of Flickr, BuzzFarmers
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