While mobile local ad revenues are expected to grow, the short-term rate of adoption by advertisers is happening at a slower pace than previously expected, according to a new report from BIA/Kelsey.

The research firm predicts U.S. mobile local ad revenues will grow from $664 million in 2011 to $5.8 billion in 2016. However, compared to a previous forecast, short-term growth is slightly lower as local businesses struggle with learning how to advertise on mobile.

?We have dialed down the numbers on the earlier numbers in the forecast based on what we are seeing in mobile and dialed up the numbers in later years,? said Michael Boland, program director of the mobile local media practice at BIA/Kelsey, Chantilly, VA.

?The reason why we dialed them down in the earlier years is that we are actually seeing less advertiser adoption than was expected for mobile ads overall and for those doing location targeting,? he said.

?The overall learning curve of what?s possible with mobile and the native capabilities of these devices is seeing a slower uptick than expected. In later years, we expect adoption to be greater than we previously forecast.?

Early mover advantage
BIA/Kelsey forecasts mobile local ad spending will total $1.2 billion in 2012, $2.1 billion in 2013, $3.1 billion in 2014 and $4.5 billion in 2015. The compound annual growth rate for mobile local advertising between 2011 and 2016 is forecast to be 54.2 percent.

While mobile local ad spend will be slightly lower in the near term, BIA/Kelsey expanded the growth rate for later years covered in the forecast as demand is expected to pick up.

Locally targeted mobile ads are expected to account for 58 percent of overall mobile ad spending in 2016, up from 41 percent in 2011.

Overall, BIA/Kelsey expects U.S. mobile ad spending to grow from $1.62 billion in 2011 to $9.92 billion in 2016.

Currently, mobile advertising trails the amount of time consumers spend on mobile, with industry estimates giving mobile a 10 percent share of consumers? time spent on media while advertisers are only allocating around one percent of their budgets to mobile.

Because mobile ad inventory currently outpaces advertiser demand, this in turn is driving down mobile ad rates.

Advertiser demand for mobile local ads is expected to grow, driven in part by the lower rates and the fact that consumers are spending so much time on mobile. As demand increases, mobile ad rates should also increase.

?It is an inevitable reality that advertisers will follow those eyeballs and that engagement,? Mr. Boland said.

?There is a great opportunity for advertisers to get an early mover advantage and to experiment to see what works and what doesn?t,? he said.

Tipping point
Local businesses are also expected to warm up local mobile advertising as smartphone penetration continues to grow and they learn how to use location data for ad targeting for higher-performing mobile ad campaigns.

New mobile ad formats will also drive demand, including Facebook?s growing options such as sponsored stories and app install ads.

As a share of overall local ad spend, mobile represented a 0.6 percent share in 2011 but will grow to a 3.1 percent share in 2016.

?In the next one to two years, we will start to see the tipping point where advertisers get it and are starting to develop campaigns that use the mobile device?s capabilities rather than just porting over campaigns from other efforts, which so far seems to be the case,? Mr. Boland said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York