Mobile ad vendors in a tight spot as industry matures
Several trends are putting increasing financial pressure on mobile advertising vendors, resulting in layoffs, bankruptcies and consolidation.
From AT&T shutting down AdWorks to Velti?s bankruptcy filing, it is clear that while mobile advertising is growing, not everyone is making money here. Part of the problem is that while brands and marketers are dabbling in mobile advertising in a bigger way, few have yet to make a major commitment to it.
?Generally speaking, spend on mobile advertising/marketing is going slower than it should be or is expected,? said Julie Ask, vice president and principal analyst at Forrester, Cambridge, MA. ?There is disproportionately little spend on mobile relative to usage time.
?Also, mobile is great for lower funnel marketing where you get to know your customers, learn about them, earn their trust and then are better able to serve them,? she said. ?A lot of companies just aren't ready for that level of that highly contextual or relevant engagement.
?Many don't have CRM in place. They don't have analytics in place. The capabilities of many vendors exceed what marketers and consumers are ready for.?
Competing against Google
In addition to marketers? budgets still lagging, when they are spending money in mobile, most of it is going to Google and Facebook, where mobile users are spending much of their time.
This leaves a growing number of mobile ad vendors competing for the still small piece of mobile ad spend that remains.
Mobile ad spend continues to grow. Mobile ad revenues totaled $3 billion during the first half of 2013, up from $1.2 billion in the previous year, according to recent data from the Internet Advertising Bureau. For the year, mobile ad spend in the United States is expected to exceed $6 billion.
The way that mobile advertising dollars are being focused on Google and Facebook also points to a trend among the big agency groups such as WPP and Publicis Omnicom, which recently announced plans to merge.
Increasingly, these agency holding companies are looking to drive efficiencies by reducing the number of vendors they partner with. As a result, ad spend is being concentrated into fewer vendors, leaving less for the smaller guys.
These market conditions are making it difficult for some vendors to stay in business.
With Velti?s mobile ad exchange Mobclix unable to provide sufficient liquidity, the company recently said it is winding down the business, and at the same time filed for Chap. 11 bankruptcy for its remaining United States operations.
Around the same time, AT&T shut down its AdWorks advertising business because it had not gained traction. One of the problems, according to reports, was that AT&T had tried to leverage its customer data to enable targeted ads, but never figured out how to do so effectively.
Mergers and acquisitions
While some mobile ad vendors are scaling down, others with deep-enough pockets are looking at ways to make themselves more competitive through mergers and acquisitions.
For example, mobile ad network Millennial Media, which has faced slower than expected revenue growth, acquired Jumptap, to help it gain scale.
Additionally, Twitter recently announced that it has closed its acquisition of MoPub, a mobile ad serving platform and real-time bidding exchange.
As mobile social use continues to grow, Twitter ? flush with cash after its initial public offering - is viewed as a potentially viable competitor to Facebook in mobile advertising.
The success of Twitter?s IPO, which raised $1.82 billion, suggests there is an opportunity for quickly growing mobile services such as Square, Uber, SnapChat, Pinterest and others to also go public.
Snapchat reportedly recently turned down a $3 billion acquisition offer from Facebook, with the company holding out for an even bigger offer.
Those that do choose to go the route of a public offering could find themselves with enough cash to consider acquiring their own mobile ad platforms, leading to more industry consolidation.
?Mobile won't be stand-alone,? Ms. Ask said.
?There is a need to understand what consumers are doing across touch points - digital and offline,? she said. ?That will drive more acquisition.
?Some companies will have the bandwidth or desire to string together best of breed solutions. Others will look to a single partner for the simplicity and synergy of doing so.?
Chantal Tode is associate editor on Mobile Marketer, New York