Companies across the Internet continually proclaim mobile ads as the next great frontier. Pandora Media (P), Twitter, and other big names often derive the majority of their revenue from them. On Oct. 23, Facebook’s (FB) stock leapt more than 10 percent on news that the social network earned 14 percent of its third-quarter revenue from mobile ads, up from almost nothing in the first quarter. That mobile advertising should be an enormous business makes sense. After all, our smartphones are always with us, know where we are, and collect far more data about us than a desktop PC. So if mobile has such potential, why are the ads so mediocre?
“Most mobile advertising is done as an afterthought,” says Eric Picard, chief executive officer of Rare Crowds, an ad technology company. “Immature designers have just sort of slapped banner ads in there.” Working with a tiny canvas—a smartphone display—most ads take one of two forms, each with obvious shortcomings. There is the tiny banner ad Picard refers to, which has little room to say anything more than “Click here for something!” and the interstitial, the screen that pops up and interrupts you while you’re trying to read something else.
These two simple forms have their roots in other media—only in other media they make a lot more sense. A print advertisement or, for that matter, a Web ad on a computer’s large display, is based on the concept of adjacency: We tolerate it because it’s next to content we want to consume. Television ads work the same way (at least for people without DVRs), but with the added dimension of time. Modern Family will be interrupted, sure, but the show’s story structure is designed for that, and we’ll sit through some commercials because we want to see what’s going to happen with Phil Dunphy’s next crazy scheme to surprise Claire.
When we encounter a mobile ad, it’s disruptive, and not in the positive way that business gurus breathlessly use the word. “When I see an ad pop up on my phone, I get scared,” says Al Rotches, a Web ad designer who has worked on Internet campaigns for Barack Obama, Honda Motor (HMC), and Trojan Brand Condoms (CHD). “When I’m on my phone, this is my thing,” he adds. “I don’t want to be tracked, I don’t want to be interrupted.”
Worldwide mobile-ad spending will reach $6.4 billion this year and more than $23.6 billion by 2016, according to researcher EMarketer. Google (GOOG) is the biggest beneficiary, but even it realizes that banner ads and interstitials aren’t going to work on a smartphone. The company has been developing enhanced ad services like click-to-call buttons, which allow people to contact an advertiser directly about an offer using the phone in their hand. Its Android devices also can use Google Now, a virtual personal assistant that keeps track of your frequently visited locations and repeating calendar entries and then tries to provide relevant information, such as a traffic report minutes before you head to work. The company hasn’t sent out any advertising through this service, but many in the industry expect it will: Besides the traffic, wouldn’t you be interested in a coupon for a new breakfast sandwich at that coffee place on your way to the office?
The company’s mobile-payment system, Google Wallet, is another way it’s moving beyond the standard model. Storing a user’s credit-card information does two things: It makes mobile purchases easier, since a person doesn’t have to enter payment information on a small device, and it provides a way to follow the money. Without a payment platform, Google and other ad networks have no way to determine whether an ad persuades a user to make an offline purchase. But if you use Google Wallet to pay a florist after Google sent you an ad from that florist, Google can make some conclusions about that ad’s efficacy and adjust prices accordingly.
Facebook’s rapid mobile-ad expansion has been possible because more than 60 percent of its users access the social networking site on a mobile device. The company attributes its recent growth in mobile ads to what is known in the digital-ad world as “native advertising,” or advertising that’s integrated with a site’s regular content. In Facebook’s case, that means ads that appear in a user’s news feed, which the company calls a “sponsored story.”
“We want to make the ads on Facebook part of the user experience in a seamless way,” says Gokul Rajaram, Facebook’s product director for advertising. That not only means incorporating ad content into news feeds, but also storing users’ credit-card information so they can make purchases with a single click. “On mobile, the need to reduce friction in any transaction is exponentially greater,” says Rajaram.
On Facebook, each user can be turned into an ad network. Sponsored stories are first distributed to users who have chosen to be fans of an advertiser’s Facebook page. If a fan then likes the ad (often consisting of a coupon or other discount) in a sponsored story, it’s distributed to that fan’s network of friends, whether they liked the advertiser’s page or not. “We’re finding that more than 50 percent of all claims of offers come from friends of fans, not fans,” says Rajaram, adding that Facebook’s research showed people recalled an ad referred by a friend 10 times more often than a typical display ad.
Twitter is also pursuing a native-advertising strategy, in the form of promoted tweets, but custom formats for Facebook and Twitter will not work for the larger world of the Web, meaning that the magic formula for mobile advertising remains elusive—especially for sites that have fewer visitors. “Digital advertising is about getting my message in front of a lot of people at a low cost,” says Rare Crowds’ Picard. “The more we carve up that inventory, the harder it is to get that message out.” Facebook can do sponsored stories, he says, because it has such a large audience. “But not everybody’s Facebook.”