When Will Mobile Service Providers Get into Mobile Advertising?

By the end of 2011, eMarketer estimated late in 2011, 38 percent of US mobile users would have a smart phone and 41 percent  will use the mobile Internet at least once each month. Both of those trends are a necessary, but not sufficient foundation for mobile advertising, which is a fast-growing but highly fragmented and still small portion of overall ad spending and even of online ad spending.

That fragmentation explains why, even though many tier-one mobile service providers have undertaken internal reviews of growth opportunities, and have identified mobile advertising as among the handful of new businesses that could generate a significant new revenue stream for a tier one carrier, few have made significant moves yet.

The issue is simply that it is hard to "move the revenue needle" for any business already booking annual revenues in the scores of billions. When that is the case, a “small revenue opportunity” of scores of millions does not materially change business results. That necessarily means large tier-one service providers must look for new revenue opportunities that have the ability to produce $1 billion or more each year, for every major contestant.

Mobile advertising, though a logical “line extension” strategy for mobile service providers, does not yet make sense for a tier-one service provider. Even as mobile advertising hits the billion dollar mark, it remains below that threshold, at least for a tier-one mobile service provider.

That will change someday, but not really soon. A potential acquirer will want to see $100 million in current revenue, with a growth pattern suggesting $1 billion can be reached within five years, ideally.

eMarketer, for example, estimates that advertisers will spend nearly $1.23 billion on mobile advertising this year in the United States, up from $743 million last year and set to reach almost $4.4 billion by 2015.

This includes mobile display ad spending  (such as banners, rich media and video), search and messaging-based advertising, and covers ads viewed on both mobile phones and tablets.

This year, messaging-based formats still take the largest piece of the pie, accounting for $442.6 million in spending. But in 2012, banners and rich media will be even with search, each getting 33% of spending, or $594.8 million. That will put them ahead of messaging, which will fall to just 28.2% of all mobile ad spending next year. By 2015, banners and rich media and search will dominate further, and messaging will have shrunk to 14.4 percent of the total—though still growing in terms of dollars.

Video is the fastest-growing mobile ad format, but from the smallest base. Mobile video ad spending, at $57.6 million this year, will grow at a compound annual rate of 69% between 2010 and 2015 to reach $395.6 million.

Mobile advertising is growing really fast, at a 75-percent rate between 2009 and 2010, followed by socal media with a 32-percent growth rate over the same period, but from a very-low base. But television advertising continues to claim the greatest share of advertising spending, and had 11-percent growth between 2009 and 2010.