Who Will Profit From the Boom in Mobile Ad Spending?
It turns out there's money in the mobile ad business, after all.
The research firm eMarketer recently jacked up its estimates for spending on mobile advertising over the coming years. And the change makes the mobile ad market look like a much more promising line of business. Instead of climbing just 80% this year, spending is now expected to leap by 180%, on its way to becoming a $20 billion industry by 2016.
And what propelled the huge upgrade in the forecast were the shifting ad fortunes of just one company: Facebook .
Thanks to the social network's newfound success with mobile ad displays, the research firm now expects total mobile spending to top $4 billion this year. That's much greater than the $2.6 billion it forecast just three months ago.
Here's the way the mobile ad market will look in a few years, according to eMarketer's updated prediction:
U.S. Mobile Ad Revenue (2014)
It's important to not put too much faith in revenue projections this far into the future. And that goes double for such a young and unstable industry. After all, eMarketer is making a huge change to its projection for 2012, even this late in the game.
Still, it's looking like a safe call to be bullish on mobile ad spending going forward.
Facebook is one big reason why. The company said over 600 million people interacted with its service through a mobile device in Q3. More importantly, it boasted that 14% of its $1 billion total advertising haul -- or about $150 million -- came from mobile ads served up in the quarter. That surprised analysts, who were expecting the company to pull closer to $40 million from mobile ad delivery. And Q3 was Facebook's first real quarter of focusing on monetizing its huge mobile user base. As the company tinkers with different ad types, it seems clear that revenue has plenty of room to grow.
But Google is still the biggest in the industry, by far. Google's total ad revenue jumped to $11.5 billion in Q3 thanks in part to a surge in mobile device usage. The company also reported a worrying 15% drop in average cost-per-click figures. Google said that drop was helped along by "traffic growth in mobile devices, where the average cost-per-click is typically lower compared to desktop computers." Look for the company to continue innovating in that space. Just this week Google rolled out a new type of ad that aims to counter the "fat finger" problem and eliminate accidental clicks on ads from mobile devices.
And with its own huge installed base of devices, Apple can look forward to increasing revenues from the mobile ad market. Still, it hasn't been able to tap into it with its iAd program just yet. The company owns 7% of the mobile ad market, according to eMarketer. That's despite Apple's iOS platform boasting more than a third of the smartphone market, according to comScore. If Apple can bring its ad share closer to its platform share, then advertising revenue could really take off.
Yet if there's one estimate that I don't see coming to pass, its Pandora's $500 million yearly ad revenue forecast. Yes, the company booked 61% higher advertising revenue last quarter, bringing its haul to $266 million so far on the year. But to get that revenue growth, the number of ads delivered to users had to grow even faster, by 106% last quarter. Pandora won't be able to keep soaking its listeners with ads at that pace and avoid hurting the service and eventually hampering subscriber growth.
Foolish bottom line
Even with the big revision to eMarketer's growth forecast, the mobile ad market has a long way to go before it can challenge more traditional media. It represents just 2.5% of total ad spending right now. eMarketer expects that figure to climb to 11% by 2016. That would make it a bigger ad platform than newspapers, magazines, or radio. But if companies like Facebook continue dramatically improving ad delivery and mobile engagement, that forecast could prove conservative, too.
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The article Who Will Profit From the Boom in Mobile Ad Spending? originally appeared on Fool.com.Fool contributor Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool owns shares of Apple, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.