Business Insider: In Mobile Advertising, The Value Is Moving Up The Stack

Much is being written, rightly, about the mobile advertising market: Apple's exciting new iAd format, the FTC's apparent jihad against Google and AdMob, just how big the market is going to be and more.

You should check out our quick primer on the history of the mobile ad market >>>

We're right to be thinking about this stuff, as mobile is clearly the future of computing, and the mobile ad market will be huge. But we're focusing too much on the ad networks. We think in mobile advertising value is moving up the stack.

In technology markets, value often moves up the stack: in personal computing, the value was first in hardware, then software, and now the web and the cloud. In the mobile ad market, the value is moving from the networks to the apps.

Most ads in mobile ad networks are ads for other apps and, increasingly thanks to the iAd, immersive brand ads (which are also the future, but this is another topic). But, as Google has shown with its search ads, the most profitable apps are those that are tied closest to commerce. And because mobile computing is so personal, people need to opt-in in some way to advertising: the classic theoretical use case of mobile advertising is getting a coupon notification on your phone when you walk by a Starbucks. But in a busy street if you got a notification each time you walked by a store, you'd quickly go crazy and smash your phone with a sledgehammer.

Foursquare Starbucks offerEnter apps that wrap an advertising message around a fun, compelling user experience.

The best example of this so far is Foursquare. From an advertising perspective, Foursquare's checkins and game mechanics are basically a way to get people to opt-in to geolocated advertising. The Starbucks example has now become a reality, but you don't get a coupon when you walk in front of a Starbucks, you get a coupon when you're the mayor of a Starbucks. This is fun for you -- and much more compelling to Starbucks, who knows they're offering a coupon to a faithful, return customer, who will tell all his friends about his mayor offer.

Another great example is CauseWorld, an app from the Kleiner Perkins-backed startup Shopkick which rewards you for checking in at certain locations by having the owner donate to the charity of your choice in your name. With this kind of incentive, CauseWorld becomes a great way for retailers to attract, retain and monitor foot traffic through their properties, and later push specific opt-in messages to their customers.

If you're Starbucks or the Gap and you want to do mobile ad deals, which is most interesting to you? Apps like Foursquare and CauseWorld, which promise fun interactions with your customers at the point of sale? Or even the most gorgeous, engaging iAd? If you're smart, you'll probably want to have some great iAds but you'll mostly want to interact with customers through apps like Foursquare and CauseWorld, because they show the greatest promise and value for money.

Because mobile computing is so personal, and because of the way commerce happens when you're mobile, this is what the mobile ads of the future look like: messages wrapped into experiences that are opt-in, fun and compelling for the end user, preferably near the point of sale. This is where the engagement and the commerce happens, and that's why we think this is ultimately where most of the value will flow.

There's still a lot of value in mobile ad networks, just as there's still a lot of money in computing infrastructure, but while we debate iAds and Google/AdMob, the market is moving faster than us, as always. And as so often, the value is moving up the stack.

How'd we get to this point anyway? Read our feature on how the ad market was built!

Read more: Business Insider