On the heels of Google's acquisition of AdMob and Apple's launch of its iAd mobile advertising business, Greystripe CEO Michael Chang explains why fledgling mobile ad companies like his aren't screwed.
Yes, Google and AdMob are two of the largest mobile ad networks.
Yes, their combination will position the company as a market leader in terms of revenue (estimated 21% market share by IDC’s estimates in November of 2009).
And yes, Google’s acquisition of AdMob will create a MORE competitive marketplace. With Google setting the stage for brand ad dollars to flood into mobile, what will this mean for competition?
Big Fish, Huge Ocean
Google’s acquisition of AdMob is the beginning of the era of mobile advertising. It creates a big fish in a small pond, but the acquisition was also the first stick of dynamite to explode on the dam holding back mobile advertising.
It is a common belief that someday soon people will consume media whenever and wherever they want – i.e. mobile. It is also widely accepted that advertising is going to be one of the primary means for paying the bills.
Today, the “pond” of mobile advertising is small compared to total ad spend – less than a billion dollars in 2009. It remains separate from the advertising budgets of many of the largest brand advertisers. (Most of the current ad dollars come from performance advertisers who are looking to drive direct financial value through the click.) There is an “ocean” of brand ad dollars that currently flow to TV ($70 billion), print ($55 billion), and online ($12 billion). As audiences shift to mobile from online, television and print, the brand ad dollars will follow. The question has not really been “if” but “when” this will happen. When Google pulled the trigger on purchasing AdMob, the dam separating these pools of ad dollars began to crumble.
The Battle has Begun
With Google aggressively staking out territory by picking up AdMob, other industry players with their sights set on the huge market have acted.
In December, Apple purchased Quattro (after failing in its bid to acquire AdMob), and has recently announced their entrance into mobile advertising with iAds. Apple changed the terms of its Developer User License Agreement giving it broad discretion over its ecosystem. They picked a fight with Adobe by outlawing its Packager for iPhone in the eleventh hour and Apple CEO Steve Jobs trashed Adobe Flash in a blog post.
Google used the opportunity to jab Apple. They announced support of Flash on new Android devices, highlighted the need for openness and warned against a future where "one man (Steve Jobs) controls mobile." Check out "The Gloves Are Officially Off: Google Vs. Apple."
It should be an interesting 12 months with Google and Apple continuing to jockey for position and other players (Microsoft? Yahoo? Carriers?) making moves to capture their share of the rapidly expanding mobile advertising pie.
Beyond the Mudslinging: Performance vs Brand Advertising
Behind the public posturing, Apple and Google are focusing on two different segments of the mobile advertising market. Google-AdMob is focused on performance advertising and will likely maintain a dominant position. The FTC statement explains performance advertising,
“Both Google and AdMob focus their businesses on performance mobile ad networks, in which advertisers often buy ad space through auction rather than through sales relationships, and pay for the advertising on a “per click” or other direct response basis.”
Instead of competing head on with Google-AdMob, Apple is focusing on the more challenging and potentially more lucrative segment of the mobile ad network – brand advertising. Again, from the FTC statement:
“Brand advertising, conversely, is typically paid for on a “per impression” basis, as the goal in brand advertising is to put the advertisement in front of the user, not necessarily to generate a click or other immediate action.”
Brand Advertising: Can Apple Win? Can Google?
Skeptics have noted that it is not clear whether Apple or Google will be able to dominate the Mobile Brand Advertising Market.
Google is a performance juggernaut, but brand advertising is all about engagement and requires a different set of capabilities. It is not clear to what degree Google will compete for brand ad dollars versus scaling its performance advertising business. If it does compete, it will face a number of obstacles. The self-serve model Google deploys for AdWords and AdMob deploys for it mobile ads is not likely to be successful for brand advertising. Will it be able to build and scale a successful direct salesforce? Google-AdMob’s ad formats are not sexy -- largely text links and simple banners. Will it be able to create and deploy engaging ad formats? Finally, Google is built around a bunch of super smart engineers. Will the engineering-centric culture of Google interact well with the creative culture of brand advertising?
Apple is new to advertising altogether and there is no guarantee that its iAd platform will be a success. Advertisers have already raised concerns about iAd’s pricing, lack of Flash support, and requirements that brands give up creative control over ad creation (see “Why Advertisers Can Skip The iAd Launch” and “Open or Not, Apple’s Flash Ban Creates Huge Issues For Advertisers”).
Further, Apple and Google will need to compete with other brand-focused mobile ad networks like my company, Greystripe. Greystripe has over 18 months of compelling results from its rich media iAd-like ad formats and has cleared many of the scalability hurdles that Apple and Google now face. Most notably, Greystripe, with its iFlash Technology, makes it easy for advertisers to engage mobile users by delivering rich media Flash ads to the iPhone and iPad. (See “Apple Flash Ban Good for Greystripe: Company Behind ‘iFlash’ Ads Sees 200% Growth” and “Flash Comes to the iPad... At Least for Advertisers.”) According to recent reports by comScore Inc., Greystripe’s advertisers achieve CTRs of 2-5% on average, with 15-30+ seconds of user engagement with the Company’s iFlash ads for a fraction of the price of iAds. This sets a high bar for Apple and Google to clear in order to win over advertisers.
Finally, brand advertisers want to target audiences, not platforms. As smartphones and tablets advance and a number of alternative platforms rise (like Android) to compete with iPhone, advertisers will increasingly be drawn to networks that can reach their target audience on any mobile device. This provides a huge opportunity for independent cross platform ad networks like Greystripe to compete with Apple and Google for advertising dollars.
All About Apps
Another important implication of Google’s acquisition of AdMob and Apple’s acquisition of Quattro is the role of applications in mobile advertising. Strength in applications (instead of on the mobile web or in search) was the reason for the acquisition of the both AdMob and Quattro.
Advertisers are embracing application-based advertising.
“Given the enthusiasm for mobile advertising unleashed by the iPhone and the accompanying App Store, it's not surprising that branded apps are what clients find most intriguing about the emerging ad category, according to survey respondents spanning agencies, brands, publishers, technology vendors, retailers and other types of organizations.”
Even more importantly, end users are embracing application-based mobile advertising.
“Advertisements on mobile devices are both welcome and effective, a recent study from mobile audience media company JiWire revealed. This is especially true of advertisements that appear in apps. Of the roughly 1,000 smartphone users surveyed, 52% claim they have acted on an advertisement in an app and 18% have made a purchase directly from an ad in an app in the last month.”
Applications will continue to play an important role and the winners of the battle for mobile brand dollars will need to have strong relationships with application publishers.
The FTC is watching
The current battle for early leadership in the mobile advertising market has focused a spotlight on Google and Apple and their management of their mobile platforms.
“Though we have determined not to take action today, the Commission will continue to monitor the mobile marketplace to ensure a competitive environment and to protect the interests of consumers.”
As the visible leaders in the mobile ad space, both Apple and Google will need to tread carefully as they manage their ad networks and platforms. Any actions to limit competition on their platforms will be scrutinized.
Conclusion – Brand Advertising is Up for Grabs
Google’s acquisition of AdMob creates a powerful market leader who may well dominate the mobile performance advertising space. The acquisition has also leveled the dam releasing a huge rush of brand advertising dollars that are up for grabs among Apple, Google and other independent ad networks like Greystripe. These networks will need to satisfy the desires of advertisers and agencies who want to exert control over the creative process, expand digital campaigns across the web and mobile, and reach users across multiple mobile platforms. As a variety of mobile platforms emerge with large and engaged audiences, many brand advertisers will choose ad networks that have an unbiased commitment to multiple mobile platforms. That's why I think that as the leading independent mobile ad network focused on brand advertising across platforms, my company is well-positioned to compete with Google-AdMob and Apple-Quattro for leadership in mobile brand advertising.
Michael Chang is CEO of Greystripe, a mobile ad firm.
Read more: Business Insider