Why Isn’t Mobile Display Advertising Huge Yet?

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Eli Portnoy is a guest author. If you’d like to submit a guest post, click here.

They say that history repeats itself, and that the best way to predict the future is to understand the past. I agree wholeheartedly — and think this wisdom applies to technology and advertising as well as it does to politics and sociology.

In 1928, the world was ablaze with a new technology. For the first time, a few lucky consumers could watch the radio. Yes, “watch” the radio, because most people thought of the TV as an improved radio experience. Many of the early TV shows were radio shows that were filmed and broadcast to the first TV sets. Of course, TV was eventually understood to be a completely new paradigm in home media consumption, and the benefits of viewing rather than listening were quickly channeled — and consumers soon enjoyed countless hours of made-specifically-for-TV fun.

This story has played itself out every time a new type of media emerges. At first, we don’t fully understand what makes a platform unique, and then we try to cram our preconceived notions into the new box. Eventually we learn and the experience improves — and so do the monetization opportunities. Sometimes the differences are technical, and other times they are purely consumption-driven.

The mobile device is going through a similar transformation right now. Only a few short years ago, cell phones had tiny black-and-white screens, incredibly slow connection speeds, and processing power resembling a calculator. Then came the iPhone, and everything changed. In 2009, 18% of the U.S. cell phones were smartphones; two short years later, that number had grown to 44%, according to Nielsen. That kind of massive growth has made it difficult for the advertising world to keep up and understand the uniqueness of the platform, and so we keep trying to shoehorn mobile into advertising paradigms from the web.

If you talk to industry insiders, the “smart” money is on re-creating the cookie business on mobile. Without getting too deep into how advertising on the web works, suffice it to say that it revolves around creating profiles of your activity online and serving relevant ads based on the intent you have broadcast by the sites you have visited. For both technical and intuitive reasons, this approach won’t work on mobile, but people keep trying. In my opinion, this is one of the reasons that advertising on mobile is still only 0.5% of total advertising dollars even though consumers are spending 9% of their media time on mobile. That huge discrepancy will equalize when we learn to unlock the value of mobile rather than try re-create what works in other mediums.

So why won’t the cookie work on mobile?
There are several barriers to making cookies work on mobile. There are certainly a few arcane technical issues that will soon be solved, but the more fundamental barrier is the way consumers use their phones. Online, when we want to make a purchase, we tend to research our product and leave behind a trail of our intent. If we were to shop for a car we might start with Edmunds.com, then go to Toyota, and to Nissan, and then maybe to Consumer Reports, and then finally look for a dealer nearby on Google. This trail can be incredibly powerful for a brand to use to target us as a likely car shopper.

On mobile, however, our browsing behavior is very different. We might be at the airport with a few minutes to spare and we’ll look at a few random sites. We might then be in a stadium and use that downtime to check the scores around the league. That evening we may play some mobile games. My point is that the time we spend on our phone and what we do is more contextually driven by the location we are in than the trail of websites and apps we visit. So trying to understand my commerce disposition via a cookie is likely much more futile on mobile.

So what is unique about mobile?
Screen Size: Mobile devices are making inroads when it comes to screen, mostly by packing pixels and increasing the size. Ultimately though, the size of the screen is a constraint.

Bandwidth: We are making huge progress, but most consumers are still stuck at 3G. So, for the short-term, speed of the pipes is a difference.

Portable: Mobile devices are by definition mobile. We can take them with us. We carry them in our pocket and use them to help make decisions on the go. They are our always with us remote control to the world.

Location: Mobile devices have three ways to access your location. GPS, wifi, and cell-tower signals. Some are more precise than others, but each is more accurate than anything the web can even dream of. The ability to know where you are makes for incredibly powerful applications (think Waze or Foursquare), but is also important tool for advertisers.

What does this mean?
For the first time in human history we have a digital device that a majority of consumers take with them everywhere. Not only that, but we can also target ads based on where they take their phone (i.e. hyperlocal targeting). Did you know that almost half of shoppers use their phone in stores to make decisions? Imagine being able to target them while in the process of making that choice. The online economy is about $200 billion a year, but the offline market is orders of magnitude bigger. Smartphones can finally bring the efficiencies of online marketing to drive offline sales. This is a seriously powerful opportunity for marketers. Mobile is all about location, location, location.

So instead of trying to force web paradigms onto mobile, advertisers should be rushing to localize their message and take advantage of the 1-2 punch of smartphones’ portability and location.

Eli Portnoy is the CEO/co-Founder of ThinkNear, a hyper-local mobile ad platform funded by IA, Google, and Qualcomm that allows advertisers to reach consumers within 100 meters of any location. He blogs regularly at http://eportnoy.posterous.com. Follow him on Twitter at @eportnoy.