Local Search: Will Mobile Overtake Desktop?

Share this:

Last week, BIA/Kelsey released its latest forecast, covering U.S. mobile ad revenues for the next five years. It projects that what is currently a $1.7 billion market will grow to almost $8 billion by 2016.

These figures are up slightly from the last forecast, due to updated market analysis and things like Google’s global mobile run rate. But the real story is buried within forecast breakdowns and inputs, such as mobile usage and search volume growth.

ScreenHunter_05 Mar. 29 17.46

Search nosed ahead to become the leading ad format in 2011, and will increase that lead going forward. This has a lot to do with the accelerated growth of the mobile web — where search is central — as opposed to native apps. Search ads also perform better due to their intent-driven nature.

But perhaps more interesting to readers of this column is the breakdown of location-targeted ads. They now represent less than half of the total mobile ad dollars, but will grow to almost two-thirds by 2016.

ScreenHunter_04 Apr. 06 16.40

These are similar projections from our last forecast. As such, the reasoning for local ad revenue growth remains consistent with what we outlined here back in December. But there are a few amendments, as the market continues to develop. Here are the three reasons for local’s commanding share that we discussed last time:

ScreenHunter_06 Apr. 06 16.58

Let’s take those in the same order. After calculating mobile figures, I huddled with colleagues to compare with their corresponding desktop figures. We discovered something interesting: mobile local searches are on pace to meet their desktop equivalent in 2015.

Looking deeper, it’s clear that this is a function of increasing mobile searches per user (40% of which are local). It also results from more total search users, which currently account for 44% of U.S. mobile subscribers, growing to 75% by 2016.

ScreenHunter_03 Mar. 29 17.05

As for “reason 2”; Are advertisers catching up with that usage? They are, but not as quickly as search volume is growing. That leads into reason 3: premium ad rates aren’t materializing yet, due to this somewhat laggard advertiser adoption that has kept demand — and thus prices (CPCs and CPMs) — down.

What that tells us is that location targeted mobile ads haven’t lived up to the value that’s commensurate with their performance. Buried in that finding is the statement that there is undervalued ad inventory out there, and now is the time to get out and experiment with mobile local advertising.

But it brings up another point. The relevance and higher performance of location targeted ads (in both search and display) will be required to prevent the runaway commoditization of ads that we’ve seen on the desktop over the last decade.

This was caused by oversupply of ad inventory, which we’re starting to see happen in mobile. As expected, this is making ad rates, such as average CPMs (in display), go down where they now hover around $2.50 on average. A deeper dive on this economic snapshot can be found here.

ScreenHunter_05 Apr. 06 16.44

But the point is that there are a couple ways to avoid tanking ad rates. One is for demand to catch up with supply, for which we see supporting evidence in our projections (also see “reason 2”). Another is to establish more premium sources of ad inventory. And that’s where a both search and location targeting come in.

Lots of different forms of engagement are emerging in mobile that represent premium ad opportunities. They include things like earned or achievement -based advertising (see Kiip), organically generated social advertising (see Facebook’s sponsored stories).

But most of all, we’re banking on location targeting, and search ads (and their combination) as the relevance drivers that create not only intent-driven user engagement and advertiser demand, but a top source of premium ad units. It hasn’t happened yet but it will. Give it time (and if it doesn’t, you didn’t hear it from me).

Mike Boland is senior analyst at BIA/Kelsey, where he heads up the firm’s mobile local coverage. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0 and others.

Mike Boland has been a tech & media analyst for the past two decades, specifically covering mobile, local, and emerging technologies. He has written for Street Fight since 2011. More can be seen at Localogy.com