Get ready for a bloody fight over the mobile Web

The Internet is going mobile, and so are some of the Web's enduring controversies about a digital ad economy. Will mobile ad networks live to see the next stage of the platform they helped create?

Plummeting CPMs. Sales-channel conflicts. Lack of vendor differentiation. Commoditization of inventory. Honey, haven't we seen this movie before? Yes, we have, dear, but now some of the classic online ad network plotlines may be playing out on the handset. The competitive battles among ad networks, and between publishers and the nets, that characterized the last few years online seem to be going mobile just like everything else. Is it déjà vu all over again?

"It potentially could be worse," says Jeff Litvack, Ap's general manager of mobile and emerging products. Last year many mobile ad nets could boast high and steady rates even as standard Web prices tanked. This year, Litvack, along with other publishers and media buyers, say they have seen CPMs tumble often to a third of what they were because of fierce competition among more than a dozen mobile ad networks. "They are making available very cheap inventory that drives prices down across the board," says Litvack, who worries that such dwindling revenues will not support robust mobile content.

Commoditization clearly is taking place, adds Jordan Greene, principal, mobile media at Mella Media, a media relations and mobile agency. "I have heard of people under-pricing one another to the point where they will lose money on the campaign. Very few of them offer anything that is unique anymore."

The mobile ad marketplace has evolved rapidly in the last year, but its history is quite different from the Internet that preceded it. More than 57 million of us accessed the mobile Web in July (up 34 percent in the last year, according to Nielsen), and literally billions of applications have been downloaded from the Apple iPhone App Store, with Android and BlackBerry markets also starting to grow.

Bleeding Inventory
Mobile social networking has exploded, helping to flood the platform with massive amounts of inventory. More than a dozen major ad networks like AdMob, Millennial Media, JumpTap and Quattro Wireless race to fill the expanding space, but client demand is not keeping pace with supply. Even some ad net executives like Paran Johar, chief marketing officer at JumpTap, admit there has been blood. "Commoditization is largely due to ad networks that were fighting for their lives and undercutting the inventory. They were just giving away tonnage." Johar believes the market will stabilize around the well-differentiated players eventually, but "we will have to go through more carnage and clean house."

While some aspects of the mobile ad environment are following in the Web's footsteps, here the networks play a unique role in helping many publishers build and sell their mobile presence. Because of the small scale and complex, highly fragmented nature of the environment, even the largest media brands needed experienced technologists and outsourced sales staffs to fire up their third screens. While the Web ad nets arose by selling remnant inventory that premium publishers couldn't unload themselves, the mobile nets generally helped bring this platform to scale by repping the premium inventory and introducing new ad units, targeting and frequency capping.

Even a major publisher like The Weather Channel, which is "philosophically opposed" to using the nets, according to Cameron Dayton, vice president for mobile, recognizes their important role in developing the market. "They established the platform as a reliable place to spend your media dollars," he admits.

"Unlike online, most of the innovation in mobile comes from the networks," says Jason Spero, vice president of marketing at AdMob, which became an early leader in the self-serve, cpc market and now serves display campaigns to the mobile Web and applications. AdMob, Millennial Media, Quattro and others have all introduced new beyond-the-banner rich media units for smartphones and the iPhone this year in order to make a stronger case for mobile among the brands just starting to take the third screen seriously. "We are not the last 5 percent or 7 percent of the impressions. We are trying to lead the market," says Spero. He cites customers like CBS and others who give AdMob specific guidance on how and to whom they want to be sold in order to avoid the channel conflict some publishers bemoan.

Johar argues his network is "100 percent transparent" and distinguishes itself by partnering with the carriers on their data and inventory. "If you have nothing else to compete on, then you drop prices," he says. "In the last six months we have seen a big separation between the men and the boys." Market exits have already begun, with network Ad Infuse selling out to global marketing firm Velti, and Ringleader Digital selling its ad network in order to concentrate on analytics technology.

Determining which nets are leading through differentiation and which are commoditizing the mobile platform depends on who you consult. Most of the nets like to point fingers at everyone else's transgressions and claim to float above the fray. But some publishers and media buyers say that the unique power of all the ad networks on the mobile platform created a singular problem: The content providers were not controlling their own fate. "The ecosystem didn't have a chance to create the necessary ad units and premium inventory," says Litvack. While Web networks focus on remnants, the mobile model often is the reverse. It is as if Yahoo were letting a random network sell their coveted front page instead of extracting a top rate for themselves.

"These [mobile] guys are getting primary real estate, and that is a big difference," says Greene. Now, with depressed pricing and a still-nascent mobile market, the premium publishers have to assert greater control over pricing and their own inventory in order to make mobile investments pay off, some argue. Otherwise, advertisers get conditioned to mobile inventory getting cheaper and prime placement coming easy. "Agencies are acutely aware that they can buy premium sites from so-called 'blind networks,'" says Boris Fridman, CEO of Crisp Wireless. Crisp positions itself in opposition to network selling and provides technology and sales assistance that helps publishers bring more of their sales in-house. "Why would an agency pay premium when they can already buy the site, the demo, the audience [on a network]?"

Shakeout, Shakedown or Planned Obsolescence?
Arguably, the mobile ad nets helped build the mobile Web and create an ad economy for the new applications market. But do many discrete networks for mobile really have a future if major publishers start taking greater control of their inventory, and the Web and mobile platforms begin to converge? Everyone envisions the mobile environment evolving, but differently. Spero and Johar foresee a maturing market where buyers and publishers will continue to partner with the truly differentiated propositions - like theirs, of course - with distinct IP, formats and analytics. The commoditized players will go away. "All that is where we get into chapter two of the mobile model," says Spero.

Others see a different scenario emerging, where the mobile nets played a necessary but ultimately disposable transitional role in the early years of the platform with few actually making it to, say, chapter three. "Premium publishers are waking up and saying there is real money here," Dayton argues. He and other media companies look toward more publishers establishing stronger positions for themselves and selling brand advertisers directly into high CPM mobile inventory. "Blind networks enable scale," says mobile consultant Matthew Snyder, CEO of ADObjects, "but with the right media-buying platforms and inventory visibility across product, seamlessly enabled direct placement is going to win."

Or the Web itself may ultimately win simply by annexing mobile territory as its own. Smartphone full-Web browsing and HTML coding on mobile sites are commonplace, and mobile apps behave much like online social media apps and widgets. Yes, mobile has been fragmented and complex, but the real growth appears to be occurring on more standardized platforms that could easily converge with the "second screen." Some expect the major Web players to be the ones to wake up to this platform soon and turn mobile ads, targeting and tracking into just another feature of the online ad networks that media buyers already know.

"I don't think [mobile ad nets] have a defensible position," says Greene. It is hard for buyers to distinguish among the key players and that leaves the field open for Web incumbents to walk in and own the place. Pure-play mobile networks counter that the non-mobile companies have little mobile inventory and even less experience with managing mobile handsets and carriers. As long as fragmentation reigns supreme on mobile, discrete providers will be needed. Nevertheless, says Greene, never underestimate the power of the 800-pound gorilla in the digital space. "If Google decided to put some oomph into it, that would change the dynamic significantly," he says.