Time for a reality check on the flashy Consumer Electronics Show and the robust mobile revenue forecasts that have kicked-off 2013.
Calmer heads prevailing on Wall Street are warning significant costs will moderate growth rates and value creation, likely wreaking havoc with the rosiest outlooks.
Brian Wieser, senior analyst for Pivotal Research Group, estimates Facebook in 2013 will spend $2 billion to generate growth in mobile advertising, which will drive a 43% rise in revenue, much of it front-loaded this year.
That does not include the cost of major acquisitions such as Faceboook's $1 billion purchase of Instagram. "Whatever growth Facebook gets won't be cheap," Wieser observes.
While online advertising is approaching 25% of U.S. ad spending (or $43.5 billion in 2013, up 17% from as year ago), the mobile interactive platforms and devices driving it are extremely amorphous and unpredictable. There are numerous variables to tip the scale between expenses and income, even for the biggest players.
The steps to executive mobile-centric campaigns can be more formidable (and costly) than the desktop-centric campaigns they replace. Mobile campaigns can be smaller and although CPMs can be higher, the absolute volume of impressions delivered are lower than desktop for now, Wieser points out.
The costs will mount for Facebook as it continues to ramp up its mobile advertising business in ways that Google, by comparison, can amortize and optimize.
The same cost-related risks apply to Yahoo as it makes its long overdue migration to mobile devices.
Implicit in his five-year forecast is the notion that revenues will be generated by emerging forms of a compelling combination of marketing, fees and e-commerce created from the new ways consumers, mobile interactive technology and companies (retailers, service providers) intersect.
The best conventional advertising will muster nationally is 3% annualized growth through 2017, compared 0.7% for local and 2.4% for normalized direct and mass marketing. While Internet advertising will average 11% annually over the next five years compared to a continuing 9.5% decline for newspapers, TV advertising growth rates will lag.
National TV advertising will grow 3.3 % annual even with the Olympics; local TV advertising will grow an annual 1.1% even with political sales; and total TV can only expect to see 2.5% annualized growth.
Notable revenue leaps will have to come from other new mobile interactive actions.
Barclay's analyst Anthony DiClemente pointed to some of those new revenue sources evident at last week's CES in Las Vegas: more seamless integration of Web video with cable TV, personalized products and services such as DISH's Hopper (that let consumers bypass TV commercials), increased media selection from dominant digital media platforms, such as Amazon, and more aggressive integration of Google's Android.
But even at the center of the platform battle with Amazon, Apple and Facebook, Google risks the loss of display and search ad dollars to hungry social media, such as real-time Facebook Ad Exchange and its growing alliance with Apple, according to JP Morgan's analyst Doug Anmuth.
There will be expenditures associated with Google and Amazon to become the starting point for e-commerce that will even out the anticipated revenue growth from all sources. Google's ability to leverage and influence spending trends is taking a toll on Apple. On the mobile front, Android's share of U.S. smartphone market has grown to 54% versus 35% for the Apple iPhone. As the rivals' ecosystem hardware, software and services continue to go toe-to-toe, revenues and costs will ebb and flow in unexpected ways.
For instance, Apple could replace Google as its default search provider in Safari when the companies' contract expires even without good alternatives, Anmuth points out.
Because there are so many moving parts and unknowns, there are no givens. Plenty of mobile monetization challenges abound for Google and Facebook, even with eye-popping growth from mobile ubiquity. For instance, mobile searches still don't monetize as well as declining desk-top searches
Still Google's mobile gross revenue will be around $4.3 billion in 2013, up 87% from last year, comprising 10% of the company's total gross revenues. Newcomer Facebook 's mobile revenues should reach $2.4 billion in 2013, up 332% in its first full year of mobile, accounting for nearly 4% of its overall ad revenues, Anmuth estimates.
Another catalyst tipping the balance between revenues and costs is exploding mobile Web consumption gravitating toward native app or mobile browser-based business models. While mobile consumers will continue using a mix of the two, more favorable economics are assured those companies able to create better services to aid users’ mobile navigation, Anmuth asserts.
That applies as much for major retailers (like Wal-Mart, Best Buy and Target) as it does to the Internet-tech giants (Amazon, Google, Apple) and Facebook, which are positioned as the ultimate starting point for all mobile Web action.