• by Christof Wittig , July 10, 2014

Mobile is huge, tech pundits say -- but most of them miss the fact that mobile advertising isn't growing anywhere near the pace of mobile adoption. As Mary Meeker's 2014 Internet Trends Report shows, mobile ads still represent just a fraction of the global Internet advertising spend.

Why? Here are some key factors -- and changes that must happen before mobile can become truly huge.

3. Core Reasons Why Mobile Advertising Still Lags Behind Desktop

Fragmentation leading to desperation: There are 500 mobile ad networks alone, plus many more firms dealing in mobile media. Desperate to boost their revenue, mobile ad companies often trade with each other. Inventory sometimes changes hands several times before being purchased by an actual advertiser. This leads to markups, anywhere from 2 to 10x, that reduce consumer relevance for the ad itself, and tarnish the economics of mobile for advertisers and publishers alike.

Tyranny of the tiny ad banner:  Transitioning from desktop to mobile, the classic banner ad was shrunk to 300x50. Advertisers, publishers, and users all hate this tiny, non-optimized ad unit, but it remains the industry standard -- still accounting for a significant percentage of the overall mobile media spend. Indeed, much of mobile advertising's core industry infrastructure, such as the real-time bidding marketplaces, are built at scale around the 300x50 banner.

Inefficient vertical integration:  In the early days of desktop computing, companies like Wang, DEC, and IBM were vertically integrated to build their own proprietary hardware, software, and services. Consequently, these companies were way less efficient and offered much less choice, thus limiting the overall market's size. (Back then, a fully loaded workstation could easily cost six figures.) Mobile advertising is repeating this history, with major players trying to offer a complete spectrum of quality media, technology, and data for ad targeting, along with advertiser sales and services. In a sense, mobile ads are a small market for the same reason there was a small market for $100,000 workstations.

Despite all this, I'm optimistic that mobile advertising can overtake desktop, perhaps as soon as 2016. For that to happen, however, three enablers must fall into place:

3. Enablers for Mobile Advertising to Surpass Desktop

Mobile Ad Consolidation:  We already see this process starting, with Millennial acquiring Jumptap, among other high-profile deals over the last 24 months. Consolidation creates best practices at scale and proliferation of technology standards, reaping network effects for the industry. This will drive down prices and increase efficiencies, making mobile ad spend more attractive vis-à-vis other platforms. Consolidation will also help remove superfluous middlemen from the buying process, with advertisers able to buy more inventory directly from publishers, or exchanges.

Specialization Replacing Vertical Integration: The PC industry grew when it moved away from vertical integration toward specialization (Microsoft developing OSes, Intel making chips, etc). I'm hopeful we'll see a similar move in mobile ads, with specialized companies creating de facto standards for advertising technologies. As this happens, other companies will compete by offering differentiated media. (Similar to a PC company like Intuit providing quality software without changing the underlying chip design.)

Still Needed: An “iPhone Moment” for Mobile Ads: Ultimately, for mobile advertising to massively grow, the industry needs its own “iPhone moment”. When Steve Jobs first debuted his device, the market instantly understood that smartphones were not just a shrunken desktop OS attached to a phone, but a new medium that was compelling -- even sexy.

With much of mobile still flailing about in its 300x50 era, I'm eager to see that shift.

The current hype around “native” ads might point us in that direction, but in my view, proprietary standards are the last thing the industry needs in order to scale. (Much of “native” is really a symptom of the struggle of mobile-first companies to get rid of the shackles of desktop-centric standardization bodies, which gave us the 300x50 unit in the first place.)

I'm more hopeful that other “mobile first” ad units will emerge, and be as rapidly adopted as when the world embraced the keyboardless iPhone, which helped boost the smartphone industry by 10x within a few years. And then when Ms. Meeker shares her Internet trends report in 2016, we'll see a mobile platform that finally lives up to the current hype.