“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by John Milinovich, CEO at URX.
Mobile advertising accounted for $3 billion of advertising spend in the first half of 2013, according to the IAB, representing a 145% growth rate since last year. It’s not clear how much of that revenue comes from marketers promoting their mobile apps, but most agree it’s a sizeable chunk.
This raises the question: Is the mobile app advertising ecosystem a bubble ready to burst? Let’s consider.
Historical Context: How the Dot-Com Bubble Blew Up Ad Spend
In Q1 2000, digital ad revenues were $1.95 billion, a 182% year-over-year growth rate. Analysts at the time called the growth “unusual,” but were optimistic spend would continue at that pace for the remainder of the year. As it turns out, quarterly spending peaked in Q2 2000 and kept falling through 2002. Ad revenue was $6 billion, about $2 billion less than at its peak in 2000.
With 2013 ad revenue already exceeding $3 billion (more than where the digital ad industry as a whole was in 2000), it’s fair to ask whether the dependence of mobile app publishers on mobile app-based advertisers — and not, by and large, on traditional digital advertisers — could create similar vulnerabilities in the system, as well as to app monetization and marketing companies like Flurry, Apsalar, Fiksu and others.
Are we headed for a crash? The short answer is no.
Decoupling The Dependence Between Apps
In the early 2000s, advertising companies scaled by hiring people. Fixed overhead increased proportionally to ad spend, and revenue was booked quarters in advance. Everything was based on projections and anticipated fill rates, and ad revenues were generally easy to project. Return on ad spend would take months to calculate, and was directionally accurate at best. Advertisers and publishers were closely coupled.
In today’s mobile app ad economy, programmatic bidding has decoupled the relationship between apps. Mobile ad exchanges and other reseller intermediaries enable inventory to be priced and sold at the per-impression level, enabling a substantially greater opportunity to target and optimize spend. The market is sensitive to the real-time demand of advertisers, and there are countless variables, models and strategies at play. The feedback loop between ad buy and performance is substantially shorter, and advances in machine learning make this happen dramatically faster and more accurately.
As more of the market moves to programmatic, the decoupled relationship between advertisers and publishers will create a more stable environment than in the past. Market prices will become more fluid and closely match market conditions.
Standardization of Key Metrics
What’s more, in the last 13 years, the state of digital measurement has matured immensely. Key metrics have been solidified across industries, and marketers are now able to have deeper insights into attribution and ROI. In the early 2000s, CPMs were difficult to analyze and attribute, and view-through tracking was still in its infancy. Advertisers were generally in the dark with their ad spend, which would greatly prohibit any presupposed increase in spend.
Today, mobile app marketers are empowered to understand where their media spend is going and how it’s performing for them. There’s an expectation of transparency and a focus on performance. While mobile attribution is still a growing field and omnichannel attribution is still in its infancy, advertisers are able to be confident that their money is working for them. It’s easier than ever to pilot campaigns with new providers, and the cost of integration has dropped to almost zero.
The net result is a heightened focus on performance and analysis, which makes marketers confident in continuing to increase their mobile spend as performance dictates.
Why The Mobile App Ad Economy Is Safe
From Q1 2000 to present, the concentration of ad spend in the top 50 digital publishers has remained relatively constant: In 2000, the top 50 leading publishers accounted for 91% of total ad revenues, compared to89% today.
While at the surface this may seem to be a red flag, the sheer number of advertisers and the way advertisers access inventory has changed dramatically. Google reports havingmore than 1 million advertisers worldwide today, whereas almost all spend came from the same small group of advertisers back in 2000. Meanwhile, the increasing complexity of theLumascape points to the fact that advertisers are buying and sourcing inventory from an increasing number of places – a good sign for the overall health of the ecosystem.
Mobile is exploding, and will continue to do so for the foreseeable future. Thanks to the increasing complexity of the mobile ads landscape and its focus on attribution and measurement, critics can rest assured that the mobile ads ecosystem is not subject to the same bubble behavior as its desktop counterpart 13 years ago.
Follow John Milinovich (@jmilinovich) and AdExchanger (@adexchanger) on Twitter.
