11 June 2010

Apple's Next Disruption: Advertising

The Wall Street Journal

If anything is clear from the punches being thrown by Google at Apple over mobile advertising, it is that the search giant understands what is at stake.

As mobile advertising comes into its own, Google should be well-positioned to grab a big piece of it. Prospects for other large media companies, online or traditional, are less sure.

It is easy to underestimate the importance of mobile Internet and advertising. ComScore estimates 48 million people had smartphones in the U.S. in the three months to April, of whom only 5.4 million searched the Web on the devices on a near-daily basis. In contrast, the firm counted 214 million people searching the Web generally in April.

Estimates from eMarketer put mobile advertising at $593 million this year, compared with about $25 billion for total online advertising.

But eMarketer's numbers were issued last September, before the release of the iPad. The Apple tablet's strong sales so far confirm consumer demand for tablet computers and suggest consumers' online behavior is likely to become a lot more mobile. That is likely already the case for owners of smartphones with robust Web browsers like iPhones or Android-powered devices.

Android and iPhone devices commanded 37% of the smartphone market in the first quarter between them, according to Nielsen, against 35% for Research in Motion's BlackBerry. Nielsen's data also show that close to 90% of iPhone and Android owners used the mobile Internet in the previous 30 days, compared with 73% for all smartphones. Browsing the Web on a BlackBerry can be a frustrating experience. So as RIM's market share declines and iPhone, iPad and Android devices become more common, mobile Web use will take off.

Data are scarce on how mobile browsing affects online behavior at a PC. But the ability to do Web searches anywhere likely reduces those done at a desk. Searching could become less important as people rely on apps for certain functions.

All this should spark an ad shift to mobile, particularly to apps. Admittedly, advertisers can take years to respond to changes in consumer behavior. But Apple's plunge into the ad market with iAds, which serves advertising inside apps, is likely to accelerate the change. That it drew $60 million in second-half 2010 commitments from such marketers as General Electric, Unilever and Nissan Motor indicates mobile-ad estimates are too low.

Who will suffer from the advance of mobile advertising? TV networks, potentially, if the caliber of big-brand advertisers snagged by Apple continues. As the mobile audience is likely to fragment among applications, big Internet portals also may be at risk. Regardless, mobile likely will cause a bigger, faster disruption to the ad world than is generally appreciated.

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