In the next few weeks, some iPhone users will start seeing mobile ads from Samsung, one of Apple’s (AAPL) biggest competitors and the maker of the hit Galaxy phone. The ads will offer as much as $300 to people who trade in their Apple device for a Samsung.
The company’s strategy is just one sign of a nascent boom in mobile advertising, which to date has fallen short of expectations, in part because the limited screen real estate makes it hard to craft ads that don’t annoy users. Even as smartphones account for 10 percent of the time spent consuming media, they draw only 1 percent of advertising spending in the U.S., according to researcher EMarketer. That’s changing as more technology companies, including the social media powerhouses, create mobile ad products and woo big brands such as Target (TGT), American Express (AXP), and Coca-Cola (KO). Bank of America Merrill Lynch (BAC) predicts the mobile advertising market will surge to $18.3 billion in 2015, from $3.6 billion last year.
The spending is vital to many companies, most notably Facebook (FB), which rattled investors in May when it said its mobile-ad business, which is growing fast, is still “unproven.” The social network only began selling mobile advertising in February. Still, JPMorgan Chase (JPM) estimates the company’s annual revenue will double to $8.68 billion by 2014, thanks in part to the push into mobile ads.
Samsung’s U.S. division doubled its spending on mobile marketing and advertising in the first quarter, to 10 percent of the total budget. The company is buying ads on Facebook as well as other mobile networks such as Google’s (GOOG) AdMob. Colleen McDuffe, director of marketing for Samsung Mobile USA, says that while mobile ads are about one-seventh the price of an ad on a desktop computer, they’re generally twice as effective—at least, when done right. “You’re dealing with so many fewer pixels that being able to articulate the brand promise and the offer is challenging,” says McDuffe. “It needs to be exclusively built for mobile.”
One problem that has caused some advertiser hesitation is the complexity of mobile advertising, says George Bell, chief executive officer of Jumptap. Advertisers can work with mobile-ad networks such as Jumptap or AdMob. A marketer can also go directly to a social media company such as Foursquare, Twitter, or Facebook. And mobile ad products are so new that there aren’t agreed-upon ways to measure the success of a campaign, says Jay Henderson, who leads strategy at IBM’s (IBM) enterprise marketing consulting group. “They’re not as certain about the return on investment,” he says.
Still, companies—especially multinationals—see mobile ads as essential to their future, since they’re the best and sometimes only way to reach consumers in developing nations or rural areas. According to the International Telecommunication Union, there are about 4.5 billion mobile subscribers in the developing world, where mobile penetration rates are about 79 percent. Only 25 percent of households in the same areas have computers.
Mobile advertising will help Coke reach its goal of doubling revenue to $200 billion by 2020, says Wendy Clark, the company’s senior vice president for marketing. Much of that sales growth will come from developing nations. In those areas, “the mobile phone is the easiest and most direct medium that we can reach consumers with,” she says.
Carolyn Everson, Facebook’s vice president for global marketing solutions, considers her job “mobile first” and says marketers are very interested in areas such as Southeast Asia, India, and Africa. “They are seeing that their next 100 million or billion consumers are mostly coming from developing countries,” she says.
To capture more consumers in the developing world—and more advertisers—Facebook opened offices in Buenos Aires and Dubai this year and has been expanding sales staff in India, Malaysia, and Latin America. Last year the company introduced an application designed to run on 2,500 so-called feature phones, which are cheaper, less powerful smartphones popular in the developing world. The app, which lets users browse Facebook and post updates, is available in markets including Romania, Tunisia, and the Dominican Republic. Facebook’s market penetration in emerging economies could increase from 48 percent to 64 percent by 2014, according to a JPMorgan research report in June—which is good news for brand managers like Coca-Cola’s Clark. “We’re very interested in them growing across the world,” she says.
The bottom line: The mobile ad market could reach $18.3 billion by 2015 as Coca-Cola and other big brands target hard-to-reach consumers.