There’s a lot of uncertainty about the specifics, but nearly everyone thinks
the mobile world is a good one for some kind of advertising.

Mobile advertising seems to be an industry that’s about ready to explode, chasing the billions already being spent on Internet advertising. But mobility, although it has unmatched attractions for advertisers, also is a business very much in a state of flux.

Some of those in the burgeoning mobile advertising industry, which has been making money mostly through text-driven ads, expect advances in networks and advertising capabilities to reach an inflexion point in time for the Christmas shopping season. If so, mobile advertising could become a tiger escaping from its cage next year.

Global Mobile Ad Spend Forecast for 2011

Source: Strategy Analytics

What has everyone so excited about mobile advertising is what has happened on the Internet. Ad spending on the Web is growing at a compound annual rate of 18.3% and will reach $73 billion in 2011, according to PriceWaterhouseCoopers. The consultancy says Internet advertising will comprise 14% of the entire global advertising market by that year.

Another research company, eMarketer, expects Internet ad spending in the United States to total $19.5 billion this year Nielsen NetRatings says the top 10 Internet advertisers in the United States spent $278.4 million in June alone, led by InterActive Corporation’s $47.2 million. Those numbers exclude search advertising, which is the fastest-growing segment of Internet advertising.

If mobile advertising follows that spending curve, it’s no wonder the industry sees big things ahead. Strategy Analytics is forecasting advertisers will spend $1.4 billion on mobile media this year, with that rising to $14.4 billion in 2011. eMarketer says mobile ad spending reached $1.5 billion last year and will grow to $14 by 2011.

“The outlook for mobile advertising spend has significantly advanced in the past 12 months,” says Phil Taylor, director of Strategy Analytic’s global wireless practice. “The supply of advertising inventory is rapidly increasing as mobile publishers look to develop advertising as a revenue stream.”

Taylor notes that Sprint Nextel, Verizon Wireless and Vodafone have all accelerated their plans to sell advertising through their networks. “Advertisers appear to be responding positively,” he says.

Association Enables Mobile Ad Industry Mobile advertising and marketing has gone beyond the experimentation stage by brands, which now see it as a viable option for the promotional dollars, says Laura Marriott, executive director of the Mobile Marketing Association (MMA). Marriott: Mobile is not the same as the Internet. Marriott says an ecosystem is being developed through the MMA that includes brands, agencies, aggregators and wireless carriers. The operators have played a key role in helping the association develop guidelines for advertising on their networks, she says. Carriers also are starting to take steps to make it possible for advertisers to target particular demographic categories. Sprint was the first, providing information like sex, age and the ZIP code of subscribers on a controlled basis. Verizon Wireless and AT&T are on a similar track. The biggest challenge for mobile advertising now is educating the ecosystem that mobile is not the same as the Internet, Marriott says, adding that he consumer also has to be educated about the advanced functionality of phones and networks. The MMA has put together several guidelines and policies for its 400+ members to follow, as well as collaborations with industry groups. Included is its best practices guidelines, which it originally developed in 2005 and recently updated. The update defined guidelines for marketing to children under the age of 13, for opt-in and opt-out through interactive voice response, and for secure opt-ins on the mobile Web. The association also has established a committee to work on measurements for mobile advertising. The committee hopes to develop a framework to measure mobile marketing campaigns across all channels, including mobile video, TV, multimedia services and more, the MMA says. The MMA also has established recent relationships with the GSM Association and the dotMobi Advisory Group. The GSMA and MMA said they will cooperate on the development of mobile advertising globally through standardization efforts and developing mobile advertising techniques. The MMA and dotMobi Advisory Group, which works with the mobile Web domain registry mTLD Top Level Domain Ltd., plan to develop a common set of guidelines and best practices for the mobile Internet.

And then there’s the interest that Google, which lives on its Internet ad revenue, has shown in mobile advertising. Google CEO Eric Schmidt said at the All Things Digital conference in May that the company wants its share of mobile ad revenue because “they are twice as profitable or more than the non-mobile phone ads because they’re more personal.” Carriers have expressed some concern about Google’s entry, fearing they could lose ad revenue.

Despite these rosy expectations, there still is some caution evident because mobile advertising in a unique and unknown medium is bringing together carriers, ad agencies, publishers, mobile ad technology companies and brands. Everyone is treading on unfamiliar ground.

The No. 1 issue facing mobile advertising, says Kanishka Agarwal, vice president of mobile media for Telephia, is that the mobile industry is not a single advertising medium. Brands and advertisers are familiar with working with print, TV, radio and the Internet as separate entities. But mobile networks can bring together the Internet, video, text, gaming, music and more.

“Mobile is a group of quite separate media with different characteristics,” Agarwal says. “They differ in form and in the audiences they draw. People are still trying to figure out a way to handle this.”

One of those figuring it out is John Hadl, CEO of Brand in Hand and strategic adviser to Proctor & Gamble on its mobile strategy. Hadl created more than 50 mobile advertising campaigns in 2006, including Cover Girl and Old Spice.

Hadl says the top priority for advertisers is that they want to buy audiences and not technology. “Brands are about reaching consumers and audiences,” he says, adding that technology is not interesting to advertisers.

“The problem is that mobile companies are mostly selling tools now,” he says. “We’re all being sold platforms and technology. You have to give us an audience.”

Hadl also thinks mobile advertising will become more interesting to major brands when richer content on wireless devices becomes more widespread, especially video and TV. The richer the media, the richer the consumer experience, which drives sales and brand recognition.

As long as everyone in the mobile advertising business remembers that the “consumer is boss,” Hadl says, he is optimistic about the future. Everyone involved is trying different things to see how they work, getting their feedback from consumer reactions.

Another agency working in the mobile arena is Nurun/ant farm interactive. Michael Koziol, executive vice president, says mobile advertising is much more complex than online advertising was in the 1990s. Part of that is because wireless operators are taking a stronger position on collecting a share than did the wired telcos.

“It’s not unreasonable that they are more involved,” he says of the carriers. “It doesn’t make it as profitable for content properties where the ISP didn’t ask for a share. AOL did, but where are they now?”

There also is a great deal of uncertainty because no one in the value chain knows exactly what will work or how to price it. “Everybody is doing different things and no one is moving in the same direction,” he says. “In the 1990s, most things were moving in the same direction at least.”

Nurun has done some mobile advertising, some of which has worked well and some that hasn’t. Koziol believes the future of mobile will be less in advertising and more in building brand affinity by connecting with individuals with information in context.

“Phones are personal space, which makes them appealing for marketers but is dangerous ground for push advertising,” he says, adding that delivering ads to phones should be on-demand or at the point of need.

Some major brands have started moving into mobile advertising. Among them are Proctor & Gamble, CBS and Coca-Cola. CBS recently inked a deal with four mobile advertising companies, AdMob, Millennial Media, Rhythm NewMedia and Third Screen Media. Third Screen also has a deal with Fox TV.

Cyriac Roeding, executive vice president of CBS Mobile, says each of the four will provide different technologies and services for CBS content, including banner and text ads on WAP sites, phones and video commercials attached to video content.

Sprite’s The Yard campaign lets friends share content.

Coca-Cola’s Sprite brand this summer launched a WAP-based mobile community service in the United States aimed specifically at teenagers. The service, called The Yard, allows users to create a network of friends who can share photos and messages, as well as get content like mobile phone wallpapers, games and video mobisodes content. The design of the application and the content is specifically aimed at teenagers because they are a key market for Sprite, according to Mark Greatrex, senior vice president for marketing communications for Coca-Cola.

Teenagers are a particularly difficult segment to reach with a marketing campaign, Greatrex said, so Coca-Cola decided to reach them where they are – on their mobile phones. Sprite is using short codes and PINs found on the caps of Sprite bottles to drive users to The Yard.

Coca-Cola is working with all the U.S. carriers, but all that any user needs is a WAP-enabled phone and a data plan. Teenagers can text the word Yard to the short code 59666 to get a WAP link to the site. They then set up their tag name and password and invite others to join their network.

Paul Palmieri, president and CEO of Millennial Media and former executive at Verizon Wireless, says one of the reasons carriers and content owners are becoming more interested in advertising is that downloads by wireless subscribers has started to slow and they’re looking for new ways to support downloads as well as boost revenue.

Research by M:Metrics confirms Palmieri’s assertion. The research company says the number of downloads over wireless networks in the United States has risen slowly from 38.7 million in January to 40.8 million in May and has been on only a slight uphill trend over the last year.

“There is going to have to be a leap of faith on the publisher side as some the subscription-based content moves into an ad-supported model,” Palmieri says. “That could take some time but we think it will happen. If you have a subscription download model and it slows, it will be less of a leap of faith.”

Palmieri says Millennial Media’s business based on premium CPM (cost per thousand impressions) has been “growing really nicely.” The other principle way of charging for mobile advertising is based on a click-through rate, similar to the Internet.

Millennial operates ad-serving technology as well as marketplaces where publishers and advertisers can buy and sell ads. It’s newest marketplace, Decktrade, is a performance-based self-service auction platform that Palmieri says has provided “quite a significant percentage” of the company’s revenue since it launched in March.

Palmieri says one of the keys to the future of mobile advertising will be the creation of experience-based content, such as a WAP site for an artist’s fan club. The fan can see pictures, check tour dates and perhaps buy something. That transition to rich, interactive content is starting to take place, he says.

“We’re in a shift now,” Palmieri says. “There is a resurgence of WAP and an emergence over the last six months of more experience-based content.”

Palmieri also sees growing interest on the part of advertisers and brands to use mobile channels, while there hasn’t been a similar uptick in the amount of ad inventory being created.

Coming from the carrier world, it might not be surprising that Palmieri thinks operators should be able to charge a premium for allowing ads to run over their networks. Carriers reportedly are charging rates as much as 10 times higher than Internet rates, but Palmieri says that may be justified.

“This is the most personal device that people own,” he says. “It is the most personal place you can reach a consumer. That really is something special and something premium and it ought to treated as such. The notion that the price is 10 times the Internet is well-deserved.”

Ari Paparo, vice president of rich media for the Internet ad company Doubleclick, thinks mobile advertising rates will come down as the industry matures and advertising inventory rises.

Jeff Janer, CMO for Third Screen Media, says his company actually has seen an increase in brands and mobile sites seeking to advertise. He says the supply of advertising has picked up but that it is not well-targeted.

Third Screen recently teamed with Telephia to provide third-party measurement of mobile Internet usage, something advertisers want to know. But carriers also hold another key to measuring how effective an ad campaign is because they know who their subscribers are. Carriers are understandably reluctant to invade their subscribers’ privacy but could make demographic information available on an opt-in basis.

“Advertisers want a third-party validation,” Janer says. “The real money is not going to start flowing until third parties are engaged.”

Third Screen recently was acquired by AOL subsidiary Advertising.com, which Janer says has greatly expanded its reach. Telephia says Third Screen has the ability of reaching half of all U.S. mobile content subscribers, with twice the number of mobile ad campaigns as it had a year earlier.

Text-driven mobile advertising has been the main driver in the industry until now, says Telephia’s Agarwal, but he says ads on the mobile Internet are picking up and the next frontier will be mobile video. SMS, used by 150 million Americans, is a mass market but WAP and video are not, he says. However advertising could make those mass-market media because ads can lower or eliminate the end-user costs.

“Text will be predominant for several years because everyone has a phone that can use it,” he says. “The phone is second only to your underwear for what you have with you all the time. And SMS is the biggest mass-market way to reach that. Advertisers and marketers buy audiences and SMS delivers that audience now.”

Mobile Ads Span Text to WAP

Text-based campaigns and WAP sites have become the two main avenues for brands to reach mobile subscribers.One of the companies involved in text-based advertising is qtags, a Houston-based mobile marketing company that uses short codes to provide mobile interactive content, including promotions and coupons. Its clients include Accenture, NAS Recruitment, Fidelity Investments, Toyota, Verizon Wireless, American Express, CITI and Hewlett Packard. “Our goal,” says founder Allison Gower, “is to help the consumer control their advertising.” Qtags connects consumers and brands off-line and online, Gower says, by making content interactive via SMS. An example is texting a keyword like “Verizon” to qtags’ shortcode, 78247, and the user gets information about jobs available at Verizon Wireless. The texts are saved online. Many of the current campaigns are job recruitment related. The service can help brand names build communities of consumers who have an interest in their products, Gower says. The overall service is free of advertising although community sites might have sponsored sites. Mobile provides context of time and place, she says. When someone enters a store and sees a promotion, a consumer can text to get specials listed on their phone. The Internet auto shopping site, Cars.com, launched a mobile channel this summer, with Lexus as its first sponsor. The sponsorship links users to the Lexus WAP site for dealer information, while the general Cars.com mobile site includes its inventory of 2 million new and used vehicles, including Kelley Blue Book values. Knitter: More WAP sites coming. Since its launch, Honda also has started sponsoring the site and Hyundai will join soon, according to Sharon Knitter, product management director. When Cars.com started working on the service earlier this year, not many manufacturers had WAP sites, but more are building them, she says. The WAP site for Cars.com allows mobile consumers to research and find cars or dealers, as well as click on a dealer to make a voice call. The site and service was built using Crisp Wireless technology. Crisp hosts the site. Air2Web has developed mobile marketing programs for such companies as The Weather Channel and UPS. CMO Bill Jones says Air2Web helps its customers track not only how many people have visited their WAP sites, but also who the visitors are because log-in information is collected. This kind of user information makes it possible for brands to build loyalty among consumers, Jones says, and also can be used for local search so geographic information is collected. “You can determine how you did with different demographics and then decide how you can change things to make your campaign better,” he says. Another mobile marketing company is go2, which owns and operates more than 350 mobile Websites for its carrier-centric go2 Mobile Content Network. The company says it has delivered more than 1 billion WAP page views for local search information and content since it launched in 2001. More than 335 of its sites are dedicated to specific colleges and universities. Lee Hancock, founder and CEO, says advertising is coming of age on WAP sites because mobile “is a very high-touch, high-value advertising medium.” In addition to its WAP sites, go2 also runs a polling system which asks site visitors to answer a question of the day. The system, called Speedpoll, generated 1 million responses in its first nine months. The company’s research of its users determined that the overwhelming majority of wireless subscribers, in the 80% to 90% range, are willing to accept advertising on their phones if they can get content for free, Hancock says.