29% Of Online Ad Spend In The US Will Be From Mobile By 2018

Mobile ad spending is finally taking off. The Forrester Research Mobile Advertising Forecast, 2013 To 2018 (US) predicts that mobile ad spend (smartphones plus tablets) will represent more than 29% of the total online ad spend in the US by 2018. The forecast looks at mobile device ownership in the US, trends in device usage, and mobile advertising supply-side data to fix the current and future market size for display, search, and social spending.

The drivers behind this take-off of mobile ad spending are:

  • Increased device ownership, particularly of tablets. Smartphone installed base growth in 2012 was more than 35%, while tablet installed base growth exceeded 120%. By 2016, tablet sales will overtake the sales of desktop and laptop PCs.
  • The intensity of online tablet use. Despite tablets representing less than 30% of the mobile device market in the US, they represent more than 40% of total mobile page views. In addition, the majority of tablet users watch video on their tablet, compared with about a third of smartphone users.
  • Display ad real estate. Tablet screen space for display ads is more than double that of smartphones — for example, the screen size for an iPad is 9.7 inches but just 4 inches for an iPhone. In addition, eCPM rates and ad fill  rates on tablets are generally higher than on smartphones.
  • An increase in search volumes and conversion rates. More than 60% of smartphone owners use mobile search; on tablets, this figure exceeds 90%. In addition, tablet cost-per-click (CPC) rates are becoming comparable with those of laptop/desktop PCs.

Supply-side data also confirms this strong increase in mobile ad revenues: Google has more than a 50% share of the mobile ad market and is forecasting mobile annual revenues for 2012/2013 in excess of $8 billion. In addition, more than 20% of Facebook's revenues worldwide came from mobile in 2012, up from 0% in 2011.

What it means:

  • Mobile ad revenues will start to cannibalize desktop and laptop ad revenues. Tablets are cannibalizing both desktop and laptop sales and reducing the amount of time that desktop/laptop users spend on their devices. US consumers are now more connected than ever, making mobile both complementary to and cannibalistic of desktop and laptop ad spend.
  • Ad spend ROI models need to change. Today, advertisers accept lower levels of ROI for mobile ads compared to ads on desktops and laptops to account for cross-channel buying behaviours; this keeps calculated CPC rates low. Long-term investment in mobile will need an understanding of real conversion rates from display to buy.
  • Advertising mobile real estate will continue to outstrip demand. Mobile ad fill rates remain low. Assuming that mobile advertising real estate will always outstrip demand, future growth in mobile ad revenues will come from increasing mobile conversion rates. The use of local advertising, context-sensitive ads, and geo-fencing ads all have the potential to increase conversion rates in the future.