Could This Be the Year for Mobile Ads?

It seems like every year, an industry analyst or pundit declares that this year will be the year of mobile search, and mobile advertising in general. According to a Kelsey Group report, a confluence of factors may mean that now really is the time for mobile advertising to take off.

“In almost every mobile forecast, it’s always been ‘next year will be big.’ This time, there are several factors coming together that should drive mobile ad adoption, and start pushing the market,” Matt Booth, VP and program director of The Kelsey Group’s Interactive Local Media practice, told ClickZ.

The Kelsey Group’s U.S. Mobile Advertising Forecast predicts that the U.S. mobile ad market will grow from $33.2 million in 2007 to $1.4 billion in 2012, a compound annual growth rate (CAGR) of 112 percent.

Other analysts have predicted the mobile ad market will grow to anywhere from $1.5 billion to $2.9 billion in 2011. The end result of course depends on the definitions and assumptions being used, but overall, every forecast calls for huge growth in the mobile ad space.

One of the biggest drivers of the mobile market will be Google, which needs to find another outlet for its text ads. With the rapid growth of search slowing due to the sheer size of the market, Google will need to look elsewhere to keep investors happy. Mobile ads could be a natural extension of that, since the existing text ad format would also work for mobile, Booth said.

In addition, Google’s advertisers are looking to spend more money with Google, but Google doesn’t have the targeted inventory available for them to spend it on. Analysts estimate that between $1 billion and $2 billion in online ad budgets go unspent, so if Google can offer a way for advertisers to spend that money and get a good ROI, they will spend that much and more, he said.

Google has also made investments in audio ads, both in radio and its Voice Local Search,1- 800-GOOG-411. These ad-sponsored directory assistance (DA) applications are expected to grow from 270 million calls in 2007 to 2.1 billion calls in 2012, a CAGR of 50 percent.

By developing an audio ads platform that it can sell to its existing advertiser base, Google can both break into traditional media markets, like radio, and create inventory in new areas like podcasts and free DA applications, which will be largely a local-mobile space.

Besides Google, Microsoft is expected to make a big push into mobile advertising, in an attempt to beat Google to the punch. Microsoft has been investing heavily in mobile, including the acquisition of TellMe in March, and hopes to extend its adCenter platform to mobile ads as well.

TellMe’s relationships with mobile carriers will help Microsoft develop partnerships with those carriers as well. The most likely scenario has Microsoft developing a carrier-friendly product that bundles search with ads. In fact, Microsoft is already talking with carriers about its plans, Booth said.

Yahoo has also made some investments in mobile, and has a very popular product with its OneSearch application, as well as a strong subscriber base to market that product toward, but their mobile efforts lack focus, according to Booth.

“It seems that Yahoo will focus on its newspaper partnership, and finishing the roll-out of Panama internationally,” Booth said. “It will more likely be Google and Microsoft that push the envelope of mobile, although the Yahoo OneSearch app will be one of the most popular.”

While national advertisers will play a role in mobile search, the main focus will be the local advertiser. Big brands with a local presence will likely buy their ads from the search ad networks, where they are already spending a large amount of their locally-targeted budgets. The local small business advertiser is a bit more difficult for the search ad networks to reach. That’s where the print Yellow Pages providers come in, Booth said.

Partnering with Yellow Pages providers is going to be a necessity for any mobile ad provider, given their dominance of the U.S. local advertising space, Booth said. YP providers like AT&T and Verizon/Idearc have local salesforces and advertiser bases that can be persuaded to spend some of their offline ad budgets online, making them ideal partners.

The final factors in the potential mobile breakout are on the device front. Widespread shipping of GPS-enabled devices, along with the Apple iPhone and inevitable copycats will improve the mobile Internet browsing experience and allow for improved mobile applications, bringing more users online and paving the way for mobile ads.

The Kelsey Group predicts that the number of mobile Internet users will grow from 37.9 million in 2007 to 91.7 million in 2012, a CAGR of 19 percent.