As the world moves from the desktop to accessing content via mobile devices, there’s a giant economic issue lying ahead for companies that rely on advertising revenue. The fact is, the majority of content that is accessed via mobile devices is creating less ad revenue than the comparable content via web destinations. Of course, this is nothing new for publishers and ad-supported companies. The advertising industry has gotten used to rolling with the ever-shifting revenue landscape, but this shift is going to bring new meaning to “leaner and more nimble” business models.
The problem for many traditional publishers is that they still haven’t fully adjusted to the decreased revenue dollars from the loss of print and television revenue. Consider the ever-struggling newspaper industry. According to one Pew study, for every $1 that was gained in digital revenue, $7 was lost in print revenue. The New York Times pay gate has shown promise, but it’s the premium player in the space. The question will be whether this success can translate to less premium destinations. These companies may have the hardest time adjusting to the new mobile economy.
A recent report for mobile web consumption shows that mobile devices will account for 27 percent of all traffic by the end of this year. In the last year alone, there has been a whopping 430 percent increase year-over-year and the percentage of content consumed via mobile is only going to continue to grow. As I have shared in previous columns, strong data shows that this is happening at the peril of the desktop, with web consumption via desktops actually beginning to decrease as mobile shows large increases in minutes spent online.
The good news is that the growth in mobile usage has been met with a sharp increase in ad revenue. The Interactive Advertising Bureau released a new report this month showing a 95 percent increase in dollars spent for the first half of 2012, $1.2 billion vs. $636 million from the first half of 2011. The obvious downside, however, is that the revenue growth is four times lower than the mobile content consumption growth.
Digging into the revenue difference between the web and mobile space can be pretty alarming for many publishers. If we take just standard advertising banners (exclude for the time being home page takeovers or big, immersive rich media experiences), we are seeing that there’s an almost 3:1 cost ratio for web inventory vs. mobile inventory. So, if we use $30 as a rate for cost per thousands (CPMs) for standard ad banners on web content, then the comparable mobile platform rates are about $9 per CPM. This, of course, isn’t the case for everyone, but if we use this as a comparison point, you can see that publishers could be losing 25 percent of the revenue they were making if advertisers match the dollars they are spending on the web and mobile platforms with the shift in consumption on these platforms.
Another huge issue for publishers is that many are struggling with a very dispersed content structure. Two founding principles for media are reach (how many people) and frequency (how often). With content being accessed through mobile web, owned mobile applications, third-party apps, and content aggregators, it becomes impossible to aggregate that reach and frequency. A quick look in the iTunes App Store showed 36 different ESPN applications for things like fantasy football, scores, radio, and local radio affiliate applications. Since these are standalone experiences, it’s improbable that they’re connected via a common analytics platform or ad-serving system.
This economy issue is not only going to affect publishers, however. The fact is, most companies have not been built on business models that take into account the potential lower ad revenue models that mobile may continue to present. But as consumption numbers continue to increase on mobile, it’s imperative that other larger companies make the necessary difficult business decisions in order for them to stay nimble.
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