There is no doubt that mobile is going to be more than 50% of internet usage within the next 18 month. The problem is that consumer adoption has gotten way ahead of the industry’s ability to innovate and capture value . . . and the worst part is that the gap continues to grow. I’ve bitched about this problem a while back but I never expected the problem to get worse. Seems like not a day goes by that a web giant gets their market cap cut off at the knees because of the shift of their userbase to mobile (Google, Facebook, Zynga, Pandora etc). Let me count the ways. . .
Mobile commerce has largely been a mirage. Only the very few and the very large e-commerce companies has been able to actually make their mobile users “buy” on a mobile device. This is because despite of Apple’s protests, mobile has largely been a content consumption device – the very act of getting users to input credit card number and data to buy something has become a near impossible task. (try typing 16 consecutive numbers on the iphone without out screwing up – especially when predictive auto-correct is useless.) Only the very largest sites can leverage their existing user base (from online) to get them to login (a comparably easier task) and use existing credit card information they’ve stored to skip the credit card step. As a result, the long tail of mobile commerce has yet to appear – small e-tailers are not moving to mobile, and innovation around mobile commerce has slowed to a crawl. (side note, where is Apple & Paypal when you need them?)
Mobile advertising is also broken because neither direct response advertising nor branded advertising have truly scaled. When the internet world collapsed in 2001, the internet economy got back on its feet because; as it turns out, the web is a great place to advertise when you have something to sell. It all started with GoTo and scaled with Google. Despite the economic down turn, e-commerce companies and lead gen companies went head long into search and even display advertising to help create a “pricing” floor for most web based advertising inventory. Mobile, because of the difficulties of entering contact information and credit card information, simply haven’t attracted a significant number of direct response advertisers that are looking for direct ROI on their advertising spend. Because of the lack of a pricing floor, most remnant and network driven mobile inventory CPM’s has cratered in the last 18 month (plus the explosion of mobile usage also created a glut of inventory.)
On the top end of the advertising market where brand advertisers spend their $15 to $35 CPM’s, mobile is struggling as well. The original thesis around brand advertising was around addressability, engagement, and targeting. Turns out, brand advertisers want non-standard ad creatives and integrated marketing campaigns on mobile, just like that did online (hmm… should have guessed that one) – the addressability stuff is cool but not as interesting as whole screen take over, exploding, dripping, spinning ad units. The problem is that mobile screens are so small that it is really really hard to create the type of branded campaigns that advertisers (and users) love. With Apple taking away UDID – the addressability / targeting value proposition is eroding as well. And thus the premium mobile inventory pricing continue to drop.
Everyone had thought that local mobile advertising would be the great savior of mobile advertising too. The thesis around geo and context based targeting has lot of promise. But to-date, no one had figured out the tactical portion of how to effectively sell to local advertisers and get the advertiser coverage and inventory density needed to actually run a campaign.
If you cannot make money by selling advertising space on your mobile app or website, maybe, just maybe you can sell your app on either one time or subscription basis? Well, the mobile app economy is pretty dysfunctional too. It’s pretty common for a developer/publisher to charge $30+ for a desktop application or game (go visit Fry’s or Gamestop) – but in the android and apple app store, if anyone tries to charge anything above $5, people screams highway robbery. The lack of true breakthrough revenue opportunity for developing mobile apps has given publisher very little incentive to advertise and build “franchises” that can charge a premium price . . . it’s a self-fulfilling prophecy. Even worse, Apple’s insistence on taking a huge cut of both onetime as well as recurring revenue from publishers effectively created a new virtual socialist state where 30% sales tax is levied on all transactions. Talk about killing innovation and jobs. . .
Now, here is the good news . . . the best and bravest entrepreneurs and VC’s look at structural problems in an industry as opportunities to innovate and exploit. Mobile is only in the 1st inning of reaching its full monetization potential. The first generation of mobile entrepreneurs focused on building companies that played within the rules inherited from the online world. The second generation mobile entrepreneurs will create new rules and platforms indigenous to the mobile world. A mobile ad network that converts. A new kind of mobile only ad unit. A distributed mobile commerce payment network. An alternative application discovery platform. An truly open mobile operating system. Fixing broken platforms = big ass opportunities.