Display Ads To Eclipse Search As Mobile Revenues Take Off

gartnermobileFrom my Forbes.com blog The New Persuaders:

All that worry about how the lack of mobile ad revenues will hurt Facebook, Google, and a raft of startups? Fuhgeddaboudit.

Researcher Gartner today upped its forecastalready pretty heady, for mobile ad sales to $11.4 billion this year, up 19% from 2012. Gartner research director Stephanie Baghdassarian says that’s because of the rapid rise in the purchase and use of smartphones and tablets like the iPhone and the iPad.

It’s not the first such positive report we’ve seen in recent months. And already Facebook, for one, is putting up impressive numbers on mobile ads, helping buoy its shares in recent weeks.

But Gartner’s report has some interesting detail about the changing mix of mobile ad types and which parts of the world growth is coming from. Display ads will grow faster than search ads, overtaking them by 2016. That could be a challenge for Google, though it also has been investing heavily in display ads in recent years to become No. 1 or 2 with Facebook depending on who’s measuring.

Delving deeper into the details, here’s what Gartner’s expecting to see:

* Mobile search will continue to do well, but eventually display will lead the way:

Mobile search — including paid positioning on maps and various forms of augmented reality, all of which can be informed by location — will contribute to drive mobile ad spending across the forecast period, although it will diminish in strength as the period progresses. Gartner believes that mobile display ad spending will grow and take over from mobile search. It will initially remain divided between in-app and mobile Web (in-browser) placements — reflecting consumer usage — although after several years of in-app dominance, Web display spending will take over in-app display from 2015. 

* Mobile ad prices will fall:

The rapidly growing share of time that consumers spend on mobile devices is generating ad inventory at a pace considerably faster than most advertisers can shift their spending to the medium. This creates a surplus condition that is driving down unit ad prices which in turn has led to a situation in which a significant portion of mobile ad inventory is taken up by app developers paying for ads to promote their apps and get them more downloads, a category known as “paid discovery.”

Here comes another bubble:

While the revenue basis of paid-for app store downloads provides some economic justification for this category, for many developers the outlay for ads is close to their maximum ad income or even exceeds it. This creates a circumstance, reminiscent of the early days of Web advertising, in which cyclical advertising arrangements among websites produced an inflated picture of revenue that may ultimately prove to be a bubble. “Some correction in the growth rate must occur before demand from brand and local advertisers catches up with supply, and more sustainable economics support a faster growth rate commensurate with consumer adoption,” said Ms. Baghdassarian.

Overall mobile ad revenues are forecast to hit $24.5 billion in 2016–about the same as Gartner’s earlier forecast, but with faster near-term growth than expected. And where is all this mobile ad money coming from? Not surprisingly, print–especially newspapers–as well as radio.

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Ad Tech Startup Rocket Fuel’s Revenues Take Off

Display-LUMAscape

Illustration: Luma Partners

From my Forbes.com blog The New Persuaders:

There’s a gazillion little ad tech companies out there, as you can see in the well-traveled chart called the Display Lumascape on the right. Conventional (and probably correct) wisdom is that eventually many of them will get snapped up by bigger fish, whether that’s giants like Google, Oracle, and Facebook or rivals that just did a better job.

Since that process has happened a little more slowly than many people expected, though, a few of those fish are getting pretty big. One of them is Rocket Fuel, a Redwood City (Calif.)-based startup that despite its name has flown under the radar of the general public. While it started out as an ad network, it might be better seen today as a so-called demand-side platform, or DSP. It buys ad space for marketers and uses its rocket-science technology to target ads precisely in real time to the most receptive prospects, a process that goes by the industry shorthand “programmatic buying.”

Today, Rocket Fuel is announcing with unusual candor for a startup that its gross revenues rose 238% last year to $107 million. Notice I said gross revenues; a good chunk of that goes back to publishers from which it bought ad inventory. The company won’t reveal net revenues.

But the growth is real. And that includes growth in customers, nearly a doubling of new advertisers. On their behalf, Rocket Fuel’s system deals with more than 26 billion ad impressions a day. Not least, the company has more than doubled its staff, to 289 employees, including a new chief marketing officer and a couple of VPs.

CEO George John says the company isn’t profitable yet, though he says it’s close. “The playbook is to invest,” he says, so plans are not for near-term profits.

You might wonder, as I did, whether revealing revenues is an indication that the company aims to go public soon. Actually, it has been just as forthcoming previously, and John won’t say what his plans are.

But given that it had made noises back in 2011 about an IPO in 2012, instead raising a huge $50 million round last June, it’s not out of the realm of possibility this year, market gods willing. Or, to mix a metaphor, it might continue to swim around the Lumascape and try to figure out whether to eat or be eaten.

With Graph Search, Can Facebook Kill LinkedIn, Yelp–Even Google?

DSC00202

Facebook CEO Mark Zuckerberg introduces Graph Search (Photo: Robert Hof)

From my Forbes.com blog The New Persuaders:

Facebook took pains today to tell the world that its new social search serviceGraph Search, is only a very limited tool that it will roll out very slowly over a period of months and years.

But CEO Mark Zuckerberg and his search staff couldn’t help but reveal their enthusiasm for the vast possibilities. For all their professed modesty, what struck me at the company’s press event introducing the service was how specific and broad-ranging Zuckerberg and his Graph Search leaders were about what it could provide: just about everything, potentially, that every company from LinkedIn to Yelp to Foursquare to Match.com to … yes, even Google provides today.

That’s an exaggeration, of course, that even Facebook folks surely didn’t intend. All of those companies have distinct, well-developed services with extensive user bases that are unlikely to shrivel up no matter how good Graph Search turns out to be. In most cases, they will probably retain a durable advantage for years to come. And as Zuckerberg said, it’s very, very early for Facebook search, and search is a devilishly complex discipline to do well.

Still, to hear it from Facebook itself, Graph Search will offers ways to provide similar services, sometimes in potentially easier and more effective ways:

* Recruiting: One of the first examples Facebook provided today was that Graph Search could help in finding qualified candidates for jobs. For instance, Lars Rasmussen, the Facebook director of engineering who heads the Graph Search team, mentioned that he could find people from NASA Ames Research Center who are friends of Facebook employees.

As investors, who bid up LinkedIn’s share a fraction today, no doubt recognize, that company has a pretty good if not exclusive hold on recruiters. And given that finding friends who worked somewhere is a rather specific subset of qualified candidates for a position, there’s not much chance recruiters will abandon LinkedIn for Facebook anytime soon. But Facebook, already used in various ways by recruiters, could siphon off activities that might otherwise have gone to LinkedIn. … Read more at The New Persuaders. But to conclude …

So, to answer the question in the headline: No, Facebook won’t kill any of these companies, certainly not anytime soon. They’re too strong, Facebook has too much still to build and then to prove, and rarely does a company kill another healthy company no matter how good its products are.

Investors may be thinking as much, as they sold Facebook shares to the tune of a 2.7% drop in price today. But if anyone doubted Facebook’s ability to keep disrupting the status quo, they surely shouldn’t doubt it anymore. Even with its baby steps into the search business, Facebook has again set new terms of engagement in the battle for the soul, or at least the cash register, of the Internet.

LIVE: Facebook Unveils Graph Search–Its Long-Awaited Internal Search Engine

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Facebook CEO Mark Zuckerberg at the introduction of Graph Search (Photo: Robert Hof)

Ever since Facebook invited piles of press people to an event this morning to “come see what we are building,” speculation about what it will reveal has reached a fever pitch.

Update: It’s all about search! See below for details. But for what it’s worth, investors are not impressed. Facebook shares are down 2% in midday trading. No doubt that’s a short-sighted view–this socially infused search service is a big deal, if only to show how Facebook will keep engaging people more and more deeply, not to mention provide a foundation for the kind of search ads that made Google king of the Web–but that’s the market for you.

There must be a couple hundred press here, plus a crowd of Facebook employees standing in the back of the room–a sure indication that Facebook considers this a big deal.

And now we are underway, with CEO Mark Zuckerberg introducing us once again to Facebook’s mission and the social graph. First he goes into Facebook’s early history, before the news feed that now dominates the service.

Now he’s introducing the third pillar of Facebook’s service beyond the news feed and Timeline. What’s most interesting is graph search.

So what is graph search? It’s not Web search. We’re not indexing the Web. We’re indexing our map of the graph. There are more than a trillion connections in this graph, with billions more added every day–likes, comments, photos, etc. Indexing this is a really hard problem and we’ve been working on it a long time.

Graph Search is privacy-aware, he says. Every piece of content has its own audience, and most is not public. You can only search for content that has been shared with you–a very tough problem to solve.

Let’s say you do a Web search for hip hop. You get links. Graph Search is different–it’s intended to provide answers: Which of my friends are in San Francisco?

One of the big design problems we had to solve was how to make this natural. We’ve come up with an interface we think works. The answer is filters–not! That’s a joke–he shows a screen full of filters that look ridiculous, of course, because they can’t scale up.

He shows a video of queries that show how they come up with answers as you type in words.

For this first beta version, he says, Facebook focused on four use cases: people, photos, interests, and places. There’s a lot more, but these are especially useful. …

Read about the rest of the event at The New Persuaders.

5 Reasons Why Facebook Shares Have Soared Past $30

Mark Zuckerberg, founder and CEO, shows off th...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After languishing ever since Facebook’s mostly botched initial public offering last May, the social network’s shares are up more than 5% today, moving past $30 a share for the first time since July. Why the sudden investor interest in what was one of last year’s biggest disappointments in the business world?

* Something new is coming: I and a crowd of other journalists have been invited to a press event on Jan. 15 to “come see what we are building.” That could be anything, from new kinds of ads (though that’s not the usual thing Facebook engineers mean when they talk about what they’re building) or a mobile phone (very unlikely, since CEO Mark Zuckerberg put the kibosh on the idea awhile ago) to a search engine, a music service, or an expanded e-commerce initiative.

Or, the most likely of all, something entirely different–possibly several things, to read probably too much into the invitation’s wording. In any case, it’s enough of an event that investors are likely intrigued and want to get in ahead of an announcement that at the least will get a lot of coverage.

* Ad revenue growth is accelerating again. In its third quarter, Facebook surprised investors with a 36% jump in ad revenues, sending its shares up 20% the next day. Although mobile ad revenues are a big part, a new ad exchange and an ad targeting program called Custom Audiences also appear to be getting traction.

* In particular, Facebook appears to have a good start on solving a key issue during the IPO: mobile advertising. …

Read the complete post at The New Persuaders.

5 Reasons Why Facebook Shares Have Soared Past $30

Mark Zuckerberg, founder and CEO, shows off th...

Facebook CEO Mark Zuckerberg (Photo: Wikipedia)

From my Forbes.com blog The New Persuaders:

After languishing ever since Facebook’s mostly botched initial public offering last May, the social network’s shares are up more than 5% today, moving past $30 a share for the first time since July. Why the sudden investor interest in what was one of last year’s biggest disappointments in the business world?

* Something new is coming: I and a crowd of other journalists have been invited to a press event on Jan. 15 to “come see what we are building.” That could be anything, from new kinds of ads (though that’s not the usual thing Facebook engineers mean when they talk about what they’re building) or a mobile phone (very unlikely, since CEO Mark Zuckerberg put the kibosh on the idea awhile ago) to a search engine, a music service, or an expanded e-commerce initiative.

Or, the most likely of all, something entirely different–possibly several things, to read probably too much into the invitation’s wording. In any case, it’s enough of an event that investors are likely intrigued and want to get in ahead of an announcement that at the least will get a lot of coverage.

* Ad revenue growth is accelerating again. In its third quarter, Facebook surprised investors with a 36% jump in ad revenues, sending its shares up 20% the next day. Although mobile ad revenues are a big part, a new ad exchange and an ad targeting program called Custom Audiences also appear to be getting traction.

* In particular, Facebook appears to have a good start on solving a key issue during the IPO: mobile advertising. The big kicker in that third quarter was mobile ad revenues, which hit $150 million, or 14% of revenues, from almost zero just six months earlier. As Zuckerberg said during the third-quarter earnings call, “I want to dispel this myth that Facebook can’t make money on mobile.” In particular, ads in mobile news feeds are working for advertisers because they look more like a natural part of what people are already looking at. …

Read the complete post at The New Persuaders.

Online Ad Spending Tops $100 Billion in 2012

digitaladspendFrom my Forbes.com blog The New Persuaders:

Spending on online advertising topped $100 billion for the first time last year, according to a report out today from eMarketer.

The $102 billion in worldwide digital ad revenues doesn’t mean much on an absolute basis, of course, but the round number points up how fast online ads have reached the century mark: Fewer than 20 years ago, they were virtually nil.

Digital now commands nearly one in five ad dollars, the market researcher notes. What’s more, it’s continuing to grow at a rapid clip, forecast to stay at double-digit increases through at least 2015. This year, eMarketer reckons online ad sales will rise 15.1%, to $118.4 billion. And by 2016, digital ad spending will pass a quarter of all ad dollars.

Most of that, not surprisingly, will be spent in North America and Western Europe, which currently have the highest levels of digital advertising spend per Internet user–$168 and $112 this year, respectively. North America commands 39% of digital ad spending, and that’s not going to decline much in coming years despite more rapid growth in Asia and Latin America, particularly Indonesia, India, and Mexico.

13 Questions For 2013 In The World Of Online Advertising

questionsCross-posted at my Forbes.com blog The New Persuaders:

For the past few years, I’ve offered predictions here and on The New Persuaders for what’s likely to come in the next year. I viewed them more as an agenda for what to watch for in the next 12 months than as firm predictions.

But it was too easy sometimes to state the obvious so they’d end up right by year-end. So this year, I’m going to shake it up and throw out a few questions instead. I think I know the answers to some of them, but if many won’t be answered definitively by year-end, they remain top of mind for me and probably for many others in online media and advertising.

So in this, the first full week of the new year, here are some questions to which I hope to start finding answers (and if you’ve got ‘em, sound off in the comments below!):

* Will image advertising finally take off online? I have to believe that as people spend more and more time online instead of reading print publications and watching TV, brand marketers will want and need to reach them there with ads that are aimed at creating consideration for later purchases, not just eliciting an immediate sale like Google’s search ads and too many banner ads. We’re already starting to see signs of such advertising with the early success of Facebook’s Sponsored StoriesTwitter’s Promoted Tweets, and YouTube’s TrueView ads–not to mention the explosion of tablets, which provide a lean-back experience more compatible with image advertising. This won’t be a sudden change, since brand marketers and agencies don’t move quickly, but you can’t tell me there aren’t going to be increasingly compelling ways for brands to influence people online.

* Will native ads reach broad scale? Well, perhaps they will on platforms such as Facebook and–well, Facebook–that already reach hundreds of millions of people. Sponsored Stories clearly have gotten some traction, even on mobile devices. But marketers and agencies won’t create multiple versions of campaigns to serve every new ad format that publishers claim work better than banner ads. Which brings up a related question:

* Will any standards emerge around the social gestures that most of these native ads embody? That’s really the only thing that will ensure that marketers can reach scale across many sites. That wouldn’t be in the interest of big companies such as Facebook and Google, which benefit from proprietary ad formats that can reach their huge audiences. But standards, whether it’s banners of a particular size or ad networks, create a more liquid market that helps hundreds of publishers survive as they provide marketers scalable opportunities to reach big audiences. So are there atomic units of social gestures that could carry brand messages across multiple native ad formats without destroying the appeal of native formats? Maybe there’s a technological fix for this, but it’s clear that a lot more needs to be done.

* Will the long-predicted shakeout in ad tech companies finally happen? It didn’t really occur last year despite a few middling-big acquisitions by Oracle, Salesforce.com, and Google. This year, perhaps new Yahoo CEO Marissa Mayer will corral a few to try to recharge the company’s ad business. Google, Adobe, and IBM have built out “stacks” of ad tech, but no doubt they can each fill out their offerings. Then there’s Facebook, whose ad exchange is likely to need fleshing out. But even if they each write checks for a few three-letter acronym startups apiece, don’t call it a shakeout. Given the rapid evolution of advertising technologies, and the reality that using data to refine advertising is still in its infancy, it’s a good bet that more companies will still be created than disappear. That should keep the Lumascape as crowded as ever.

* Can advertisers and publishers make ads more personal without scaring people? That’s the $64 billion question, and it likely won’t get answered in full this year. It’s easy for headline-hungry politicians to make a big deal out of Facebook’s latest privacy gaffe or the Wall Street Journal’s or the New York Times’ latest scare story about an ad that followed somebody all over the Web. That’s especially so since Facebook really does push the privacy envelope too far at times, and too many advertisers idiotically chase one more sales conversion at the cost of scaring off hundreds of others or inviting onerous legislation. But making ads more useful to each individual person is not only crucial to online commerce, it’s potentially better for most consumers as well–seriously, I don’t need to see another ad for a fitness center or a new credit card, but that ad for Camper van Beethoven’s new CD had me in a split-second. The answer lies in these two words, everyone: transparency and choice.

* Will mobile advertising work? Well, some of it already does, to hear Google and Facebook tell it. And while those already devalued digital dimes so far turn to pennies when it comes to ads on smartphones and tablets, this still feels more like growing pains than a crisis in online advertising. Sure, the screens are small and people don’t like to be interrupted in their mobile cocoons. So a different kind of advertising is probably needed–clearly, banners don’t cut it on a four-inch screen. But the value to advertisers of knowing your location and maybe the apps you’re using, coupled with knowledge of what your friends like–all with permission, of course–is huge. That permission may be really tough to earn. But if advertisers can offer tangible value, perhaps in the form of useful services related to what you’re doing or looking for or shopping for–and isn’t that the ultimate native ad?–people may loosen their hold on that information.

* Can Larry Page keep Google relevant in the social media age? So far, the no-longer-new CEO has at least kept Google’s mainstream ad business humming. Page has outlasted a year or so of missteps, missed opportunities, antitrust investigations, and bum vocal chords, and arguably emerged with a company that’s leaner, more focused, and more potent than ever. Not only does the recent antitrust victory appear to leave it free to compete unimpeded, but Android is doing better than ever even vs. a very strong Apple ecosystem and Google is about to emerge as a powerhouse in the other half of online advertising: display ads, whether on the desktop or on mobile devices. Page’s big challenge looms as big as ever, though: Can Google play in the social Web vs. Facebook/Instagram, Twitter, Pinterest, and more? I don’t know, but this may be the year Page has to provide a more definitive answer.

* Will TV and Web video ads finally come together on Connected TVs, tablets, or other devices? Sure, at some point. Video is video no matter where it runs, and while personal computer users bristle at pre-roll video ads, I’m betting viewers are more amenable to various kinds of ads when they view video on Internet-connected TVs or tablets. And even on PCs, YouTube’s TrueView ads, which you can skip after a few seconds, have proven successful to the tune of several billion dollars last year. Traditional TV advertising will continue to thrive thanks to unassailable economics of the cable-content cabal. But given extensive work by Nielsen, comScore, and others to provide metrics that can extend across TV and the Web, the latter may finally get some serious coin from brand marketers–if not this year, pretty soon thereafter. Especially if Apple works its magic on the television.

* Will Facebook really tick us off with a new feature or privacy “improvement”? Is Mark Zuckerberg CEO of Facebook? Nonetheless, Facebook’s well-worn playbook of pushing beyond social comfort levels, then pulling back just a bit, means we’ll probably see privacy norms get stretched once again.

* Will Apple ever make a real splash in advertising? Don’t bet your iPad on it. I think even the post-Steve Jobs Apple still views ads the way a lot of Silicon Valley still does (mostly in error): ineffective, inelegant, and crass. Apple itself can make great ads, but selling them is an entirely different matter.

* Will Amazon make a real splash in advertising? Oh yeah. All the pieces are in place, from a huge shopping-focused audience to a nearly bulletproof technology infrastructure. Again, it won’t set the world on fire this year, but we’re likely to see the smoke.

* Will Marissa Mayer turn around Yahoo? Not this year. Still, I wouldn’t be surprised to see signs of a real turn for the first time in about five CEOs. But the real turnaround will take years–if Yahoo’s board has the patience. That’s still an iffy bet worth about as much as a share of Yahoo stock.

* Will I ever figure out the appeal of Reddit and BuzzFeed? Gosh, I hope so. I get that these guys attract massive traffic, but neither site does much for me. Reddit, in particular, seems so random that I guess it must be the channel-surfing of today’s generation, only with somewhat more worthwhile nuggets. But for pete’s sake, there’s so much noise for the signal you get, and even the most popular noise can be many hours, days, or even months old. Go ahead, call me a geezer who doesn’t get it. You wouldn’t be the first, and maybe you’re right. So I will continue to click over to them until I see the light, my brain explodes, or the next phenom looks more worth wasting my remaining years on.

I have a lot more questions, but I’ve got to stop before too much of 2013 is gone.

FTC Lets Google Off The Hook In Search Competition Case

Image representing Google as depicted in Crunc...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

In a case that some people thought echoed the Justice Department’s landmark antitrust lawsuit against Microsoft in the 1990s, the Federal Trade Commission today announced it has closed its case against search giant Google. The upshot: Google essentially got off scot-free on the key issue of its search practices.

The deal concludes that the key issue that would have potentially rewritten how Google does search–whether the company engaged in unfair competitive practices with its industry-leading search engine–was not sufficient to require Google to make any changes, let alone pay any fine. Instead, it requires the company to take only voluntary measures that likely won’t have a significant impact on Google’s business. From Google’s own blog post on the deal:

  • More choice for websites: Websites can already opt out of Google Search, and they can now remove content (for example reviews) from specialized search results pages, such as local, travel and shopping;
  • More ad campaign control: Advertisers can already export their ad campaigns from Google AdWords. They will now be able to mix and copy ad campaign data within third-party services that use our AdWords API.

In a somewhat more significant part of the deal, Google also agreed to make its standards-essential patents available on so-called fair, reasonable, and non-discriminatory terms without using injunctions to block their use by rivals.

Again, from Google:

In addition, we’ve agreed with the FTC that we will seek to resolve standard-essential patent disputes through a neutral third party before seeking injunctions. This agreement establishes clear rules of the road for standards essential patents going forward.

Here’s more from the FTC release: …

Read the complete post at The New Persuaders.

How Did I Do On My 2012 Predictions?

2012: The Year Ahead

Photo: Mike Licht, NotionsCapital.com

From my Forbes.com blog The New Persuaders:

It’s that time of year: time to reflect on the past year, time to get wasted and watch a glass ball smash into the ground, time for people like me who foolishly offered predictions for the past year to face the music. So here’s how I did on my 2012 predictions:

* Facebook goes public, but won’t start an IPO landslide: Bingo! Indeed, Facebook’s ill-received IPO led to a months-long drought in IPOs as investors realized they were not a sure route to riches. The situation may be improving, but mostly for enterprise more than consumer companies.

* Facebook’s ad business booms–but not at Google’s expense: Bingo! While Facebook’s revenues slowed even before its IPO as it continued to experiment with new ad formats and scrambled to provide mobile ad units, ad revenues have since accelerated, up 36% in the third quarter over last year. At the same time, while Google’s revenue growth disappointed investors in the third quarter, it was mostly thanks to the impact of its Motorola acquisition, not a shortfall in its core ad business.

* Image ads finally find a home on the Web: Half-right. YouTube proved there’s a real market for TV-like video ads if you give viewers the choice to view them or not, as its revenues were expected to hit $3.6 billion in 2012, according to Citibank. But Facebook’s struggles to attract brand advertising despite a TV-scale audience, while partially successful, show that no one has yet come up with brand ad formats that work consistently and at large scale online. Or at least brands, which still spend most of their money on TV ads, don’t believe it yet. And they write the checks.

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