by Andrew Tweed on February 6, 2014
From our experience working with mobile ad tech companies, their customers, and industry veterans, we formed a few predictions on what the big mobile advertising trends will be for 2014:
1. Brand advertising dollars on mobile will take off
2. RTB will enable online programmatic buyers to push increased budget to mobile
3. Video will provide the best gateway for these brand dollars to scale on mobile
Brands will begin to become the behemoths
The first wave of mobile advertising was heavily skewed towards driving app installs. The larger game publishers were great clients because they were early in adopting the necessary tools to track user LTV and advertising attribution with which they could optimize their ad buys. Coding for the iOS and Android operating systems, integrating SDKs, and working with ad tech partners has been in their DNA. Companies like Supercell, King.com, and Zynga played a big role in buying ads, and while CPI campaigns continue to drive the market, we believe that in 2014 the mobile advertising spend from large brands will grow faster than mobile publisher spend. The brand dollars for digital have traditionally flowed through agencies and programmatic buyers like Criteo, DataXu, and MediaMath. These types of programmatic buyers are beginning to increase their use of mobile advertising, and with them come far deeper pockets than the pure app publishers. What is enabling them to push into mobile now?
Mobile RTB and programmatic buying are opening up the category, and mobile web will play a big role
For large brands, mobile historically had smaller reach and less user data they could use for targeting. This meant that many programmatic buyers weren’t focused on buying mobile ads because online advertising provided wider reach and easier user tracking.
The barriers to adopting mobile advertising are beginning to fall. Scale is increasing with mobile RTB exchanges, user tracking is becoming more accurate, and there are publishers with persistent logins. We feel that mobile web has been under-appreciated by the market and will help mobile brand dollars to flow into the ecosystem. Many of the large auto companies, for example, have spent their online ad budgets driving people to their website in order to sign up for a test drive, click to call a local dealer, or try an interactive car design experience. Contrary to what some people believe, there are cookies on the mobile web that can now be leveraged alongside responsive mobile web design. Auto companies today can create a responsive mobile web site, integrate user tracking into their DMP/DSP, and drive either in-app ads with a mobile web-landing page or direct mobile web buys. This opens up a massive opportunity for programmatic buyers to pitch their brand clients.
Nexage published great data showing the increase in RTB and online programmatic buying dollars shifting to mobile:
Rich information is coming from publishers like Facebook and Twitter who have persistent login information on their users. Most app publishers are trying to triangulate who their users are, but companies like Twitter and Facebook can identify users across devices because they are logged into the service. At the time Facebook had their IPO in 2012, mobile revenue was close to zero. During the latest earning announcements that number climbed to 53% of total revenue. One large gaming company that we know achieved a user LTV from Facebook installs that was nearly 7X that of users who were acquired through their other ad partners. We believe that Facebook and Twitter will dominate much of this ecosystem as both move towards opening their inventory up on mobile RTB exchanges (Twitter acquiring Mopub, at some point Facebook opening up FBX). This will help drive the channel for larger programmatic buyers on mobile. But things will become interesting for one more reason.
Video will provide the gateway for both big brands and publishers to drive performance at scale
The majority of brand advertising budgets are spent on TV ads. PwC and eMarketer reported that in 2013, U.S. television ad dollars were $66bn vs. $4bn in digital video (both online and mobile). However, IAB found that 75% of U.S. senior executives plan to shift ad budget from television to digital video ads this year. High-definition mobile video will experience great growth due to recent technology developments. The industry received a big boost in early 2013 when the IAB and some partners announced the OpenRTB 2.1 spec. This framework opened up mobile video via RTB, paving the way for large ad tech players to bid programmatically on mobile video ad inventory. Many traditional mobile ad networks are racing to launch their video exchange offerings, so expect to see more announcements this year. While the foundation has been built on the supply side, we have been told that some of the larger digital programmatic buyers are still catching up from a technology standpoint. They are being pushed in this direction for a good reason.
The stats are staggering when comparing eCPMs from video ads to other forms of advertising such as display and mobile banner:
Source: DataXu, Turn, Thomvest Research – 2013
Instead of a hard-to-read banner ad, the user can view an entire video brand experience in the palm of his/her hand. There are large sums being invested by brands and agencies into creating video ads for TV. With those videos being adapted to mobile, the RTB plumbing being laid, and the programmatic buyers coming in, brand ad spend on mobile will ramp dramatically in 2014.
What this means for an investor in ad tech
We took a look at the market and tried to pinpoint how we could take our view and find companies that benefit from these three trends. One that stood out above the rest was Vungle. The company provides HD video ads on mobile, and has been on one of the most impressive growth trajectories we have seen. They began by building out a large video network of premium app publishers and advertising partners, but have had increasing demand from larger programmatic buyers. Vungle’s data science team found that they could leverage their rich user behavior and tracking data in an RTB environment. This has led to the development of the Vungle Exchange – the first in-app mobile video ad exchange. Their focus on mobile video has yielded results great results for both publishers and advertisers relative to other ad formats. We are pleased that Vungle has announced our lead investment in a $17mm funding round. Their amazing team harnessed these three trends and made our investment decision an easy one. We look forward to watching them continue to grow and are glad that we are part of the Vungle family.