When Facebook reported net losses of $157 million in its first quarter trading as a public company, it placed some of the blame on the under-performance of its mobile services and promised to introduce a new and improved mobile social networking experience.
Googleâ€™s second quarter results were very healthy in comparison but the third time running it posted a year-on-year drop in itsÂ average cost-per-clickÂ (CPC) â€“ the money bid by advertisers to place ads on its search results. Its CPC was down by 16%, an accelerating trend that started in 4Q11 with an 8 per cent year-on-year drop. Conversion rates on mobile search advertising are much lower than on desktop, despite generally higher click-through rates â€“ hence Googleâ€™s relatively low mobile revenue.
Informa reports that even Apple, the biggest mobile disruptor of recent years, is struggling on the mobile advertising front. In February, Apple, like Google, for the third-time running cut the minimum spend it requires for advertisers to book campaigns on iAd, from a rather forbidding $1 million, when the service launched in 2010, to a much more affordable $100,000 now. The reason being that take-up of the service had been disappointingly low.
So what is it about making money in the mobile space that these OTT giants are having problems with? It may not be limited to just the OTT players themselves. Many enterprises are also having trouble migrating their desktop presence to an effective small-screen site. Optimizing web sites for the mobile environment is not an easy task and specialist help can cost big money.
The way consumers use smartphones differs from the way they use their desktop computer and tablets and any attempts to monetize mobile services has to be treated quite differently.
Google is responding to advertisers reticence to take on the mobile space by launching its GoMo and GetMo initiatives designed to hook up advertisers with mobile-optimization firms catering for all budgets and needs.
FierceMobileContentÂ reported that Facebook will pin its turnaround hopes on mobile services by developing new products. CEO, Mark Zuckerberg state, â€œFacebook is the most used app on basically every mobile platform. So when we think about what we want to do right now, we want to increase the depth of experience in addition to just growing users.â€ He pointed to Appleâ€™s forthcoming iOS 6 mobile operating system update that will include deep Facebook integration.
Facebook hopes its turn to mobile advertising will improve its financial fortunes. Last month it introduced a mobile-only version of Sponsored Stories enabling marketers to target consumers exclusively on smartphones and tablets. â€œBy the end of June, Sponsored Stories in News Feed was at a run rate of over $1 million per day in revenue, and about half of that is coming from mobile,â€ Zuckerberg said. Improving mobile applications was his â€œfirst priorityâ€ for 2012, with an emphasis on improved quality as well as quantity – Facebook mobile apps have often come under fire for being slow or buggy. The company recently launched its App Center in the US and UK.
As Guillermo Escofet, a senior analyst for content and applications atÂ Informa Telecoms and Media wrote, â€œOTT players have found it easy to conquer real estate on peopleâ€™s mobile screens as handsets increasingly become extensions of the Internet. But those who depend on advertising for their revenue are finding that extracting ad dollars from mobile screens is not as easy as on the desktop. And that is a big problem going forward, as mobile continues to take an ever bigger slice of digital traffic.â€
There is also the strong possibility that customers behave quite differently on their mobiles, as opposed to the desktop and tablets. The small screen does not lend itself to heavy internet researching and ads that appear either have to dominate it or go unnoticed. The former is greatly annoying to anyone that has had unwanted promotions suddenly appearing and then taken considerable effort to remove. Monetization of mobiles will need some seriously creative work and an intimate knowledge of peopleâ€™s likes and dislikes.
This all sounds to The Insider suspiciously like an opportunity that mobile CSPs could quickly address. We hear more and more of the need to work with OTT and Digital Service Providers (DSPs) and CSP knowledge of the mobile customers habits and preferences could go a long way in helping OTT players, as long as it has benefits for both.
First published at TM Forum asÂ The Insider, 2 August 2012.