“Mobile” advertising is dead. Long live tablet and smartphone advertising
Deloitte predicts that in 2013, what is currently described as “mobile” advertising will get split into two categories representing two similar but distinct devices – tablets and smartphones1. The smartphone sector may generate about $4.9 billion in revenues in 2013, while advertising on tablets may be worth about $3.4 billion2.
Display revenues, which include in-app ads3, are forecast at about $7 per tablet, considerably higher than a forecast $0.60 per smartphone. Differences between search revenue per device are less marked but still significant – at about $1.70 per smartphone and about $5.60 per tablet4.
In 2014, growth in both categories should be strong, with smartphone advertising rising by between 30 to 35 percent to about $6.5 billion, and tablet advertising by 50 to 55 percent for tablets to about $5.2 billion. Revenues will be generated from a forecast base of some 2.3 billion smartphones in 2014 (approximately a 20 percent increase from 2013) and 370 million tablets, a 40 percent rise from 20135. Advertising revenues per smartphone in 2014 are forecast at about $2.80 and about $13.90 per tablet6.
Advertising effectiveness is measured by a range of metrics standard across most advertising formats, such as cost per thousand impressions (CPM) and, for online advertising, click through rates (CTRs). All these metrics should remain higher for tablets than for smartphones in 2013, and in some cases in the medium term. As of Q2 2012, CPMs for tablet computers averaged $3.95; for smartphones they were up to $2.857. One analysis found that tablet CPMs are 33 percent to 55 percent higher than for phones8. Among smartphones, there are significant variations in usage by operating system and price bracket, with CPMs as of Q2 2012 ranging between $0.20 and $2.859. One agency found that conversion rates were more than four times higher on tablets than on smartphones10.
Mobile advertising has traditionally grouped tablets and smartphones together because of their many similarities. Both devices share operating systems (OS). The processors, graphics, radios, Wi-Fi chips, cameras and satellite navigation chipsets used in smartphones are often the same as in tablets. Flash memory sizes are similar. The screen technology used on full-screen smartphones and tablets is virtually identical. Even price ranges are broadly similar11. Feature phones’ ad revenues are often bundled with smartphones’ as they also have some similarities, such as their usage of text-message based ads.
Yet in one critical respect, the devices differ: screen size. This drives fundamental differences in usage and monetization. Smartphones are five to seven square inches, and have little space in which to place high-impact display ads. The largest smartphones are 11 square inches, about a quarter of the space offered by 9.7 inch tablets, which boast a 40 square inch display area. Even seven inch tablet computers have almost twice as much viewable area, at 21 square inches, than the biggest smartphones.
The usability of a screen ratchets up with size. Ten inch tablet screens have four to eight times more surface area than smartphones, but usability, usage and advertising effectiveness may be multiples of that. Smartphones and tablets both use virtual keyboards. On the former the keys are small, but use clever algorithms to guess what the user is trying to input. On a ten inch tablet, the keys are likely to be similar to those on a laptop computer, i.e. close to the size of a typical fingertip. Error rates are likely to be lower. ‘Fat fingers’ – that is clicking on the wrong link when browsing or selecting the wrong letter or number when typing, are not about the user’s fingers being over-sized but rather due to tiny screens increasing the incidence of imprecise typing12. The higher the error rate when typing a search query or clicking on a hyperlink, the lower the likelihood the user will return.
It is important to note another critical trend among smartphones, which is stratification in usage. As mentioned, 1.9 billion smartphones are forecast to be in use by the end of 2013. But these devices will be used in increasingly different ways. For example, about 400 million devices will never, or rarely (less than once a week), be used to connect to the Internet. In other words, almost a quarter of smartphone users will rarely or never browse the Internet (and therefore will not be exposed to advertising on websites) or effect a search from their phones.
In the medium term, the number of smartphones users who rarely or never connect to the Internet – because all they want to do is to make calls and send messages – may grow, driven for example by a lack of standard feature phones to purchase. The growing base of smartphone owners who use their devices as feature phones may drag down ad revenues per device in the medium term. Messaging- based advertising would remain the only form of advertising on these devices.
An individual’s pattern of smartphone usage is likely to be influenced by ownership of other devices, particularly tablets (and especially smaller, more portable tablets). Individuals who own both a tablet and a smartphone are likely to tend to use tablets for any activity that works better on a larger screen, including browsing, e-commerce, video games, gaming and some social network usage13. All these activities offer opportunities for serving ads or encouraging search. A degree of tablet usage is likely to be a straight transfer from a PC: owners of larger tablets are likely to migrate, or to have migrated, a significant share of their browsing (including search), e-commerce, video games and communications activity to tablets. Again, browsing and communications support ad serving and stimulate search.
Tablet adoption is still in its relative infancy – globally by the end of 2013 there will be less than 300 million tablets in use and in most markets tablet penetration will be lower than 30 percent14. In fact, in the majority of markets ownership percentages will likely still be in the single figures. That means the tablet’s full advertising potential is some way from being realized.
The use of search on smartphones and tablets when the user is out and about is likely to be affected by network availability. Search relies on bandwidth – either from cellular mobile or Wi-Fi. With inadequate bandwidth, it may be challenging for users to both run a search and then click on the results, impacting negatively on click through rates. Rising availability of Wi-Fi, as well as more extensive and faster 3G/LTE networks, should make the ability to complete a search cycle more likely and search should become more valuable as a result.
Use of search when out and about – regardless of network connectivity – will be driven by need. The need to search (for a place to eat, a shop or a hotel) is for the majority likely to be occasional rather than habitual. And when a search is required, there are multiple alternative options available, from polling friends and family, to speaking with a shop assistant or simply stumbling across a hidden treasure.
Smartphones and tablets can use location to increase advertising effectiveness. This could enable targeted advertising, perhaps blended with coupons. In markets with a broad base of smartphones enabled for near field communications (NFC) and NFC readers, smartphones could be used to find and then pay. However, while the NFC phone base is likely to be in the hundreds of millions in 2013, the availability of NFC readers may remain variable.
Smartphones and tablets are powerful advertising media, each with its strengths and constraints. While similar, they are distinct, and their distinctiveness may deepen over time.
Usage of smartphones and tablets is sufficiently distinct to merit them being regarded as separate categories in multiple respects, including advertising. Splitting the device categories should make it easier for the industry to realize value from the advertising opportunities offered by billions of smartphones and tablets. The increasing variety of smartphones may also merit further delineation, for example by screen size, operating system or device age15.
Both forms of advertising are in relative infancy. In 2013 the modern tablet form factor will be a mere three years old and modern smartphones just a few years older. There is much experimentation and innovation ahead. For example, one area of opportunity is second screening, which is the use, while watching television, of a second (and in some cases third) connected screen-based device, such as a tablet, smartphone or laptop. Advertising shown on the television set could be replicated on the second screen, or the content of the TV program being watched could trigger certain websites to open on the second screen. Another opportunity lies with games. There are an estimated 200 million online gamers globally, who play for an average 13 hours per week16. The coming year is likely to see much continued experimentation with these opportunities.
The progression of smartphone and tablet advertising is likely to be linked to their ability to generate e-commerce revenues. While both devices are in their relative infancy, there is a significant gap in the range of content accessible via each. Most Internet content is formatted for viewing on PCs. This reflects the PC’s 80 percent share of browsing time across PCs, tablets and smartphones. Content formatted for PCs – including e-commerce sites – is generally also viewable on larger tablets. Smartphone advertising revenues are likely to be a function of the quantity of smartphone optimized e-commerce sites are created. Website owners need to determine how best to allocate development resources for PC-oriented and smartphone-optimized sites17.
Companies should also consider how smartphone and tablet advertising is likely to connect to other forms of advertising, and alternative forms of interaction. It may be that the smartphone drives discovery, the tablet offers further information and the PC or shop is where the transaction takes place18.
Advertisers should consider new forms of advertising specific to the physical characteristics and typical usage of smartphones. If the banner advertising used on PCs and tablets cannot readily fit a smartphone screen, then new formats should be tried which aim to harness its positive aspects (such as location information) and which work within its limitations. For example, rich media advertising such as interactive videos or game functionality might be more appropriate for small screens
Any form of advertising may be subject to fraudulent activity. The smartphone and tablet ad categories are unlikely to be immune. The industry should consider how best to minimize fraudulent clicks19 and exaggerated claims20.
Some users may be worried about fraudulent ads on smartphones and tablets which lead to malware being downloaded21. The industry should consider how best to indicate to users that ads are authentic, perhaps through a Kitemark system.
1 There is also mobile advertising generated by text messages, which can be received on standard feature phones, smartphones and tablet computers with cellular mobile connections. Revenues from text message based advertising are modest, at about six percent of the $9 billion mobile industry total in 2013. The total revenues for mobile advertising in 2013 are Deloitte Touche Tohmatsu Limited estimates based on existing knowledge, conversations with industry players and published industry estimates and forecasts including: Mobile Ad Spending To Hit $6.4 Billion Globally In 2012, Business Insider, 1 August 2012. See: http://www.businessinsider.com/mobile-ad-spending-to-hit-64-billion-globally-in-2012-2012-8#ixzz2Gkk9pOEg
2 The revenue split by device category is a Deloitte Touche Tohmatsu Limited estimate based on existing knowledge, conversations with industry players and published industry estimates and forecast, including: These Graphs Show How Tablet Ad Spending Will Crush Smartphones Over The Next Four Years, Business Insider, 8 November 2012: http://www.businessinsider.com/idc-predicts-tablet-vs-smartphone-ad-spend-2012-11
3 The share of in-app ads as a proportion of the total varies by geography. In North America, 62.6 percent of mobile ad requests are in-app, and 37.4 percent are mobile web. In France, Germany, Italy, Spain and the UK, 62 percent of mobile ad requests are in-app and 38 percent are from the mobile web. In other words, very close percentages in those markets. Globally the distribution is more even – 48.1 percent of ads were in-app versus 51.9 percent on the mobile web. Source: State Of Mobile Ads: Rich Media Rules, Mobile Web Still In Play & Even RIM Makes A Showing, TechCrunch, 1 October 2012, See: http://techcrunch.com/2012/10/01/state-of-mobile-ads-rich-media-rules-mobile-web-still-in-play-even-rim-makes-a-showing/
4 Smartphone and tablet mobile advertising includes revenues from messaging (as a form of advertising).
5 The volume for the installed base of tablets and smartphones are Deloitte Touche Tohmatsu Limited estimates based on existing knowledge, conversations with industry players and published industry estimates and forecasts including: WHY TABLETS WILL BECOME OUR PRIMARY COMPUTING DEVICE, Forrester, Frank Gillett’s Blog, 23 April 2013. See: http://blogs.forrester.com/frank_gillett/12-04-23-why_tablets_will_become_our_primary_computing_device
6 The total revenues for mobile advertising in 2014 and the split by device category are Deloitte Touche Tohmatsu Limited estimates based on existing knowledge, conversations with industry players and published industry estimates and forecast including: Mobile Ad Spending To Hit $6.4 Billion Globally In 2012, Business Insider, 1 August 2012: http://www.businessinsider.com/mobile-ad-spending-to-hit-64-billion-globally-in-2012-2012-8#ixzz2Gkk9pOEg; These Graphs Show How Tablet Ad Spending Will Crush Smartphones Over The Next Four Years, Business Insider, 8 November 2012: http://www.businessinsider.com/idc-predicts-tablet-vs-smartphone-ad-spend-2012-11
7 Source: The State of Mobile Advertising, Q2 2012, Opera Software, June 2012. See: http://www.opera.com/sma/2012/q2/
8 Data is from Jumptap. Source: Jumptap: In Mobile, Size May Not Matter, 6 May 2012. See: http://www.jumptap.com/home-page-news/jumptap-in-mobile-size-may-not-matter/ ; Tablet CPMs are higher than that of mobile because of the “larger screen size, more limited reach and high demand”. Source: Tablet Ads Deliver Results, but Barriers Remain, eMarketer, 18 October 2012. See: http://www.emarketer.com/(S(u0eug255jbekjv55chixzqfb))/Article.aspx?R=1009423
9 Source: The State of Mobile Advertising, Q2 2012, Opera Software, June 2012. See: http://www.opera.com/sma/2012/q2/; M&C Saatchi commented in October 2012 that premium smartphone ad rates had risen 20 percent in the last year. Source: Tipping Point For The Touchscreen: Tablet Ad Spend Will Outweigh Smartphone Spend This Holiday Season, Says M&C Saatchi, TechCrunch, 19 October 2012. See: http://techcrunch.com/2012/10/19/tipping-point-for-the-touchscreen-tablet-ad-spend-will-outweigh-smartphone-spend-this-holiday-season-says-mc-saatchi/
10 M&C Saatchi, the agency which published the findings, also noted that 90 percent of its clients were planning to grow tablet spend by 25 percent “in the coming months”. Source: Tipping Point For The Touchscreen: Tablet Ad Spend Will Outweigh Smartphone Spend This Holiday Season, Says M&C Saatchi, TechCrunch, 19 October 2012. See: http://techcrunch.com/2012/10/19/tipping-point-for-the-touchscreen-tablet-ad-spend-will-outweigh-smartphone-spend-this-holiday-season-says-mc-saatchi/
11 This is from about $50 at the low-end to premium devices costing around $800 for both tablets and smartphones
12 One analysis of mobile advertising effectiveness, performed on a base of six million clicks, concluded that about 22 percent of clicks were accidental. Source: Study: 40% of mobile clicks are accidental or fraudulent, Trademob, September 2012. See: http://www.trademob.com/wp-content/uploads/2012/09/Trademob_Whitepaper_Click-Fraud.pdf
13 Deloitte Touche Tohmatsu Limited estimates that about 80 percent of tablet owners also have a smartphone. The estimates are based on a 15-country survey of mobile phone users around the world. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
14 The volume for the installed base of tablets and penetration are Deloitte Touche Tohmatsu Limited estimates based on existing knowledge, conversations with industry players and published industry estimates and forecasts including: WHY TABLETS WILL BECOME OUR PRIMARY COMPUTING DEVICE, Forrester, Frank Gillett’s Blog, 23 April 2013. See: http://blogs.forrester.com/frank_gillett/12-04-23-why_tablets_will_become_our_primary_computing_device; Global tablet penetration rate from 2010 to 2014, Statista: http://www.statista.com/statistics/219909/global-tablet-penetration-forecast/
15 For more information on variations in ad impressions by operating system. Source: State Of Mobile Ads: Rich Media Rules, Mobile Web Still In Play & Even RIM Makes A Showing, TechCrunch, 1 October 2012. See: http://techcrunch.com/2012/10/01/state-of-mobile-ads-rich-media-rules-mobile-web-still-in-play-even-rim-makes-a-showing/
16 Source: In-Game Advertising Still Not Drawing Ad Budgets, ClickZ, 29 November 2012. See: http://www.clickz.com/clickz/news/2228249/ingame-advertising-still-not-drawing-ad-budgets
17 According to one study of US brands, customer satisfaction is generally higher with PC sites. Source: Satisfaction Lower With Mobile Than PC Websites, May Impact Brand Perception, Marketing Land, 12 January 2012. See: http://marketingland.com/satisfaction-lower-with-mobile-than-pc-websites-may-impact-brand-perception-3275
18 Source: If Content Is King, Multiscreen Is The Queen, Says New Google Study, TechCrunch, 29 August 2012. See: http://techcrunch.com/2012/08/29/if-content-is-king-multiscreen-is-the-queen-says-new-google-study/
19 According to one study, based on six million clicks, about 18 percent were considered fraudulent. Source: Study: 40% of mobile clicks are accidental or fraudulent, Trademob, September 2012. See: http://www.trademob.com/wp-content/uploads/2012/09/Trademob_Whitepaper_Click-Fraud.pdf
20 Source: As many as 77% are now going online solely via their mobile phone, The Wall, 18 September 2012. See: http://wallblog.co.uk/2012/09/18/as-many-as-77-are-now-going-online-solely-via-their-mobile-phone/
21 Source: Smart phone malware: The six worst offenders, NBCNews, 2011. See: http://www.nbcnews.com/technology/technolog/smart-phone-malware-six-worst-offenders-125248