3 Trends That Will Transform Mobile Advertising

2014 mobile advertising trendsAs many know, the mobile advertising market is a crowded space, with over 400 ad networks (really!) to choose from. This fragmentation has done much to undermine overall revenue, and slow mobile’s emergence into the transformative platform we know it can be.  But from my perspective as both a venture capitalist and someone working in this space,  there’s good news: I believe three massive trends will soon address the fragmentation problem, giving hope to customers, developers, and investors alike.

1.) The unbundling of “advertising” and “technology”

Today, nearly every mobile advertising company considers itself also a technology company. Economically, it is unsustainable to be both, so we’re about to see a break between ad companies that specialize in media trading and those that actually sell technology.

Of the two, media traders are the much larger group. You can easily spot them by looking at their gross margins, which are in the 30 to 50 percent range. Many will try to differentiate by scale, publishers, regions, targeting, or ad formats, but few have the dollars needed to build a full mobile advertising tech stack — which today takes a minimum of 50 engineers (at a total cost of up to $10M). Apart from a few $100M players that can build their own stack, thousands of companies need a third-party solution.

This has created an opportunity for a small but fast-growing group of white-labeled mobile ad tech providers, ranging from Google’s DFP for the long tail, to specialized full-stack platform providers like Amobee or LiquidM (full disclosure: my own firm), to a range of limited point solutions, such as demand-side platforms like StrikeAd or ad server companies like Mocean.

While the number of media traders could stay large, they will fundamentally cease to be “ad tech companies,” preferring cost-effective third-party technology instead. The pure-play ad tech providers will then consolidate around a few competitive platforms.

2.) The shift from trading revenue to software license

Related to the unbundling of advertising and tech, the business model of white-labeled mobile ad tech providers — charging a seat or site license rather than a media markup — will begin to undermine the practice of ad networks trading with one another.  That practice has helped boost revenues in an industry where company valuations are measured in multiple of revenues, but added little value for customers. As advertisers begin to realize that, this revenue will collapse.

With white-labeled mobile ad tech providers enabling advertisers and publishers to bypass bloated supply chains and eliminate middlemen, you will, for instance, begin to see many more of them procuring their media directly, as part of their enterprise IT stack, and tightly integrating it with their marketing stack and data warehouse.

Eliminating middlemen will clear the landscape of many undifferentiated media wholesalers, and strengthen those who are intimately connected to the advertising or publishing business. Which brings me to a third trend:

3.) The convergence of premium and performance

The industry is traditionally divided into premium and performance advertisers. However, these models are blurring and the required technologies for “premium” and “performance” solutions are converging.  From premium ad servers on one end, and bottom-of-the-funnel performance DSPs on the other, the middle ground between these extremes is fast emerging as a focus point for next-generation ad tech.

I believe this convergence will put an end to false choices between different ad tech solutions, and begin to consolidate mobile advertising networks. It will generate de facto industry standards, and simplify the supply chain for all advertising needs, making it a clearer investment option for both VCs and customers alike. And with this great convergence, we will see advertising revenue grow large enough to transform mobile into the true medium of the 21st century it is destined to be.


About Christof:

Christof Wittig is founder and CEO at LiquidM and a serial software entrepreneur, with seed investments in the mobile app space with companies such as MetagoEnish (TYO:3667), KeepSafeHornet Networks, and App Annie.

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