mobile

Since 2006, the mobile advertising space has become overcrowded. With too many mobile ad companies for too few carriers, no solid business models for mobile advertising, and reduced mobile ad spending, mobile advertising companies are set to face difficult times in the coming years. According to the WSJ article published this morning, SmartReply, which designs telephone and email marketing programs for retailers, is acquiring mobile-ad firm mSnap. We are likely to hear a lot more similar stories in the coming months. Here is why:

1. Increased consolidation in mobile ad space since 2006: About 20 mobile-marketing companies (e.g. Third Screen Media, Enpocket, etc.) have been acquired for a total of about $900 million, according to media and marketing investment bank Petsky Prunier.

2. Reduced mobile ad spending: Due to the challenging macro environment, many advertisers/media companies have significantly reduced their mobile ad spending. Not surprisingly, research company eMarketer reduced its mobile ad spending projections fairly significantly. Research firm eMarketer now estimates that U.S. mobile-ad spending in 2009 will reach $760 million, down from the $2.8 billion for 2009 it predicted last March.

3. Too many mobile ad-players… for too few carriers: The number of mobile advertising companies has increasing dramatically over the years. In fact, in February 2008, the Mobile Marketing Association (MMA) reported a total membership of nearly 600 companies in the mobile space nationwide and overseas, representing a 350% growth in the MMA membership in the past couple of years. As the result, investment around mobile advertising companies has surged over the past 3 years. Indeed, since January 2006, about 80 such companies have raised more than $1.2 billion in venture funding, according to media and marketing investment bank Petsky Prunier. Today the vast majority of mobile companies claim to have mobile advertising capabilities. Quite frankly, many of those companies offer the same type of capabilities (e.g. mobile ad placement, analytics, etc.) with no real differentiator. With too many mobile ad-players for too few carriers, it is quite obvious to see where the problem is. The mobile ad space has become overcrowded. In the challenging macro environment we are living in, with carriers, advertisers, and other key players, focusing on reducing cost, mobile ad companies have struggled to sign new deals with carriers, media companies, and brands.

4. Too much hype…Time to deliver with real business models. In 2006 and 2007, mobile advertising became one of the “hottest” topic in the mobile space. In reality, much progress has been done in terms of building solid and viable business model in the U.S. Carriers are trying to figure out the best way to monetize mobile advertising without deteriorating the user-experience.

What should we expect in the coming years?

In 2009, I expect to see many mobile advertising companies going bankrupt due to lack of funding, or being acquired by leading mobile advertising companies (e.g. AdMob, 4INFO, Enpocket/Nokia, AOL/Third Screen Media), mobile search companies (e.g. Google, Yahoo), software companies (Microsoft), handset vendors (e.g. LG, Samsung). However, in 2010, as the macro environment starts to improve, and mobile ad spending budgets start to increase; I expect to see solid business models around mobile advertising being built by carriers. Ad-funded or ad-supported services/content embedded with value-added features/capabilities like mobile LBS, commerce, (e.g. mobile coupons), social networking, and UGC (user-generated content) will then become a “must have”. At the end of the day, the mobile advertising space is like a big jungle or the U.S. MVNO market: Only the strongest players will survive