Market Insight

Advertising at Mobile World Congress 2016: A Summary

February 29, 2016  | Subscribers Only

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Mobile advertising continues to grow strongly and is now a significant proportion of online advertising revenue. In 2015, global mobile advertising grew 71.0% from the previous year and accounted for 44.5% of all online advertising revenue. IHS forecasts that mobile advertising will increase 42.3% in 2016 and for the first time generate more than half of all online advertising revenue (at 55.3%).

The success of mobile advertising was manifested at this year’s Mobile World Congress (MWC), where mobile ad companies’ stalls were bigger and shinier than in 2015. Some companies changed logos (Millennial Media was in AOL colours), some changed ownership but kept their branding (Opera Mediaworks was acquired by China-based Kunlun Tech and Qihoo 360 Software) and all increased their attendance numbers at the show. However, despite the larger size of the booths, the number of companies exhibiting in the advertising hall at MWC remains high, which indicates the persistent fragmentation of the mobile advertising ecosystem.    

Our Analysis

Here is a summary of key ad-related themes from Mobile World Congress 2016:

Telcos claim back control: on February 19, 2016, a couple days before Mobile World Congress, mobile operator, Three Group announced that they would implement ad blocking for their customers in the UK and Italy in cooperation with Shine Technologies, an Israeli mobile technology company. This is an unprecedented move by a mobile operator and repositions the role of the operator in the mobile advertising ecosystem, where telcos have traditionally been weak. There are numerous paths Three can take to take advantage of the mobile advertising landscape:

  1. The ad network approach: Three could create an ad network for apps and publishers, aggregating and selling inventory in the style of an ad network, as the sole advertising gatekeeper to Three customers. This may be difficult as it does not have the scale of Facebook or Google (limited only to Three customers), but holds valuable data and could offer publishers a more favourable revenue share than the social media and search giants. A cooperation with other operators could solve the scale problem and provide publishers with a more favourable alternative to the current Facebook and Google offerings. However, success in mobile advertising requires agility, something which telcos have lacked historically.
  2. The white list: Three could offer advertising companies the possibility to pay a set fee to have the ability to serve advertising, based on certain quality criteria imposed by Three. This is common practice among desktop ad blocking companies, but mimics the mafia business and may have ethical concerns. The white list approach also raises the issue of net neutrality and is likely to run into problems with national regulation authorities.
  3. A telco seat at the table: the most likely motivation behind the Three announcement is the telco’s desire to be included in the mobile advertising ecosystem. Telcos have traditionally been just data “pipes” which provided the infrastructure for mobile internet and hence mobile advertising. They have attempted to monetise content through advertising (e.g. see Weve initiative Weve aims to rejuvenate mobile display advertising), but have made little progress in claiming significant market share. The ad blocking announcement is a plea to companies like Facebook and Google to include Three and other mobile operators in the mobile advertising value chain. Three on its own cannot shake up the mobile advertising landscape, but if other telcos follow suit, companies who rely primarily on mobile advertising for their revenue will have to reconsider their business models.

Chinese companies go shopping: the Chinese government has announced “Go Global” policy, encouraging Chinese companies to export their businesses outside China and it has gained momentum in late 2014 and 2015. This is being taken seriously by Chinese media and technology companies with the most recent examples of Wanda’s acquisition of Legendary Entertainment ($3.5bn) and Chinese investment consortium’s acquisition of Opera Mediaworks ($1.2bn). At dmexco 2015, the largest online advertising conference in Europe, one of the keynotes was the second largest Chinese e-commerce company, IHS expects to see more Chinese ventures into European and American media and advertising markets and anticipates a majority of those to take place in the mobile advertising space, which is one of the highest growth areas.

Advertisers become more savvy: mobile advertising innovation and advancements have traditionally come from the sell-side of the advertising ecosystem. For example, mobile programmatic was developed by publishers, learning from the desktop-world to optimise yields; native advertising was a publisher initiative to unlock new inventory and lift CPMs. However, advertisers are increasingly savvy about online and mobile advertising. Companies like Walmart, Target and Netflix now have in-house programmatic teams, who although still work with advertising agencies on their media plans, are making more decisions themselves on which companies to partner with in ad tech and mobile advertising. As other large brands adopt the in-house model, mobile advertising technology companies will have to move their evangelization efforts beyond the ad tech ecosystem to the (currently) largely excluded group of advertisers. This will be a new challenge for ad tech companies who are not very familiar with advertiser language and culture. Companies who will be early in the game in capturing advertiser support are likely to have the most success in mobile advertising mid to long term.

Messaging apps get involved: lastly, discussions at Mobile World Congress 2016 revealed numerous long-term plans to introduce mobile advertising in messaging apps or in a messaging app environment. For example, Quartz, the online news publication has recently launched a messaging app which has a direct conversation with the consumer to better understand his/her content and advertising preferences (named “You Don’t Read the News, You Chat With It”). Messaging apps account for a majority of mobile app consumption and offer a very engaging environment, which is of high value to advertisers. However, this also means that any ad formats within messaging apps must be well-integrated and well-mediated so as not to alienate a highly engaged audience. IHS expects this type of advertising to begin making headlines in late 2016, early 2017 with more acquisitions by the larger online advertising companies. There have also been rumours about Facebook introducing ads in Facebook Messenger, however these have not been confirmed. And although advertising in WhatsApp is still being denied by the company, the strategic value of the $19bn acquisition in early 2014 is starting to become clearer.

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