With shiny cars, fancy gadgets, and cutting-edge innovations in sensors, this year’s Mobile World Congress was dominated by 5G, the return of the Nokia handset brand, and AI. Connectivity developments and new mobile connected devices will continue to fuel growth for the online advertising industry. This is not just in terms of providing more screens on which to serve advertising but also by providing many more sources of data to better understand consumers and improve ad targeting.
Digital advertising revenues have grown rapidly over the past few years and totalled €161bn in 2016, 13.0% year over year growth. IHS Markit forecasts that total revenues will reach €188bn in 2017, 16.3% up from the previous year. Globally, mobile display advertising grew 42.4% in 2016, to reach $41 billion and for the first time generated more than half—54.8%—of all online display advertising revenue. Increasingly, the advertising industry is looking to new types of consumer devices to sustain this growth from smart assistants over home automation tools to virtual reality headsets. These devices serve as new output devices for advertising messages, but also as new input devices that provide data to enable a deeper understanding of user behaviour. The rapid expansion of the APAC ad markets was evident in the large number attendees from Asia-based companies including Baidu, Apus, Cheetah Mobile, and others.
Here is a summary of key-ad related themes from Mobile World Congress 2017:
Online advertising continues to fund the digital ecosystem
Despite ongoing concerns around the lack of transparency, measurement accuracy, and ad fraud, monetisation through online advertising remains the top business model to fund the digital media ecosystem. Last year, the (now former) ad blocking company Shine caught the news headlines by partnering with the mobile operator Three to block advertising at the network level. This year, Shine has rebranded to become Rainbow, in a 360 degree turnaround from an advertising adversary to become an ad industry partner and “ad quality enforcement” platform that filters out ads that do not meet industry standards.
Ad market issues mentioned above provide the opportunity for new ad solution providers to capitalise on the booming online ad market growth, but this also creates more fragmentation for the digital ad ecosystem. Emerging businesses like Wi-Fi-rental for travellers (business and leisure) is partly monetised through advertising, where agencies, partners, and device providers take a share of advertising revenue. Internet roaming service provider uCloudlink, for example, shows advertising to holiday makers. Advertising within a caller ID app, for example the mobile app monetisation platform Calldorado, could potentially turn every call into an ad impression.
Online ad measurement is still an issue
The digital advertising market may be supported by high-tech and cutting-edge innovations, but publishers and ad tech companies still use orthodox approaches to deal with ad measurement. This includes prior agreed amount of impressions and trust, rather than allowing independent third party vendors to audit measurement. But programmatic advertising, through which ads are sold based on bidding price, has become a common solution for publishers and ad tech companies to deal with transparency issues. Other ad-related companies, such as app developers that take a share of ad revenue from publishers are not so worried about the transparency issue. This is not a view shared by advertisers. The recent call by Procter & Gamble and other leading advertisers for greater transparency and standardised viewability measures from publishers is a reflection that the ad market is still far from reaching maturity in terms of transparency.
User experience with the support of data and AI
The emphasis on user experience is nothing new to advertising, but the use of Artificial Intelligence (AI) to enable better user experiences and better targeting has become the new buzz word for online advertising, displacing “programmatic advertising”. Automation, machine learning, and AI have been deployed in areas like search advertising, app retention prediction, and customer feedback, etc. However, the potential for data to better support online advertising remains untapped. This is partly constrained by tight data regulation, but also due to data ownership by the first party. IHS Markit believes that going forward there will be more collaboration between different parties for data sharing as users become more demanding in terms of experience quality, which will drive the need for better understanding of users through data.
Asia goes abroad and West pivots to Asia, but big ad giants are hard to avoid
The global online ad market dominance of Facebook and Google and Chinese players’ (B.A.T. - Baidu, Alibaba, and Tencent) lead in their domestic market is well felt and echoed by many smaller ad players. Chinese ad companies, which have been squeezed out by the B.A.T., are looking to expand their business overseas. But here they also face the challenge of internet giants Facebook and Google when entering the uncharted water of the foreign markets. Despite the huge fragmentation of the digital ad ecosystem, only a few online players matter.
The market dominance by global and regional online behemoths has led to smaller ad companies betting on the emerging publishers to confront this. Emerging disruptors include Snap which recently raised $3.4bn (€3.2bn) from its IPO, has 161 million daily active users worldwide, and could challenge the duopoly of Facebook and Google in the Western market. Other actors such as Toutiao, a Chinese news aggregator, has reported 700 million total users in China and claims70 million daily active users is also an ad market new competitor to B.A.T.
Western companies (such as ad tech, ad network, and ad agencies) have very different levels of presence in Asia, particularly in Southeast Asia. Many ad companies share the view that China is a unique market in its own right, and are devoting more resources to demystify the market. China, the second-largest online ad market in the world, with €30.9bn revenues in 2016 and will reach €59.2bn in 2021. Collectively, the APAC online ad markets will total to €50.9bn in 2017, with 14.4% year over year growth.
Companies to ramp up data and innovation investments
From our conversations, ad tech companies and companies with a strong Asian presence are popular targets for acquisition and investment by bigger advertising entities. This is in line with our latest M&A Market Monitor report, in which we found that APAC has become a strategic focus for broadcasters, agencies, and online publishers, alongside more mature Western markets. ClicksMob (a mobile performance platform), for example, was acquired a few weeks before MWC 2017 by XLMedia, an Israeli digital performance marketing developer looking to boost its mobile capabilities and Asia business. Advertising companies continue to invest in app developers and monetisation platforms, whereas publishers will look to invest in companies that complement or strengthen their core business. Big areas of investment will go to AI and data. However, we expect the actual deployment of AI will be slow in practice because it will take companies time to develop the technology and the level of data required to implement AI effectively.