Written by Connie Hwong, Verto Analytics

Beware of rumors about the advertising industry’s demise — especially in Germany, where mobile ad spending is projected to rise by 44% this year (and is projected to account for nearly a quarter of Germany’s total ad spend by 2019). And this isn’t just a local trend: the U.S. market expects that mobile advertising will account for an incredible 72% of the digital ad spend by 2019, far surpassing search advertising on desktop PC as the biggest revenue driver of online advertising. But even though mobile app install advertising comprises a huge chunk of mobile advertising spend in both Germany and the U.S., brands and marketers still grapple with ROI and high rates of user churn.

Building a Better System for Measuring Mobile Advertising

Mobile advertising is still in its infancy compared to print and TV. But for brands, it represents a major improvement over the features of social media and PC-based search advertising. What holds brands back from embracing mobile advertising is a lack of expertise in integrating mobile into the wider media mix, and the absence of a standardized way to measure outcomes. Verto is addressing the business imperative for new frameworks and methodologies to advance the sophistication and maturity of mobile advertising. As a result, we’ve spent past year developing the the Verto Retention Report, a new approach to measuring the value of a mobile app user. Simply put, it’s a framework to help brands understand the value of mobile app advertising, over the long term, and to calculate to true cost of user acquisition in the mobile ecosystem.

Our premise is simple: as a brand, you have to connect investments to the return on that investment. If you have better insight into your costs and how that links to any revenue that partially or fully results from your investment, you can assess what is profitable in the long-term.

Verto’s research underscores consumers’ growing digital engagement with mobile devices. But what does future growth look like, and who will drive growth? A significant part of Facebook’s revenue growth has been mobile app install advertising. Now it’s time to focus on the next step: when will more brand advertising dollars move to mobile?

There are nine key trends to consider:

1. Digital is expanding its footprint: According to Verto Analytics data, there are about 10 digital device categories today that reach at least 10% of the U.S. adult population. And mobile is not the only driver: the list also includes smart TVs, gaming consoles, and smart home hubs.

2. If we consider both smartphones and tablets as “mobile devices,” the number of these devices and time that consumers spent on these devices has only recently surpassed that of PCs. But we also may need to rethink the definition of “mobile.” For example, how should we classify tablets, which are often used in place of a traditional TV? Even though tablets run on “mobile operating systems,” should tablets still be considered mobile devices?

3. Engagement on mobile devices is very different from engagement on PCs. During a typical day, there are 3–4 times more people active on a mobile device than a PC. Although use frequency is higher for mobile (for example, the average consumer unlocks their phone between 100 and 300 times a day), the amount of time spent per user (per session) is still higher on PCs.

4. Mobile advertising revenues exceeded PC advertising revenues in the U.S. last year and is projected to grow in other developed markets over the next two years. Moving forward, the biggest driver of mobile advertising will be mobile in-app advertising, which is 3x bigger than mobile search advertising. All key domains of mobile advertising will triple in value over the next three years, while PC advertising will remain flat.

5. Mobile app installation advertising has seen the most significant recent growth. However, there is an inherent limit in terms of the time people can spend on new apps. Eventually, ongoing growth will no longer be sustainable; in the long run, it is difficult to get people to spend incremental amount of time on new apps. Cross-app advertising and overall retention with new app downloads is a game of diminishing returns. Instead, the hope is that brand advertising could bring additional advertising dollars, as mobile publishers cannot make that happen on their own.

6. There is still the risk of a bubble in mobile advertising. Many mobile app publishers are driven by higher acquisition costs versus average monetization, and they have cash reserves through the private equity rounds they have raised. Can they all turn profitable and continue investing in mobile?

7. The players who currently have the most tangible way of understanding the target audience in mobile (e.g., users of certain mobile game genres), and who have the most direct ways of measuring outcomes (e.g., downloads of specific game genre), are the ones that are increasingly investing in mobile. Brands are still struggling, since they do not have a full understanding of their target audiences, and they do not yet have the right tools in place to measure outcomes.

8. The biggest challenge for brands may actually lie in understanding the role of mobile as part of the wider media mix. Once this is better understood and quantified, it is easier to justify the right reach and frequency to be targeted within mobile advertising as part of a larger campaign.

9. There are inherent risks in the platforms and ecosystems within mobile advertising. While Facebook, Twitter, and Google provide comprehensive end-to-end solutions for the benefit of advertisers, they also exert great control over these ecosystems. Together with Apple, these players control advertising IDs and have the power to either limit or drive innovation and competition in the industry. And carriers could join device vendors and operating system manufacturers as some of the companies who have the potential to control ecosystems.

The bottom line is, mobile needs to be a personal, powerful, and pervasive channel. Whether your target consumer is in-home or out of home — watching TV, playing a game, ordering pizza — their smartphone is usually with them. That’s why advertisers, of all kinds, want to invest in mobile. The only reason they hesitate is lack of measurement. We aim to fix that.

Interested in learning more about our approach to mobile advertising ROI? Click here to download “The True Value of a Loyal Mobile App User,” or follow us on Twitter and LinkedIn for the latest insights.

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