Smaato White Paper The Mobile Advertising Ecosystem August 2010
1.open mobile advertisingThe MobileAdvertisingEcosystem WHITE PAPER2. There has been a lot of talk and a lot of hype around mobile advertising forthe past couple of years, but the stats show that the market is still smallwhen compared to online advertising.Two of the reasons for this are fragmentation and a lack of understanding.Mobile optimization platforms like Smaato can help to address the firstissue, making it easier for advertisers to buy across multiple networks,and for publishers to sell their inventory.As for the lack of understanding, Smaatos commitment to producingregular metrics which show the devices, operating systems andgeographic territories that are delivering the best results, can only begood for the nascent mobile advertising industry.David MurphyFounder and Editor, Mobile Marketing Magazine 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 3. SummaryThis whitepaper aims to deliver a high level overview about themobile advertising ecosystem. It describes the differentsegments of the mobile advertising market as well as providessome insights on the different players and processes of the mobileadvertising value chain.The main conclusion of the whitepaper is, that the mobileadvertising ecosystem has a high rate of fragmentation anddiversification. On one hand the ecosystem is fragmented ona technological level since there are many devices with differentoperating systems and handsets on the market. On the other handthe market suffers from the very limited amountof marketing budgets in a specific geographical region.This massive fragmentation results in serious market inefficienciesthat hinder advertisers to achieve campaign goals andpublishers to properly monetize content.For that reason Smaato has developed the leading mobile advertisingplatform SOMA to overcome the massive technological andregional fragmentation of the mobile advertising market, byenriching inventory and matching it with the best targetedadvertising source available. Besides maximizing advertisingrevenue, Smaatos mobile advertising solution provides a singleintegration point to publishers and developers on almost allplatforms and solves the problem of monetizing free content forthem.Since the online advertising market is a good reference for themobile advertising ecosystem, the whitepaper starts with a shortdescription of the basic functionality of the former. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 4. Learning from Online AdvertisingWith more and more individuals engaging in online activities allaround the world, the online advertising market has experiencedsignificant growth on a global scale over the last few years.On a basic level the online advertising market can be dividedinto three different segments of advertising that have specific adformats, characteristics and publishers.Generally, as can be seen in table 1, the main three onlineadvertising segments are search, premium display andnon-premium display. There are also other segments with otherforms of advertising like affiliate programs that shall not beconsidered here. The table also shows the specific differences intargeting, pricing and the roles of the publishers and advertisers. Segment Ad FormatTargetingPricing PublisherAdvertiserContextual / Search engines / Mostly performance SearchTextCPC / CPABehavioral Low quality inventorycampaignsHigh quality brands High CPMHigh quality inventory Premium Banner / Sociodemographicworking with agencies surcharging for with direct sales Display Rich Media / Interest Targetingand Premium Ad media placing relationshipsNetworksAll kinds of advertisers High quality inventory working with Non-Premi-Banner / None / ContextualLow CPM / CPC of small publishers +intermediaries like Ad um DisplayRich Media / Behavioral / CPA Longtail Networks and AdExchangesTable 1: Online Advertising SegmentsOne difference between those segments is the advertisingformat. Whereas text is the main advertising format in the searchsegment that capitalizes on the intent and explicit interest ofconsumers, graphical banners and rich media units are formats ofthe premium and non-premium display segment. We will focus ondisplay advertising here.In order to understand the characteristics and differences of thepremium and non-premium display advertising segment, it isimportant to understand the mechanics of the process and theplayers that are involved in the advertising ecosystem.Premium display inventory guarantees advertisers a specificplacement (specific time-frame, clearly defined inventory) of theirads for a given price. The inventory within the premium displaysegment is usually sold directly through the sales force of thepublisher, on a CPM basis through advertising agenciesrepresenting high quality brands that are willing to pay high pricesfor engaged users. Usually, if an advertiser or the representingagency wants to advertise in the premium segment, they need toapproach the publishers directly or go to the premium ad networks(secondary premium) which offer the inventory of the publisher aswell. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 5. BrandingCPM ($) PerformancePremiumSecondary Premium Remnant Ad Impressions (Fill Rate)Chart 1: Display Advertising TiersThe secondary premium inventory is mostly bundled inventory withsimilar quality and transparency as premium but sold throughPremium Ad Networks on an automated non guaranteed basis.Non-premium inventory (also called remnant inventory) is soldautomatically through intermediaries like ad networks, with noguarantees and is usually priced on a performance (CPC, CPA)basis. This segment works with all kinds of advertisers enablinglong-tail publishers to monetize their inventory as well.In order to advertise in the secondary premium or remnantcategory, the advertiser or the representing agency has to use adnetworks or ad exchanges to buy inventory and convert it to theircampaign goals. Through a mostly automated process, thoseintermediaries pick the best suited inventory in their network for agiven price.The online ad networks and their sales force play a veryimportant role for digital advertising in convincing traditionalmarketers to increase their spend on digital media. With theproliferation of smartphones especially in developed markets, theopportunity came to advertise on mobile devices. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 6. The Opportunity for Mobile AdvertisingThe mobile advertising ecosystem has similar pro-cesses and players as the ecosystem which has in-volved in the online advertising space. But pricing, adformats and targeting possibilities as well as media budgets aresignificantly different from online advertising.Even though the potential of the mobile channel is obvious, withmore than 4 billion mobile subscribers (Morgan Stanley, 2009) inthe world, marketers mainly conduct experimental mobile buysthat make it extremely hard for them to address the right audienceon scale and produce the result brands are looking for. Where$8 billion is forecasted to be spent on online display advertisingin 2010 in the US, mobile advertising is expected to createrevenues in the US of aroung $253 million in the same year. Mobileadvertising is definitely gaining traction. J.P. Morgan (June, 2010)estimates that the mobile advertising spend will more than doublein the next two years in the US alone to $566 million in 2012. Total US Mobile Advertising Forecast (in millions USD)600 566450404300253150 140 78 261 9020052006 2007 2008200920102011 2012Chart 2: US Mobile Advertising Forecast, J.P. Morgan (2010)In terms of brand and performance, studies confirm that mobileadvertising can easily generate better results than onlineadvertising. Smartphones like the iPhone are equipped with touchscreens and all kinds of sensors understanding the context andusage behavior, enabling highly relevant advertisements.Thats why mobile advertising features several accurate targetingopportunities, online advertising is not yet able to deliver.For instance the precise location can be used for targeting purposesin location based services in order to increase the relevancy of thedelivered ads. Placements of ads within applications, enableprecise contextual targeting as well as an excellent upsellingopportunity. So the question arises, why the mobile advertisingmarket is still relatively small compared to online? The main reasonfor this is the massive technological (OS, devices) and regionalfragmentation of the mobile advertising industry and its playerstoday, which makes it harder for advertisers to address the rightaudience on scale and difficult task for publishers and developersto monetize content through advertising. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 7. Mobile Advertising EcosystemThe mobile advertising ecosystem has experienced a rapidgrowth in the past few years. One of the most importantdrivers for this was of course the technological evolution ofmobile devices and carrier networks enabling faster mobilebandwidth like 3G connections at flatrates. Before that, themobile advertising industry was dominated by carriersoffering on-deck-portal advertising.With the proliferation of smarter mobile touch screen devicesthat are always connected to the internet and an openecosystem of applications, mobile advertising has gained abigger share in the mind of advertisers and has started tomove away from carrier decks.AdPublisher / BrandsAgencies Consumers Networks Optimizer Developer Want to promote Create strategy,Connect buy Engages with ad Optimize AdSell theirtheir brand orcampaign andand sell side on enabled Distribution Inventory productbuy inventoryscaleinventoryChart 3: Mobile Advertising EcosystemThe mobile advertising ecosystem has emerged from a placewith a small amount of players to a mature and fragmentedmarket regarding the role of the players and distribution ofmobile content.The allocation process within the mobile advertising is verysimilar to that of the online advertising described earlier.Media agencies that are brand representatives, are lookingfor inventory of publishers.Within the non-premium segment, agencies mostly interactwith intermediaries like ad networks. The roleof ad networks within the ecosystem is to aggregate andconnect advertisers who want to buy advertising space andpublishers who offer inventory. Ad networks thereforeemploy a sales force to approach advertising agencies tomake them invest their advertising budgets into advertisingon their network.Ad networks face one major problem though: Due to theregional specialization on a national market with itsspecific price points and advertising formats and only alimited amount of advertisers, publishers often are not ableto monetize their ad inventory efficiently by being integratedto only one ad network. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 8. Since distribution channels like application stores enabledevelopers to distribute their content internationally thisproblem has become increasingly serious.To find the best ad network to monetize all availableimpressions for an international audience is a critical butcumbersome process in todays mobile advertisingecosystem.In the case that publishers discover the right ad networks,they are usually confronted with an even bigger problem:How to manage ad networks in order to route the traffic tothe ad source with the highest pricing if the price points andavailable advertisers change all the time?Advertising optimizers like Smaato offer a solution to thissignificant problem by optimizing the advertising distributionamong ad networks and publishers, in order to maximizeadvertising revenues for the publisher.The key competence of mobile advertising optimizationplatforms is to provide a technology that automatically routesthe ad request to the highest paying ad network for a givenad unit, based on historic performance for a given targetingset.By analyzing the ad request, enriching it with relevanttargeting information and matching it with the best targetedadvertising source available, ad optimizers are able toimprove the price on a continuous basis and serve the mostrelevant ads.Ad networks and especially ad optimizers play a key rolein maintaining the efficiency of the mobile advertisingmarketplace. They created technological solutions that helpboth publishers and advertisers to find each other. 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 9. The State of Mobile AdvertisingAccording to the data collected by Smaato choosing theright ad network is a complicated decision, as publishersshould consider fill rates, operating systems as well asresponse times of ad networks, to name a few criteria.Smaatos metrics are published monthly to show the stateof the mobile advertising ecosystem according to data fromover 40 ad networks globally & inventory of 7,000 registeredpublishers. The metrics demonstrate the performance of mobile ad networks globally and the fill rate is measured as the percentage of ads delivered per ad request and varies by different factors like country, device and content type. The Smaato Mobile Advertising Metrics are published monthly at: http://metrics.smaato.comChart 4: Fill Rate of Mobile Ad Networks, worldwide, January-July 2010 Also the Click Through Rate (CTR) and the reponse time of mobile ad networks are important performance indicators, measuring the success of mobile advertising campaigns. The Smaato met- rics provide insights how con- sumers click through on differ- ent platforms and is therefore an indicator for advertisers to focus on specific platforms.Chart 5: Operating Systems CTR (Click Through Rates), worldwide, January-July 2010 The comparison of mobile ad networks regarding their response times shows that some ad networks respond significantlyslowerthan others. Mobile optimizers who automatically pick the ad networks with the fastest response times can solve the problem and make sure the publisher gets the highest fill rate possible without laten- cies.Chart 6: Response Time for Mobile Ad Networks, worldwide, July 2010 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 10. Mobile Advertising GlossaryAd exchanges are technology platforms in the online ad space based on real time adAdauctions for buying and selling ad impressions. Ad exchanges contribute to a better Exchangesad allocation and commoditization of ad inventory and can achieve an enormous scale.An advertisement impression occurs each time a consumer is exposed to anAdadvertisement (either prepended or appended to an SMS message, on mobile web or Impressionweb page, within a video clip, or related media).Ad optimizers help publishers manage ad networks and optimize the monetization oftheir ad spaces. Ad optimizers choose the highest paying ad network for a given ad Adunit and maximize ad revenues for the publisher or developer. Ad optimizers areOptimizerimportant players in the mobile advertising ecosystem because they overcome themassive regional and technological fragmentation of the market by enrichinginventory and matching it with the best targeted advertising source available.Ad networks provide a platform to connect advertisers with publishers. They areimportant aggregators of advertisers and publishers and employ sales per- Ad sons convincing marketers to spend more money on their network. Ad net-Networksworks are usually specialized on specific geographical regions andare selective regarding the ad impressions.Ad servers are tech-solutions that collect and deliver ad units from ad networks and Adpublishers. After processing those requests ad servers automatically select, serve and Servertrack the ads and their performance.Is cost per action, where the advertiser only pays when an agreed action has been CPAperformed, such as making a purchase, or requesting more information. CPCCost per click, where advertiser only pay each time someone clicks on their ad.Cost per mille (in Latin mille means thousand), is a commonly used measurement inadvertising, which gives an indicator how much an advertiser needs to spend toCPM / deliver 1000 ad impressions. Non performance CPM buys are especially commoneCPMfor high quality inventory and rich media ad units.Effective cost per mille (eCPM) is used to measure the effectiveness of a publishersinventory being sold per thousand impressions.Click through rate is a way of measuring the success of an online or mobile advertising CTRcampaign. A CTR is obtained by dividing the number of clicks on an ad by the numberof times an ad was delivered (impressions).The fill rate is measured as the percentage of ads delivered per 100 ad requests andFill Ratevaries by different factors, like country, device, content type and ad network.More information can be found in the MMA Glossary on http://mmglobal.com 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 11. The rapidly increasing reach of mobile advertising offers new opportuni-ties for advertisers to reach their audience and for publishers to monetizetheir content on new platforms. The mobile ecosystem, however, is alsovery different from standard online advertising. Understanding this globalmarket, which is complicated by a wide range of mobile devices and geo-graphic variations, must be an imperative for advertisers and publishersalike.Smaatos white paper offers its readers an executive overview of the mo-bile ecosystem and explains the important differences between onlineand mobile advertising, including the role that ad optimization platformslike Smaatos SOMA can play in connecting advertisers with the right au-dience and allowing publishers to effectively monetize their content.Frederic LardinoisEditor, ReadWriteWebSmaato White Papershttp://www.smaato.com/downloads 2010 Smaato Inc. White Paper on Mobile Advertising Ecosystem 12. open mobile advertisingAbout SmaatoSmaato is a pioneering mobile advertising company that operates the mobile ad optimization platform calledSOMA (Smaato Open Mobile Advertising) and partners with mobile publishers, developers, ad networks andoperators. More than 7,000 publishers have signed up with Smaato as a partner to monetize their content in220+ countries and Smaato is managing 16 billion ad requests per month.SOMAs unique feature is the aggregation of 50+ leading ad networks globally to maximize mobile advertisingARPU. SOMA can be easily integrated with ad networks, ad inventory owners (publishers, developers and ope-rators) and 3rd party ad technology providers.Smaato is an active member of the Mobile Marketing Association and the German Digital Media AssociationBVDW. Smaato received a Top 100 Private Company Award by AlwaysOn Media (2009 & 2007) and was recentlynamed a company to watch in 2010 by Financial Analyst company GP Bullhound, among other awards.Smaato Inc. is based in Redwood Shores, California. The privately held company was founded in 2005 by anexperienced International management team. The European headquarters are in Hamburg, Germany and theAsia-Pacific presence of Smaato has been established in Singapore.Redwood Shores, CA Hamburg, GermanySingapore, SGT: +1 (650) 286 11 98T: +49 (40) 3480 9490 T: +65 9067 firstname.lastname@example.org@smaato.com email@example.com smaato.com/blog twitter.com/smaatowww.smaato.mobimetrics.smaato.comfacebook.com/smaatoCopyright 2010 Smaato Inc. All rights reserved Smaato is a registered trademark of Smaato Inc. SOMA is a trademark of Smaato Inc. www.smaato.com firstname.lastname@example.orgThe names of actual companies and products mentioned here may be the trademarks of their respective owners.