Apple and Google prepare for mobile ad war

chart_mobile_users2.top.gif By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- The mobile advertising business is puny. But don't tell that to Google and Apple.

Advertisers are on track to spend only $1 billion globally on mobile advertising this year, compared to $45 billion on all online ads, according to Sandeep Aggarwal, analyst at Caris & Co.

So it might surprise some people that Google and Apple are making a sizeable bet on mobile advertising. In January, Apple bought mobile advertising company Quattro Wireless for $275 million. In May, Google completed its purchase of Quattro rival AdMob for $750 million.

At Mobile World Congress in Barcelona in February, Google CEO Eric Schmidt announced that the company's new rule is "mobile first," aiming to ensure that every new Google product considers the mobile experience first and foremost.

Apple CEO Steve Jobs spent a decent chunk of his iPhone 4 presentation in June discussing the company's new ad platform, iAd.

But despite the hype from these two tech giants, mobile has yet to capture the attention of advertisers for a number of reasons.

Even the zippiest smartphones have slower browser and computing speeds than PCs, making some flashier ads difficult to load on a phone. Small screens also make many ads harder to notice. And people spend less time browsing on a phone than they do on a PC.

Still, there are signs that Google (GOOG, Fortune 500) and Apple (AAPL, Fortune 500) aren't completely nuts in their bets on mobile ads.

Mobile is the fastest growing part of the advertising market, according to Aggarwal. Since Google launched its Android mobile platform less than two years ago, the company's mobile Web searches have grown an astounding 500%.

EMarketer predicts that U.S. mobile ad spending will grow by more than 35% in each of the next three years, rising to $1.6 billion in 2013 from just $416 million last year. As a whole, the mobile ad market will quintuple to $5 billion in the next three years, Aggarwal predicted.

That coincides with predictions of an amazing jump in smartphone adoption: EMarketer forecasts that 41% of the U.S. population will be using Internet-connected mobile devices, up from just 22% last year.

Mike Steib, director of emerging platforms at Google, said that in the same way that people no longer make a distinction between broadcast television and cable television, advertisers will soon no longer make a distinction between Internet advertising and mobile advertising.

That's already starting to happen at some big media companies.

Mobile ad sales have more than doubled year-over-year for Walt Disney's (DIS, Fortune 500) ESPN, for example. ESPN wouldn't disclose the exact figure for mobile ad sales, however.

But the cable sports network's World Cup iPhone app was downloaded 2.5 million times, and more than 1 million fans watched ESPN's live World Cup coverage on their mobile devices.

"Mobile plays a central role in users' access to content when a TV and a computer screen are not available," said Lisa Valentino, ESPN's vice president of digital and mobile advertising sales. "Mobile offers unduplicated reach to our customers."

Taking advantage of the smartphone

Though not all companies are enjoying the mobile advertising success that ESPN has shown, analysts predict a boom in mobile ads will take place over the next several years, as mobile platforms and advertisers team up to create more innovations.

The key will be taking advantage of unique features that smartphones have over PCs: Mobile devices know where a user is located, are highly personalized and are the only screen that stays with its user all day. Those characteristics could lead advertisers to produce much more targeted -- and successful -- ads than on television or on a computer.

For instance, Google said many of its advertising partners have found that customers are far more likely to buy a product when speaking to someone on the phone as opposed to clicking on an ad.

As a result, last month, Google unveiled a feature on its mobile display ad network called Click to Call, which automatically places a call to a business when users click on certain ads.

Apple's new iAd platform also takes advantage of the iPhone's form factor, creating highly stylized and interactive ads in applications. IAd allows users to save coupons or bar codes for scanning at retailers, for example. Apple recently decided it would shut down Quattro Wireless in September, putting all of its eggs in the iAd basket.

But perhaps the most important factor in the predicted rise in mobile advertising is the fact that Apple and Google are backing it.

"Having both of those companies enter that business puts a stamp of validation on mobile as a good channel and a platform for advertising," said Noah Elkin, senior mobile analyst at eMarketer.

Google has the benefit of tying mobile into its existing ad formats, while Apple gives advertisers the ability to produce captivating ads on the most popular smartphone on the market.

It's a battle of mass versus class that has no clear winner yet, but the impact is already being felt in the tiny but burgeoning market. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 6:26pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.