In theory, mobile advertising ought to be a bonanza for marketers. Millions of people use mobile devices that command their frequent attention. And ads that appear on them can even be made location-specific: Global Positioning System technology allows phone makers to tell advertisers the locations of many phones, though without corresponding personal information about the phones’ owners.

In practice, however, it’s tricky to deliver an effective ad on a small screen. If users do click on an ad, not only should it load properly on a mobile device, but it should send them to a website where it’s easy to view and buy a product on the spot.

Google says that while mobile ads are already a billion-dollar business, that’s just a start, because 79 percent of its large advertisers haven’t optimized their websites for display on small screens. “Consumers want to be able to complete their transactions on mobile, so this should be a big focus for advertisers,” says Michael Slinger, Google’s director of mobile ads for the Americas.

And advertisers have been slow to take advantage of the location data that’s available from millions of phones. Even the largest ad networks don’t have enough in their inventories to actually send the ads best matched to people’s location needs, even when it’s possible to determine what those should be, says James Pearce, senior director of developer relations for Sencha, a company that provides open-source Web application frameworks for desktop and mobile devices.

In a hypothetical example, if a customer is using a mobile device to search for information about car repair, an ad for a nearby mechanic might be a good idea. But if the network doesn’t have one available, that person might instead be shown something else, such as an ad for a new car—an ad that might be more annoying than useful.

Such problems are keeping companies from realizing the full benefits of mobile advertising, says Pearce. But ad brokers are consolidating, which might help networks build up the inventory they need to target users effectively. In December, after Google acquired AdMob and Apple acquired Quattro Wireless, the market research firm IDC estimated that the two companies controlled two-thirds of the mobile advertising market. Meanwhile, some users are broadcasting their location to their social networks—and to potential advertisers—through applications like Foursquare, which invite them to “check in” at shops and restaurants.

Advertisers can benefit from knowing where users are, but Pearce points out that simply knowing what device a person is using can be quite valuable too. (The most expensive devices, unsurprisingly, are owned by those with higher incomes.) Ultimately, he believes, mobile advertising will prove very powerful, particularly for small businesses. Such companies could get a lot of mileage out of simply providing clickable phone numbers to customers in the right locations.