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Business Report

Why No One Likes Mobile Ads and How Companies Hope to Change That

No one really knows if ads on smartphones work.

Internet companies are having difficulty making money on mobile ads.

Where consumer attention goes, ad dollars are supposed to follow. That hasn’t quite happened on mobile devices.

U.S. adults now spend about 82 minutes a day on average using mobile devices for activities other than calls. Yet only about 2 percent of all advertising dollars is being spent on mobile websites or inside mobile apps, according to estimates from eMarketer, an advertising research company.

The problem, advertisers say, is that technologies for tracking users and measuring the impact of ads haven’t kept up with the fast switch by consumers  to smartphones and tablets, leaving marketers unsure if the ads are working and unwilling to commit large budgets.

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One result is that advertisers are paying much less for mobile ads. The average cost an advertiser pays to show an ad to a thousand people on a desktop computer is $3.50, but it’s only 75 cents on mobile devices, according to estimates from the venture capital firm Kleiner, Perkins, Caufield, and Byers. Google, which dominates the $70-billion-a-year business of digital ads, said in January that its average revenue from each ad click dipped 6 percent in 2012, a drop it attributes partly to users shifting to mobile devices.

The most significant issue for ad buyers is that they don’t know if the ads are working, like they do on desktop computers. The Interactive Advertising Bureau, an online ad industry group, admitted as much in a 2011 report. It said “all media depend critically upon reliable metrics for audience reach,” adding that mobile ads were “challenged by serious methodological and technological limitations.”

What works on conventional computers doesn’t on mobile devices, and in many cases replacements have not yet been developed. The standard method of tagging, tracking, and targeting online ads is the cookie, a small text file that websites store on a given computer’s Web browser that identifies it. But cookies don’t work as reliably or powerfully on the Web browsers of mobile devices, and there’s no such thing as a cookie inside a mobile app, where much of people’s time is spent and advertisers would like to follow.

Another particularly vexing problem for advertisers is the way consumers frequently switch back and forth between their mobile devices and a PC when performing a task. For example, a person may see and click on a mobile ad, but actually purchase the product on their PC. That means advertisers can’t tell if their ad worked.

“Our ability to measure behavior on mobile is very challenged,” says John Montgomery, chief operating officer for interactive advertising in North America at GroupM, the world’s largest ad agency by billings. “It’s very difficult to connect the mobile impression to an action or sale.”

Disagreements over how to advance tracking technologies haven’t helped. Last year, Apple blocked advertisers from tracking iPhones and iPads using the unique ID of each device, preferring to develop its own solution (see “Mobile-Ad Firms Seek New Ways to Track You”). There’s also the chance of regulation: in February, the U.S. Federal Trade Commission released a report cautioning mobile advertisers over privacy issues, like tracking their location, and recommended making it easier for people to block ads.

Technology companies are now rushing to fill the infrastructure gap that’s preventing mobile ads from becoming truly valuable. Google has filed patents on ideas for how to link mobile ad campaigns to data about people’s real-world purchases, and one alumnus of Google’s ad business recently raised $6.5 million in funding for her company, Drawbridge, whose technology allows marketers to follow consumers from one device to another (see “Get Ready for Ads That Follow You from One Device to the Next.”).

Once the technology gaps close, mobile advertising will probably eclipse desktop advertising, as has already happened in some countries, like Japan, where Internet-capable mobile phones have been in use longest. “When properly done, mobile advertising has every chance of matching or being more valuable than that in a desktop browser,” Montgomery says.

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