Mobile Braced For Video Advertising Explosion

(1)

mobile advertising

TM

Mobile Braced For

Video Advertising

Explosion

Prepared by Nick Lane Chief Analyst, mobileSQUARED

WHITE PAPER

New York

▪ London

▪ Hamburg

▪ Singapore

(2)

Euro7 Smartphone Video Audience Growth

–

Source: mobileSQUARED

Euro7 Mobile Advertising Forecast

us$1.24 Billion

274 Million

smartphone users will

watch video-based

services by 2016

(3)

Mobile video stands to become one of the most powerful forms of advertising and can be considered as the richest of rich me-dia. Across the Euro7 countries included in this report (France, Ger-many, Italy, the Netherlands, Russia, Spain and the UK), between 60-79% of smartphone users in these countries are watching video-based services. That means the total Euro7 video audience is 152.6 million in 2012 and 274.1 million in 2016.

In other words, although mobile video is considered a very na-scent advertising medium - only 12% of smartphone ads integrate video - brands investing in mobile video ad campaigns will still potentially reach a very sizeable share of the smartphone user base. While video penetration within rich media mobile ad cam-paigns remains low, the fact consumers are already engaging for 20 seconds with the ad makes it a very compelling medium. Mobile video advertising remains an experimental component of rich media campaigns, which means the business model sur-rounding the service can only be described as liquid. While the mobile advertising industry will be looking to develop a premium CPM or CPC model around video, presently, advertisers are pay-ing from $5 per CPM. Clearly, the target for the mobile advertispay-ing industry is to return to the heady CPMs of 2006 when mobile video advertising attracted CPMs upwards of $75.

Presently, mobile video advertising is contributing very little in terms of the overall mobile ad spend, but rich media campaigns are now having an impact and will play a significant role in helping Europe to become a mobile advertising billion dollar playground in 2012. The Euro7 will generate mobile advertising revenues of US$1.24 billion in 2012 – with Europe’s Big 5 (France, Germany, Italy, Spain and the UK) contributing US$1.14 billion. By 2016, the Euro7 mobile advertising market will be worth US$3.76 billion. Mobile display looks set to truly benefit from the continued adop-tion of smartphones across Europe. Smartphones will account for 226.6 million devices in 2012 and 403.96 million in 2016. This is providing a mass market for rich media mobile ad campaigns, which will inevitably increase spend during the forecast period. In 2012 mobile display, incorporating rich media, will be worth US$411.11 million and US$1.79 billion in 2016.

153 Million

Euro7 Video Audience (2012)

$1.24 Billion

Euro7 Mobile Ad Revenue (2012)

$411 Million

Euro7 Mobile Display Revenue

(2012)

SUMMARY

Euro7 mobile ad

revenue in 2012

274 Million

smartphone users will

watch video-based

services by 2016

(4)

In 2011 global mobile data traffic more than doubled for the fourth successive year, with traffic totalling 597 petabytes per month, which is over eight times greater than the total global Internet traf-fic in 2000 (75 petabytes per month). This data, provided by the Cisco Visual Networking Index Global Mobile Data Traffic Forecast Update, also reveals the impact that smartphones are having on behaviour. The average amount of traffic per smartphone was up from 55MB per month in 2010 to 150MB per month in 2011, with the typical smartphone now generating 35 times more mobile data traffic than featurephones (4.3 MB per month).

By the end of 2012 Cisco claims over 100 million smartphone us-ers will belong to the “gigabyte club” (over 1 GB per month), while the number of mobile-connected devices will exceed the world’s population in 2012. Within two years the average mobile connec-tion speed will surpass 1Mbps, and by 2016 monthly global mobile data traffic will surpass 10 exabytes in 2016, while tablets will ex-ceed 10% of global mobile data traffic.

This is the data forecast that the mobile advertising industry has been waiting for. Not only does this highlight the fact that consum-ers on smartphones are heavy data usconsum-ers, they are consuming richer content over faster data connections. With the average mo-bile connection speed set to pass 1MB by 2014, it means advertis-ers will be able to deliver the rich media ad campaigns to mobile devices regardless of location, and finally put to bed the 3G/4G ver-sus Wifi debate. And there is a groundswell of activity surrounding the demands for rich media.

Not surprisingly, at the centre of this upsurge of rich media ad activity sits the trusty smartphone. Across the Euro7 countries included in this report (France, Germany, Italy, Russia, Netherlands, Spain and the UK), mobileSQUARED forecasts there will be 226.6 million smartphone users in 2012, rising to 403.96 million. Across the Euro7, the average smartphone penetration will be 37% in 2012, increasing sharply to 64% by 2016.

404 Million

Euro7 Smartphone Users (2016)

64%

Euro7 Smartphone Penetration

(2016)

(5)

2012

350 300 250 200

Chart 1: Smartphone growth, Euro 7 (Source: mobileSQUARED)

France Germany Italy Netherlands Russia 0 2013 150 100 50 Spain UK 2014 2015 2016

Smartphone Growth, Euro 7 (in Millions)

400 450

To put this into perspective, across the Euro7, the UK has the high-est smartphone penetration of 51% in 2012, increasing to 80% by 2016 France, Germany and Netherlands all have smartphone penetration in the low-40% and will leap to 61%, 78% and 68% re-spectively. Of these markets, Germany will have the largest smart-phone user base on 91.3 million, followed by Russia on 84 million, representing 36% of its total mobile user base.

From a mobile advertiser’s perspective, it means that any rich media campaign will now be served to a mass market audience of smartphone uses per country. What’s more, a walled garden campaign, such as an OS platform-based campaign, would no lon-ger be considered inconsequential because of the sheer volume of users on iOS and Android in particular.

By the end of 2012, there will be almost 44 million iPhone users across the Euro7. That number will rise to 63.4 million by 2016 – which will be the equivalent to the size of the UK population. As ex-pected, the two largest markets of Germany and Russia will have the largest iPhone population, followed by the UK. In the more de-veloped iPhone markets, mobileSQUARED projects stable steady growth, but in markets where smartphone penetration remains low, such as Russia, more aggressive iPhone growth is projected.

80%

UK Smartphone Penetration Rate

(2016)

44 Million

(6)

2012

49 42 35 28

Chart 2: Total iPhone population, Euro7 (Source: mobileSQUARED)

Total iPhone Population, Euro7 (in Millions)

56 63

If the Euro7 iPhone population can be linked to the UK, then the number of Android users in 2016 will be similar to the size of Bra-zil. Android continues its smartphone domination. A direct com-parison between the mobile advertiser’s opportunity on Android versus iPhone across the Euro7 shows that the number of An-droid devices in 2012 will be equal to the number of iPhones in 2016 – 63.6 million. However, the Android number is projected to almost triple during the forecast period, with total Android users in the Euro7 reaching 181.6 million. Again, Germany maintains its position as the largest developed market in 2016 with the largest Android community of over 48 million users. This is followed by the UK with 41.1 million Android users. Russia can be considered something of a sleeping giant when it comes to Android, with only 26.9 million users in 2016, and significantly more Android users would be expected beyond the forecast period.

70

64 Million

(7)

2012

140 120 100 80

Chart 3: Total Android population, Euro7 (Source: mobileSQUARED)

Total Android Population, Euro7 (in Millions)

160 180 200

Mobile internet and app usage is also being driven by smartphones. mobileSQUARED data shows that there is a considerable cross-over between the mobile internet and app user base. Across the Euro7, there will be 213.44 million mobile internet users in 2012, rising to 345.29 million in 2016. Similarly, over the forecast period, there will be 203.64 million app users rising to 351.29 million, with app users overtaking mobile internet users in 2016.

2012

280 240 200 160

Chart 4: Total mobile internet users, Euro7 (Source: mobileSQUARED)

Total Mobile Internet Users, Euro7 (in Millions)

320 360

213 Million

Euro7 Mobile Internet Users (2012)

204 Million

(8)

Russia has the most mobile internet users, with almost 59 million users in 2012, while Germany has 36.44 million and the UK has 33.2 million. In terms of app users, Russia is also the largest mar-ket with almost 56 million users, Germany has slightly less app users (35.5 million) than mobile internet users, while the converse is true in the UK where there are 31.6 million app users. By 2016, Russia will have 90.3 million app users and 82.1 million mobile in-ternet users. Germany will have 72.1 million mobile inin-ternet users and 73.3 million app users.

2012

250 200

Chart 5: Total app users, Euro7 (Source: mobileSQUARED)

Total App Users, Euro7 (in Millions)

300 350

Smartphones then, are at the the center of the mobile data revolu-tion, and there is no service that has capitalised on this opportunity more so than video. In 2011, mobile video traffic accounted for 52% of total global mobile traffic. A recent survey into smartphone us-age highlighted that 64% of smartphone users in the UK watch video, while 25% watch movies, which is a similar usage level to

59 Million

Mobile Internet Users in Russia

(2012)

(9)

Mobile advertising

comes of age in Europe

But looking beyond just video, smartphones are fundamentally changing how people use mobile devices to entertain, inform, edu-cate, shop, and of course communicate. It is not just person-to-person communication that is changing. Data coupled with smart-phones is evolving how brands communicate with consumers, and this manifestation is clearly translating into mobile ad spend. That said, mobile advertising continues to be viewed as the “next big thing”, and rightly so given mobile adds context, relevance and location to the world of advertising. But spend is now filtering into mobile. In 2011 spend across key markets within the Euro7 started to gather significant momentum, with the more developed mobile advertising markets showing very impressive growth.

In 2012 mobileSQUARED forecasts the mobile advertising market across the Euro7 to be worth US$1.24 billion jumping to US$3.76 billion in 2016. In 2011, mobileSQUARED projected that Europe’s Big 5 (France, Germany, Italy, Spain and UK) would be worth over US$1 billion in 2013. While this year’s report has been expanded to include the Netherlands and Russia, the Big 5 alone will gener-ate US$1.17 billion in 2012, and pass the US$1 billion landmark 12 months earlier than projected.

In 2012, the UK maintains its position as Europe’s biggest mobile advertising market, accounting for almost one-third (32%) of total spend of the markets covered in this report, followed by Germany (22%) and France (16%). By 2016, the UK’s regional lead has been cut to 26%, with Germany staying on 22% and France increasing its share to 19%.

2012

250 200 150

Chart 6: Mobile advertising forecasts (US$), Euro7 (Source: mobileSQUARED)

France Germany Italy Netherlands Russia 0 2013 100 50 Spain UK 2014 2015 2016

Mobile Advertising Forecasts (US$), Euro7 (in Millions)

300 350 400

(10)

This is the second successive year that mobileSQUARED has up-wardly revised its mobile advertising forecasts as smartphones continue to attract swathe after swathe of campaigns by brands and businesses using the mobile channel to target their end cus-tomers. Driving this activity is the evolution of mobile display. Mobile display continues to deliver strong growth as the mainstay of mobile advertising spend (along with search). In 2012, mobile display will generate revenues of US$411.11 million, increasing to US$1.79 billion in 2016. Not surprisingly, given the UK’s share of overall mobile advertising spend, it generates the most revenue from mobile display out of the Euro7, projected to make US$125.56 million in 2012, significantly ahead of the German and French mar-kets, which are expected to generate revenues of US$78.78 mil-lion and US$70.83 milmil-lion, respectively. By 2016 spend on mobile display would have ramped up dramatically, with the UK market worth US$429.1 million, and Germany US$418.53 million.

2012

125 100 75

Mobile Display Forecasts (US$), Euro7 (in Millions)

150 175 200

$1.79 Billion

Euro7 Mobile Display Revenue

(2016)

(11)

For instance, the click-through rate on standard static mobile ban-ner ads continues its downward spiral, now less than 1%, while rich media engagement rates is more than bucking that trend. For example, Medialets says expand rates on rich media ads average is between 1-2%, while the click-through rate on rich media cam-paigns can reach up to 30%. Perhaps a more telling statistic is that rich media ads that include video have a 35% higher engage-ment rate on average, with consumers spending an average of 20 seconds with rich media mobile ads. Ultimately, consumers are increasing their engagement with brands. This alone justifies the higher costs associated with rich media campaigns, which is typically at least six times the cost of a standard static banner campaign.

According to video advertising provider Yume, the company claims that mobile video ad impressions increased by 35% in 2011.Placing that figure into context, mobile video ads only account for 2.7% of the total online video market. Research by Break Media reveals that 55% of marketers plan to use mobile video ads, compared to 39% in 2011. Moreover, mobile video campaigns can increase unaided brand awareness by as much as four times when com-pared to traditional online video campaigns, claims InsightExpress. When combined, these reference points confirm that mobile video advertising will experience significant growth in 2012.

A recent mobile video campaign by MediaCom for Skoda revealed that a consumer’s purchase intent increased the longer they watched a video. Not only did the pre-roll video campaign achieve an 18% response rate, the campaign’s performance was 230% higher than the average response rate on digital. While these alone are compelling stats for the industry, it is the consumer’s purchase intent that is most persuasive. After 30 seconds of interaction, the consumer’s purchase intent increased by 6%, but that increased to 14% after 60 seconds and 20% after 90 seconds of engagement.

up to 30%

Rich Media Campaign CTR

35% higher

engagement rates

(12)

The richest of rich media

All-in-all, mobile video stands to become one of the most power-ful forms of advertising and could be considered as the richest of rich media. As already demonstrated earlier in this white paper, video will become one of the core areas of content for consumers, which will be used as an obvious ally for advertising. According to Medialets, only 12% of smartphone ads integrate video, and all of that content will be repurposed from other media channels. For the time being at least, the mobile industry has given up its obsession with made-for-mobile content in favour of providing con-sumers with the content they want to access. Mobile video adver-tising will be no different, at least in the mid-term.

The strategy of repurposing video content on mobile means the costs involved in generating the content are somewhat skewed. Furthermore, mobile video advertising remains an experimental component of rich media campaigns, which means the business model surrounding the service can only be described as liquid. While the mobile advertising industry will be looking to develop a premium CPM or CPC model around video, presently, advertisers are paying from $5 per CPM. Clearly, the target for the mobile advertising industry is to return to the heady CPMs of 2006 when mobile video advertising attracted CPMs upwards of $75 to deliver a campaign over a network incapable of supporting video, to a de-vice largely incapable of screening video to a mobile video audience that didn’t really exist. It’s all change now though.

But the repurposing of content and undefined business model is by no means a bad thing. As Shazam has saliently pointed out in recent months, in the UK they are now targeting a slice of the £4 billion TV advertising marketplace, instead of a share of the £202 million mobile advertising opportunity, of which less than £1 million can be directly attributed to mobile video advertising. It is a similar story across Europe, with mobile video ad campaigns consumed within spend for mobile display. Generally, this is also reflective of a service that is not large enough to be broken out.

(13)

Importantly from a mobile ad network provider’s perspective, vid-eo can be described as the next iteration of rich media campaigns, which means the role of creative is continually expanding. And that is making mobile a more appealing medium to the ad agencies because it will inevitable attract higher campaign spend, and up their margins. It’s a win-win for the mobile advertising ecosystem. What’s more, with between 60-79% of smartphone users watch-ing video-based services across the Euro7, the total video audience is 152.6 million in 2012 and 274.1 million in 2016. In other words, brands investing in mobile video ad campaigns will still potentially reach a very sizeable share of the smartphone user base.

2012

250

200

150

Chart 8: Smartphone video audience (Source: mobileSQUARED)

Smartphone Video Audience, Euro7 (in Millions)

300

274 Million

(14)

Rich media mobile advertising is now prevalent across the Euro7 countries, and that is paving the way for brands to cre-ate deeper and more immersive consumer experiences. In short, the most powerful medium that maximises engagement between a brand and consumer is video.

The data shows that 90% of most users across Europe use their phones at work, while between 61-71% use their phones at work, and up to 78% of users use their devices on-the-go. Fur-thermore, one of the growing areas of content consumption is video-based services. This means video is going mobile, and advertising is one the verge of going mobile.

Conclusion

Our work with mobile rich media has allowed us to

demon-strate the effectiveness of these new formats when assessed

in terms of time spent and levels of consumer engagement.

We feel the newly-emerging mobile video opportunities

pro-vide the additional opportunities to deepen the layers of

con-sumer engagement for the benefit of our clients’ brands.

Alex Newman,

Head of Mobile, OMD UK

We are offering innovative mobile video-based services such

as pre-, mid- or post-roll advertising formats that are driving

(15)

About mobileSQUARED

mobileSQUARED provides specialist research which enables brands, agencies and the mobile industry to increase engagement with the mobile consumer.

We conduct primary research on the mobile industry and mobile consumers, with a focus on delivering exclusive forward-looking data on mobile device usage, mobile web, app and commerce trends and usage, and mobile advertising responsiveness to help clients identify and respond to fast-changing mobile trends.

And for a wider view of the industry, we provide detailed mobile industry user and revenue forecasts.

Our clients look to mobileSQUARED’s expertise to provide candid insight into the mobile market.

We do this using our extensive global network of senior contacts to research, collect and collate the latest data, developments, trends and insight on an ongoing basis.

For more information, visit, www.mobilesquared.co.uk

About Nick Lane

Nick has been described as “the leading commentator on UK mobile media (Adam Smith, Futures Director at GroupM). But Nick’s experience extends well beyond the UK.

He specializes in mobile market intelligence and heads up the research and analysis at mobileSQUARED.

Prior to launching mobileSQUARED, Nick was Head of Research Services and Principal Analyst at Informa, where he oversaw the group’s leading industry newsletters, reports and forecasts that have helped shape the mobile industry.

In this role, Nick established himself as one of the leading authorities on the mobile content, services and advertising space, regularly speaking and chairing at conferences and events around the world.

While in this role at Informa, Nick wrote a number of reports, from consumer behavioral analaysis to mobile advertising.

(16)

mobile advertising

TM