Mobile ads in the United States accounted for $421 million in sales in 2006 and are expected to reach nearly $5 billion by 2011.
But the market must first face a host of issues involving formats, pricing strategies, and standards, according to a report titled "Mobile Advertising: The Service Provider Revenue Opportunity."
"The key issue is getting the media buyers comfortable with the advertising in the mobile market," said Aditya Kishore, senior analyst with Heavy Reading, said in an interview. "Currently, it's quite hard to purchase and measure the effectiveness of these ads."
The report emphasizes that the mobile ad ecosystem is still in a state of evolution, but will experience rapid and sustainable growth as these issues fade away and technologies and advertising campaign models advance, Kishore said. The report shows how five U.K. carriers partnered together to provide a unified set of metrics for ad buyers.
Another benefit for the market is the aggressive approach companies like Yahoo, Microsoft, and Google are taking toward the mobile ad market.
Mobile advertising offers some significant advantages over other media, but also has some limitations, said Kishore. "Mobile advertising offers carriers the greatest opportunity to insert themselves into the advertising value chain," he said. "Unlike with TV and Internet advertising, which developed before the service providers got involved, carriers have been involved with mobile advertising from the start."
Spending on mobile advertising is beginning to develop worldwide, but mobile ad revenue isn't likely to reach any significant volume until 2010, as market participants continue to wrestle with formats, standards, and pricing strategies.
The report predicts that wireless carriers' share of mobile advertising revenue will grow to $3.4 billion in 2012. While this represents less than 1% of total wireless service provider revenue, it's also just the beginning. Mobile advertising revenue will ramp up steadily for the foreseeable future. Carriers now have an opportunity to enter this market at its early stage and influence its development as it expands into a sizable market, it says.
Mobile ad revenue will not flow evenly to all network operators, the report says. Carriers that are aggressive in building their content, search, and advertising businesses will gain a disproportionate share of mobile advertising revenue. The market also will vary significantly by geography, with Japan, the United States, and the United Kingdom now best positioned for mobile ad revenue.
Service providers offering wireline and wireless services have a unique ability to integrate advertising across the TV, PC, and mobile device. This could offer advertisers significant value, provided it's packaged correctly, the report says.
The report also says that the Short Message Service, also known as text messaging, is a very effective way of reaching consumers with mobile advertising. Out of 250 million mobile phone users in the United States, 141 million -- or 56% -- use SMS, which is the most popular nonvoice communications service.
As a comparison, 67 million consumers use the mobile Web, which means SMS's reach is twice as high as Internet reach for advertising on mobile phones, according to the report.