If someone told you in 1990 that Internet advertising would be a $37 billion industry, you may very well have just laughed in his face.
After all, television ads dominated global advertising at the time, and banner ads were just beginning to reach the market. But a lot can happen in 20 years, and Internet ad revenue has been rapidly advancing to take the crown.
While television ads currently hold twice the market share of Internet ads, it is the growth rates that should garner our full attention. The fact is, annual revenue in Internet advertisements grew 15 percent in 2012, while television grew just 4 percent in the same time frame. Furthermore, the outlook for 2013 puts Internet ad revenue up another 13 percent and television ad revenue down 3 percent.
And the growth of Internet advertising is so far showing no signs of slowing down. The graph below represents quarterly Internet ad revenue growth over the last 17 years.
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| Source: The Interactive Advertising Bureau (IAB) |
But even the growth of Internet advertising is being trumped by the rapid expansion that is currently occurring in mobile. In 2012, mobile advertising in the United States totaled $3.4 billion, which represents an 111 percent increase from 2011. This is one of the main reasons I have been bullish on companies like Facebook (NASDAQ: FB) and Google Inc. (NASDAQ: GOOG) as of late.
If you were to follow the distribution of advertising revenue over the last century, it is actually quite simple to predict where that money will be in the future. When eyes were on paper, ad revenue grew in magazines and newspapers. When ears were on radio, stations made a killing. And when the Superbowl is on TV, the money spent per second is higher than that of any other time in the year, on any other medium.
Advertisements are about exposure and interaction, plain and simple. So when predicting future trends, the most important question for us to ask here is, “Where will consumers be looking?” Right now, the answer to that question is clearly mobile.
In 2010, the share of time U.S. adults spent viewing media per day was just 3.6 percent for mobile. In just three years, that figure has reached 19.4 percent, meaning that approximately 12 minutes of every hour of media consumption is spent on a phone or tablet.
In the same period, time spent viewing TV has decreased 3.5 percentage points, and time on desktops and laptops decreased 2.8 percentage points. Mobile media is, by far, the fastest growing advertising segment. To assume that older mediums might regain market share would require us to ignore historical trends in advertising.
The Future of Advertising
When talking about mobile, smartphones and tablets are the most prominent devices that come to mind. And that makes sense because just about everyone we know has a smartphone in his or her pocket or purse these days. But like any other medium for news and media, smartphones and tablets will eventually lose their value to advertisers.
But let’s be clear: we aren’t going to see smartphones and tablets disappear in the near future. However, the significance of these devices will fade much in the way that newspapers, television, and desktop computers have.
If that’s the case, you might be wondering why we should remain bullish on companies focused on mobile advertising. The answer to that question is that the incoming devices that will knock smartphones and tablets off their thrones are simply the next generation of mobile devices. Better yet, these devices will revolutionize advertising in ways that might be hard to believe.
In April, Google released its terms of service for the operating interface used to write programs for Google Glass, the wearable device expected to reach the consumer market in 2014. As a provision of these terms, the interface, named Mirror API, would not support ads for its early services.
However, Google representatives have publicly stated that advertising on Glass is a possibility in the future. This is really no surprise because, at the end of the day, Google earns the vast majority of its revenue from online advertising. And when consumers begin attaching devices to their faces, the time spent on mobile media will skyrocket.
If and when Glass takes off, the incentives to monetize the device will be far too strong. Just last week, we were granted a sneak peak at one way Google is going to accomplish this.
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The Mobile Billboard
Google was recently granted a patent outlining technology capable of charging advertisers whenever someone looks at their content. The process has been dubbed “pay-per-gaze” (PPG), a spin-off of the Internet advertising model “pay-per-click” (PPC), in which publishers charge advertisers every time a user redirects to their ad.
The awarded patent describes a “gaze tracking system” on a “head mounted gaze tracking device”, which almost certainly indicates the intended use of PPG in Google Glass.
In addition to determining whether or not a user is looking at an advertisement, the gaze tracking system would also measure pupil dilation to infer user engagement and emotional state.
The applications for such a system are far reaching. Not only could Google charge advertisers every time an ad is gazed upon, but it could also charge an additional fee if an ad excites or engages a viewer.
Furthermore, it would be possible for Google to tailor advertisements based on the collected information. For instance, if a user becomes tired, the system might produce an energy drink ad. Or if a user’s pupils dilate when shown a Big Mac ad, Google Glass could automatically provide directions to the nearest McDonald’s.
This form of advertising will be incredibly valuable. The ability to tailor an ad based on user location and search history is one thing, but the ability to constantly monitor user engagement through biometrics is an entirely different ball game.
It may will be a while before we see PPG hit the market, but be prepared for wearable devices to take off within the next several years. As this happens, companies in mobile advertising, as well as biometrics, will be raking in the revenue. Likewise, well positioned investors in the space will be expanding their wealth.
Turning progress to profits,
Jason Stutman
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