Mobile advertising getting overfunded???

Mobile advertising

There are a lot of start-ups in the mobile advertising space.  The following list is of European players I could remember or find with a quick search.  I’m sure I’ve missed some.

  • YOC – raised Euro10m on Frankfurt stock exchange – market cap 33m
  • Admob raised $5m (I believe) from Sequoia and are active in Europe
  • Screen Tonic raised Euro5.5m from 3i and iSource
  • FlyTxt raised $2m
  • Actionality raised estimated Euro2-4m from Doughty Hanson (website down at time of writing)
  • TXT4 raised Pound1.25m from Oxford Capital Partners and Noble
  • ActiveMediaTech

Plus Google and Yahoo! are in the mix and you can bet MSFT aren’t far behind. Google and Yahoo! race to cut PPC deals with mobile operators.

All this activity is happening because it is a market that is very obviously going to be very big at some point.  The problem is that it is unclear when.

This survey report on e-consultancy shows both the current state of mobile internet (poor) and it’s potential (high).  I am a beliver in mobile, a big one, and people are clearly using their mobiles more and more to access the web, but as the survey report says, the experience is still clunky and is a long way from going mainstream.   

Needless to say, mobille advertising needs to follow mobile internet usage, not lead it. 

3g.co.uk reports a Visongain study estimating the mobile marketing and advertising market at $255m in 2005 rising to $1bn by 2009.  I guess that a lot of the $255m in 2005 was SMS direct marketing style campaigns.  These have been good business for FlyTXT, ActiveMediaTech and others but are very hard to scale.  The true mobile advertising market is probably much smaller.

There are encouraging signs of market development though, according to Admob’s home page they have served nearly 500m ads now and Screen Tonic have done some good things on the mobile operator decks here in Europe, but this is a really early market.  The models are still developing in almost every respect – when and how to show display ads, how search based ads will work on mobile (it is still unclear how search will work), what rev share models will work, and how consumers will react.  As the 3g.co.uk article says, 2006 will be a year of experimentation.

It is my feeling that CPMs for new advertising technologies start high driven by limited initial inventory and the fact that small scale experiments don’t cost much and then drop off as genuine inventory builds and advertisers learn what a channel is worth.  I am hearing a lot of talk about high CPMs in mobile.

My fear is that the sector could get overfunded, destroying equity returns for (nearly) all participants.  This happened with mobile games and the same dynamics are at play here (huge market, obviously coming, timing unclear).  We haven’t reached that stage yet though, as the VC investments to date have been relatively modest.