Copyright ©2012 eMarketer, Inc. All rights reserved.

Marketing Objectives and Spending Trends 2

Are Mobile Ads Effective? 3

Pricing Trends 7

Building Confidence Is Key to Bigger Budgets 9

Conclusions 11

eMarketer Interviews 12

Related eMarketer Reports 13

Related Links 13

November 2012

Executive Summary: Advertisers in the US are on track to spend $1.8 billion on mobile display advertising in 2012—more than triple the amount spent in 2011, but still far less than for other digital channels—according to eMarketer estimates. The majority of marketers who invested in mobile advertising this year labeled their efforts a success, but for a sizeable minority, results were inconsistent. 146328

Overall, mobile clickthrough rates surpass online advertising norms, even when taking into account accidental clicks. And engagement levels with rich media ads have been shown to deliver significant lift to brand metrics. These positive trends, paired with the steady adoption of smartphones, have marketers convinced they need to spend more on mobile display advertising. The big questions now are how much more and when to take the plunge.

Uncertainties exist, as well, after committing to mobile advertising. Limited audience targeting and tracking capabilities make it difficult to gauge the effectiveness of campaigns, leaving many advertisers uneasy.

eMarketer’s definition of mobile display advertising includes banners, rich media and video ads on WAP sites, mobile HTML sites and embedded in-application/in-game advertising. Facebook’s mobile Sponsored Stories and Twitter’s Promoted Tweets targeted to mobile phones and tablet devices also are included in this definition. The scope of this report is limited, however, to the effectiveness of ads targeted to smartphones.

Key Questions

■ What goals are marketers trying to achieve with mobile display?

■ Are mobile display ads effective?

■ Why does time spent with mobile far exceed mobile ad spending?

% of respondents

Success Level of Mobile Ad Investments According toMarketers Worldwide, 2012

Very effective4%

Good27%

Moderate24%

Inconsistent26%

Poor4%

Not sure15%

Source: CMO Council, "Engage at Every Stage: Using Mobile RelationshipMarketing to Put More Interaction in the Hands of the Customer," Oct 9,2012146328 www.eMarketer.com

Cathy Boyle cboyle@emarketer.com

Contributors: Christine Bittar, Chris Keating

Mobile Display Advertising: Aspirations, Revelations and Frustrations

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 2

Marketing Objectives and Spending Trends

The adult population in the US is on the verge of becoming a smartphone majority, and the fact that consumers’ lives are mobile-centric is not lost on brands. Marketers are setting mobile-specific marketing strategies, and as a whole they’re spending significantly more in the channel.

eMarketer estimates 55% of mobile phone users—43% of all Americans—will use a smartphone in 2013, double the number from 2010. Looking ahead, double-digit growth is expected each year through 2015 as a large number of consumers upgrade from feature phones. Companies like Twitter, Facebook, Pandora and The Weather Company (parent company of The Weather Channel) already see more than half of their users accessing their content with mobile devices. With such rapid changes in consumer behavior, marketers’ focus has shifted from “Will the smartphone be a mass media channel?” to “How does this channel fit into my marketing mix and in what ways can it help me achieve my numbers?”

To understand marketers’ leading goals for the channel, marketing solutions provider StrongMail asked 800 executives from a range of industries to identify the top objectives of their mobile marketing efforts. The largest group of respondents—nearly 60%—said they expected to increase sales through their mobile efforts, indicating direct response campaigns may continue to dominate the mobile advertising landscape in the near term. Still, roughly half of those surveyed aimed to raise brand awareness and improve customer service, and a slightly smaller group (45%) expected to acquire new customers through the channel.

% of respondents

Leading Objectives for Mobile Marketing According toBusiness Executives Worldwide, April 2012

Increase sales59%

Improve customer service/convenience52%

Increase brand awareness49%

Acquire new customers45%

Grow mobile opt-in list14%

Grow email opt-in list13%

Lower support costs6%

Don't know5%

Note: among those who use mobile as a marketing channelSource: StrongMail, "Mobile Marketing Survey 2012," May 23, 2012140835 www.eMarketer.com

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In an effort to achieve these goals, marketers in the US will spend roughly $4 billion on mobile advertising in 2012, up 180% from last year, eMarketer forecasts. Mobile paid search will receive the largest share of spending in the near term but investments in mobile display are expected to grow at the fastest rate over the next four years. In 2016, spending on mobile display advertising is expected to top $10.4 billion, a figure more than five times today’s level.

Mobile ad spending growth will be fueled in large part by the expansion of Twitter and Facebook mobile advertising programs and the increased use of video ads for branding campaigns. Mobile video spending will comprise the smallest share of spending through eMarketer’s forecast period, but by 2016 investments in this ad category are expected to be eight and a half times those of today.

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 3

Are Mobile Ads Effective?

Mobile ads’ effectiveness is top of mind for many marketers, but only brands themselves can give a definitive answer based on the performance and investment levels of their campaigns. Directionally speaking, however, data from across the industry indicates mobile display advertising is delivering strong results to a rapidly growing audience at reasonable cost. In other words, mobile display advertising is effective. But that doesn’t mean marketers are fully satisfied.

Marketers who rely on clickthrough rate (CTR) as their leading performance metric will be pleased to learn that mobile CTRs in 2012 were eight times higher than desktop display norms. The “Global Benchmark Report H1 2012” published by digital advertising solutions provider MediaMind showed that mobile banner ads deployed in North America in the first half of the year averaged a 0.86% CTR. By comparison, desktop banners hovered in the 0.1% range.

Rich Media, Mobile and Standard Banner AdClickthrough Rate (CTR) Worldwide, by Region, H1 2012

Asia-Pacific

Europe, Middle East & Africa

Latin America

North America

Standardbanner

0.10%

0.10%

0.14%

0.10%

Mobilebanner

0.42%

1.41%

0.48%

0.86%

Rich media—polite banner

0.21%

0.12%

0.13%

0.12%

Rich media—expandable

banner

0.35%

0.47%

0.43%

0.19%

Source: MediaMind, "Global Benchmarks Report H1 2012," Aug 2012144334 www.eMarketer.com

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CTRs for Facebook’s mobile Sponsored Stories ads are equally impressive, although some of that strength can be attributed to the novelty of the ad offerings. In the first half of 2012, mobile Sponsored Stories ads served worldwide had an average CRT of 1.3%, which was 10 times the average CTR for Sponsored Stories served to desktop computers during the same period, according to AdParlor, a Facebook ad campaign management company. Similar results were reported by TBG Digital, a global marketing and technology company; as of June 2012, ads in Facebook mobile newsfeeds worldwide averaged a CTR of 1.14% while desktop CTRs were roughly half as strong at 0.58%.

As a whole, iPhone users were more responsive to mobile ads than consumers with Android phones. A Q1 2012 analysis conducted by mobile ad network Jumptap showed iPhone users maintained an average CTR of 0.84% whereas those using Android-operated phones clicked ads less frequently,

with a 0.58% or lower CTR depending on the specific phone model being used. More significantly, the arrival of simple audience targeting via third-party data improved CTRs by double-digit percentages on the Jumptap network in July 2012. Travel and automotive advertisers benefited the most, but campaigns across all industry verticals achieved significant gains by leveraging third-party data to better target audiences.

Increase in Clickthrough Rate (CTR) from UsingThird-Party Targeting Data in Mobile Ads Served byJumptap, by Vertical, July 2012

Travel 72.03%

Automotive 68.75%

Pharma 37.45%

Finance 35.27%

Retail/CPG/QSR 32.28%

Insurance 30.15%

Technology 24.72%

Source: Jumptap, "Simple Targeting and Audience Trends (STAT)," Aug 7,2012143964 www.eMarketer.com

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Although CTRs are the most commonly reported measurement mobile ad metric, experts interviewed for this report agreed clicks were directional at best. “The clickthrough rate is a currency we all have to deal in, but it doesn’t tell the entire story of how receptive or non-receptive a consumer is to an ad,” said John Trimble, chief revenue officer of streaming music site Pandora.

Chad Gallagher from Advertising.com took the point further, saying the most successful mobile advertisers relied on secondary measures to gauge the effectiveness of their campaigns. “There are obviously campaigns where CTR is important, but at this point probably 75% of our campaigns are measuring something deeper than just CTR,” he noted.

Indeed, a minority of marketers polled by Chief Marketer said they used CTRs to measure the success of their mobile investments, but no other single metric came close to receiving as many votes. So even though CTR may not be perfect, the Chief Marketer data showed CTR is still heavily relied upon for assessing campaign performance.

Valid Clicks or Fat-Finger Fakes?

After years of accepting weak CTRs from desktop display, it’s sensible to question the validity of strong CTR results from mobile ads, especially when the click has morphed into a tap from a potentially clumsy finger on a small screen. A study of click authenticity conducted by Trademob in June, did everything but make advertisers feel confident in their results.

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 4

The app marketing platform analyzed 6 million mobile display ad clicks worldwide and concluded 40% were useless; slightly more than half were “accidental,” supporting the “fat finger” theorists, and nearly as many were classified as “fraudulent,” which means a problem that has plagued online advertising has spread to mobile.

% of total

Regular vs. Useless* Mobile Ad Clicks Worldwide,June 2012

Note: includes clicks from mobile display ad banners only; clicks labeled as fraud show patterns such as irregular traffic peaks and similar IP addresses; *i.e., the conversion rate of clicks to installs was less than 0.1%Source: Trademob, "40% of Mobile Clicks Are Accidental or Fraudulent,"Sep 5, 2012145152 www.eMarketer.com

Mobile ad clicks

Regular60%

Useless40%

Accidental clicks

Botnets & client-side fraud(sophisticated)

Server-side fraud (plain)

Useless

22%10%

8%

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The rate of fraudulent clicks reported by Trademob was comparable to the online rates from two years ago when Adometry, formerly Click Forensics Inc., reported 19% of online clicks worldwide in Q4 2010 were malware-driven and thus useless to advertisers. As mobile advertising matures, the ad industry will likely manage fraudulent mobile clicks in much the same way it has on desktop over the years, leading to a comparable decline.

As for those fat fingers, Gallagher from Advertising.com asserted the problem was overblown. “By far, the clients that are moving the most money into mobile are using a secondary metric of some kind, and those secondary metrics are incredibly positive overall,” he said. “People are engaging, interacting and converting on landing pages just like they do on desktop. So, the accidental click phenomenon that everyone wants to talk about is completely meaningless to those clients.”

A study of accidental clicks from GoldSpot Media put Gallagher’s assertion to the test. To quantify the effect accidental clicks had on campaign performance, the mobile rich media and video advertising provider analyzed millions of static and rich media banner clicks from automotive, CPG, travel, entertainment and finance campaigns served to mobile users in Q3 2012 via the GoldSpot platform. A click was deemed accidental if the user’s post-click engagement lasted for less than 2 seconds. So, for example, if the user closed the ad, app or site within 2 seconds of clicking on the ad, the click was considered unintentional.

The results showed that static banners did generate a sizeable number of accidental clicks (38%). Rich media banners had a far lower number of accidental clicks (13%). But because the gross CTRs averaged 4% for rich media banners and 2% for static banners, the adjusted clickthrough rates were far above online norms. Net CTRs were 3% for rich media banners and 1% for static banners, both of which were also above the online average.

% of total clicks

Clickthrough Rates for Static and Rich Media MobileAds Served by GoldSpot Media, Before and AfterAccounting for Accidental Clicks, 2012

Before

4.0%

2.0%

After

3.1%

1.1%

Rich media banners Static banners

Note: clicks/taps are defined as accidental if the user engagement lastsless than 2 seconds, i.e., the user has closed the ad, app or site within 2secondsSource: GoldSpot Media, "The Fat Finger Report 1.0," Oct 25, 2012147055 www.eMarketer.com

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The key takeaway for marketers—especially those using static banners with CTRs under 1%—is to start tracking secondary actions to understand what percentage of your clicks might be unintentional. If the share of accidental clicks is high, discussions with the creative agency or ad-serving partner may uncover quick fixes to reduce the problem. “If somebody came to us and said, ‘We’re worried about accidental clicks and we want to work with you to solve that,’ we would say, ‘Let’s share the data. Let’s take a look at it and figure it out.’ We would work to solve the problem because people should get what they pay for,” said Curt Hecht, chief global revenue officer for The Weather Company.

Digging Deeper for Meaningful Metrics

Advertisers investing at experimental levels frequently start with simple banner campaigns and rely on reach-based metrics such as CTR and cost per impression to gauge success. From there, most move quickly to find more meaningful datapoints to justify larger investments.

The “2012 Mobile Marketing Survey” published by Chief Marketer gives some indication of the other metrics marketers use to measure success. Aside from CTRs, roughly a third of respondents monitored the effect ads had on website traffic

Are Mobile Ads Effective?

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 5

to determine the ads’ level of success. Beyond that, a quarter of respondents identified a handful of direct response actions, including app downloads.

% of respondents

Metrics Used to Measure Mobile Marketing SuccessAccording to US Marketers, May 2012

Clickthroughs (e.g., text links, ads)47%

Mobile site traffic38%

Passthrough to main website34%

Barcode/QR/tag scans33%

Text message opens26%

Opt-ins for alerts, other messaging25%

Email/other nonmobile sign-ups24%

Leads generated via mobile24%

App downloads24%

Ad impressions21%

Mobile content engagement metrics19%

Mobile coupon redemption19%

App engagement metrics16%

In-store traffic15%

Incremental sales via mobile14%

Source: Chief Marketer, "2012 Mobile Marketing Survey," June 5, 2012145199 www.eMarketer.com

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Direct Response Measurement Gains

A three-month study of consumer reactions to mobile ads conducted by InsightExpress for mobile ad network Mojiva showed that mobile display ads motivated roughly 60% of the 200 mobile users polled to browse a website or play a game, more than 40% to listen to music or download an app, and nearly one in four to purchase a product.

% of respondents

Actions Taken After Viewing a Mobile Ad According to US Mobile Phone Users, April 2011-March 2012

April2011

June2011

Aug2011

March2012

Browse a website 51% 65% 65% 57%

Play a game 63% 52% 53% 57%

Listen to music 49% 45% 45% 44%

Download a mobile app 52% 49% 56% 43%

Request more information 38% 28% 30% 38%

Watch a video 49% 42% 43% 36%

Redeem or download a coupon 40% 32% 43% 35%

Purchase a product 22% 24% 29% 24%

Tap-to-call 17% 14% 12% 13%

None of these 13% 16% 14% 11%

Source: Mojiva, "Mobile Audience Guide (MAG)" conducted byInsightExpress, May 23, 2012140841 www.eMarketer.com

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Post-campaign consumer surveys like the one conducted by InsightExpress are certainly valuable, but many direct response marketers are dismayed by the inability to accurately track actions post-click in mobile. “Online, most everything is tied to the cookie and that technology is so mature that you can follow a user all the way through [to the end goal]. But in mobile, in the absence of a robust identification technology, many players don’t have the ability to follow a user each step of the way,” said Jennifer Lum, co-founder of predictive data platform Adelphi Mobile and a veteran of Apple’s iAd mobile advertising platform.

Some behaviors are easier to track than others. Ads offering app installations, for instance, are extremely common, and installations driven by an ad have become easier to track. “Most premium mobile partners out there have the ability to provide clients with [a software development kit], or basically some coding to add to their app that tracks the user after they click on an ad,” said Colleen Gilbert, media supervisor at global marketing and technology agency LBi.

Depending on the sophistication of the coding, advertisers can measure visits to the app store, the number of people who clicked to download the app, the number who installed the app and the number who opened it. For iPhone ads, there are also solutions available through Apple’s iAd platform that enable advertisers to track installs and opens from iTunes and attribute those actions back to their ad. This level of insight enables app advertisers to more accurately calculate and have confidence in the return they’re getting from their investment.

Other direct response advertisers are looking for a similar level of view-through, but since their objectives aren’t as single-minded as app advertisers’, finding scalable solutions is more challenging. Progress has certainly been made with ad units that leverage the inherent capabilities of mobile devices, including click-to-call, click-to-map and click-to-calendar ads. “Those are really unique actions that the phone can deliver in a robust way that the computer can’t,” said Brian Colbert, vice president of mobile at Pandora.

Are Mobile Ads Effective?

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 6

Click-to-map technology proved successful for Levi’s last year when the clothing manufacturer deployed a location-enabled rich media ad unit from AT&T AdWorks. “We saw a clickthrough rate of 10%, which is 10 times the industry average, at least. And among the people that clicked through, more than 40% actually engaged with the store locator feature,” said Maria Mandel Dunsche, AT&T AdWorks’ vice president of marketing and media innovation. The missing piece in the puzzle for Levi’s was whether the ad increased foot traffic and sales on the retail level.

Quick-serve restaurant franchiser Auntie Anne’s picked up where Levi’s left off by tracking an offer from its origins as a mobile rich media ad to the point of purchase. In a partnership with The Coca-Cola Company, Millennial Media and Sparkfly, a digital promotion and redemption technology provider, the pretzel purveyor tested four ads with different food offers, each with a unique redemption code that enabled item-level tracking. “We were able to track the offers through programming that was done between the mobile platform and the POS system. It was a really compelling way for us to link the data in the ads to actual purchase behavior at the physical stores,” said Heather Neary, Auntie Anne’s chief marketing officer.

The results of the Auntie Anne’s campaign were not available for inclusion in this report, but the breakthrough made in linking retail sales directly to a mobile ad is what matters most to the wider audience of direct response marketers.

Eye-Popping Engagement Levels

Initially, many marketers doubted the ability of the small screen to deliver immersive brand experiences, but advertisers are quickly discovering that mobile display has positive effects on a wide spectrum of brand metrics and that engagement levels for it are high. “Mobile provides a very compelling canvas for brand building because it’s a more single-threaded experience, which means people are less likely to have dozens of windows and tabs open like on a desktop experience,” said Jason Spero, head of global mobile sales and strategy for Google. “And since some of the mobile ads can take up the entire screen, advertisers have fewer things competing for their audience’s attention when their ad is showing.”

An eye-opening report issued late last year by research firm Dynamic Logic showed that ad awareness levels for mobile display ads were nearly five times that of desktop display, purchase intent ratings were roughly four times higher and brand favorability measures were almost triple desktop norms.

More recent findings from InsightExpress were also favorable. In June 2012, the research firm released an analysis of data collected from nearly 550,000 respondents across 240 mobile ad campaigns deployed between November 2007 and June 2012. Not only did the analysis show a high level of ad awareness for mobile ads, it found the ads clearly conveyed

brand messages, raised consumers’ intent to buy and left consumers with a more positive brand image.

average delta* above control

Mobile and Tablet Advertising's Effect on BrandMetrics in the US, June 2012

Online ad awareness43%

26%

Purchase intent24%

11%

Brand favorability17%

9%

Unaided awareness14%

9%

Aided awareness14%

7%

Message association8%

16%

Tablet campaigns Mobile InsightNorms

Note: *delta defined as point difference in exposed vs. control groupsSource: InsightExpress as cited in company blog, June 13, 2012141597 www.eMarketer.com

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(It’s also worth noting that, by most measures, tablets ads were an even more effective platform. For more on tablet advertising, see eMarketer’s October 2012 report, “Tablet Advertising: Volume and Engagement Levels Jump Up.”)

Savvy advertisers, according to Google’s Spero, are those who realize mobile is more than just a shrunken version of desktop and leverage the unique context of the user, as well as device capabilities, to create an engaging experience.

A large portion of mobile consumers fill downtime moments throughout the day by tapping into content on their phones. These snack-time moments and destinations are ideal times and places for advertisers to deliver more immersive brand messages.

American Family Insurance, a mutual property/casualty insurance company, worked with popular “snack time” publishers like The Weather Channel and Crackle to build awareness around the dangers of distracted driving. The insurance company partnered with mobile platform provider SessionM and incorporated mobile video, a custom driving game and click-to-call functionality into the campaign. Early results were strong, with 17% of users clicking through to call an agent and 73% of users engaging with the creative.

Measuring engagement of rich media ads is growing in popularity as these more dynamic ad units proliferate. The key when measuring engagement levels is for advertisers to

Are Mobile Ads Effective?

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 7

understand their partner’s definition of the term. According to Lars Albright, co-founder and CEO of SessionM, engagement with ads like the ones used by American Family Insurance means watching a video to completion, playing a game to completion or filling out a survey or poll.

In June, rich media ad platform Medialets reported average mobile engagement rates of 8% for rich expandable banners and 15% for rich interstitials. Like SessionM, Medialets defined engagement as the percentage of impressions that generated a response from any path within an ad, which included such things as watching a video or tweeting about an ad.

Performance Metrics for Mobile Rich Media AdsServed by Medialets, by Format, Q1 2012

Engagement rate15.0%

8.0%

Clickthrough rate (CTR)1.2%

3.0%

Rich expandable banners Rich interstitials

Source: Medialets, "Mobile & Tablet Rich Media Ads: Performance by theNumbers," June 5, 2012147403 www.eMarketer.com

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Though the percentage of video ads served to smartphones is small—just 12% of ads served to apps by the Medialets platform in June 2012—they are proving powerful. An analysis of campaign results from that platform showed that adding video to rich media ads increased engagement rates by 35%.

The “Cross-Platform Video Ad Effectiveness Study” conducted by mobile video advertising platform AdColony and research firm Nielsen contends that mobile video ads are also more memorable than their online and TV counterparts. The study evaluated the effectiveness of a 15-second video ad campaign for a major CPG brand across mobile, online and TV during a one-week period in May 2012. Of the 838 male mobile users who participated in the study, 79% said they recalled the ad viewed on their mobile device, compared to 49% who recalled the TV version of the ad and 29% who remembered the online version. These results suggest that the lack of ad clutter on mobile devices may be contributing to the higher recall rate compared to TV and desktop computers.

Mobile targeting is raising engagement levels of promoted tweets, too. In this case, engagement is defined as clicks, retweets and replies, and is calculated by dividing the total number of engagements by total impressions. Social advertising agency SocialCode tested a handful of tweets in July 2012 with links to the Washington Post Social Reader and saw that engagement rates for the mobile-targeted tweets were nearly three times those of the untargeted tweets.

Pricing Trends

CPM—the rate advertisers pay for 1,000 impressions—remains the industry standard for mobile display advertising and it also serves as a point of comparison to desktop. “At this stage of the game, I’ve not seen mobile CPMs differ drastically from online. And with CTRs significantly higher, mobile is easily sellable,” said Colleen Gilbert of LBi.

A comparison of the weighted averages for mobile and online display CPMs published by Credit Suisse in February 2012 concurred with Gilbert’s assessment. The data indicated there was little difference between the average CPMs for inventory at the high and low ends of the pricing spectrum. Inventory sold indirectly through intermediaries, such as ad networks and exchanges—which is typically the least expensive and comprises the bulk of inventory in both channels—was more expensive in the mobile channel than online ($2.10 vs. $1.00). In the premium category, mobile CPMs were less expensive than online ($8.80 vs. $9.90). Such minor differences between a nascent channel and a mature one raise the question of whether mobile publishers are offering ad inventory at “priced to sell” levels to generate large-scale interest. If this is the case, and advertisers do not come in droves, publishers may be forced to raise rates to ensure profits.

Of course, pinpointing average cost is always a tricky endeavor, as pricing varies widely depending on whether the buy is made direct from the publisher, indirectly through a mobile network or exchange, or attained through real-time bidding, which grew 289% in volume in Q1 2012 compared to the prior quarter, according to Accordant Media. Targeting by content category, device platform, location, daypart or demographics also affects prices, as does the type of ad unit used.

Data released from two mobile RTB exchanges provides insight into the competitive landscape for impression-based inventory. Q3 2012 figures published by MoPub Marketplace, an RTB exchange for in-app ads, showed effective CPMs (eCPMs) for traditional smartphone formats such as medium rectangles and 320 x 50 banners increased by 42% and 20%, respectively, over the previous quarter. (To be clear, eCPM is the price advertisers are willing to pay to reach an app audience.) In the previous quarter, medium rectangles averaged $0.75, but then passed the $1 mark at the end of Q3. On the other hand, rates for traditional banners were higher in Q2, when they commanded a $0.74 eCPM, but then dipped to as low as $0.50 in July. So the increases seen in traditional banner rates in Q3 may have been more of a correction toward previous rates than a true increase.

Are Mobile Ads Effective?

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 8

Average Effective CPM (eCPM) for Mobile Real-TimeBidding (RTB) Ads Auctioned by MoPub, by OS andDevice, July-Sep 2012

July 2012 Aug 2012 Sep 2012

iPad $0.88 $0.92 $0.94

iPhone $0.67 $0.65 $0.68

iPod touch $0.67 $0.61 $0.62

iOS total $0.70 $0.68 $0.72Android tablet $0.37 $0.45 $0.48

Android phone $0.34 $0.42 $0.43

Android total $0.34 $0.42 $0.43Source: MoPub, "Mobile Advertising Marketplace Report," Nov 13, 2012147327 www.eMarketer.com

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Advertisers continue to demonstrate a preference for placing ads on iOS devices over Android, at times paying nearly twice as much to reach iPhone users. In April, the Mobclix RTB exchange, which is owned by mobile marketing agency Velti, reported advertisers paid $0.59 for standard banners served to iOS devices, vs. $0.33 for Android.

Advertisers using the MoPub exchange also paid premium rates to reach iPhone users ($0.72 vs. $0.43), but Android eCPMs rose 26% between July and September.

A study conducted by mobile app measurement and advertising platform Flurry showed advertisers were willing to pay top dollar if it gave them greater confidence in reaching their target audience.

To gauge rates being paid to reach mobile users of a specific age and gender, Flurry sampled 60,000 active daily iOS users from a pool of 6 million users for whom they had demographic data and calculated the eCPM paid to publishers to reach this group. The exercise revealed advertisers valued the 25 to 34 age group the most and that they paid dearly to reach women in this segment. It’s important to note that Flurry’s calculation of eCPM included buys made on a cost-per-click (CPC), cost-per-acquisition (CPA) and CPM basis.

Mobile eCPM Earned by US Publishers, by AudienceAge and Gender, Feb 2012

13-17$5.12

$4.86

18-24$7.14

$7.14

25-34$7.80

$12.92

35-54$3.52

$5.55

55+$2.31

$3.77

Male Female

Source: Flurry as cited in company blog, Feb 20, 2012139456 www.eMarketer.com

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eCPM averages from April released by Velti concur; buyers paid the most ($15 eCPM) to reach women and moms. Meanwhile, advertisers from the finance category paid slightly more than $10 eCPMs and those in the automotive, CPG and tech sectors paid eCPMs in the $9 range.

As is the case with desktop display, the most effective mobile campaigns include a blend of pricing models. The exact mix varies based on the advertiser’s objective, but with a large number of businesses and brands seeking to increase app downloads, cost per install (CPI) is a common component of performance-driven mobile display buys. For branding campaigns, cost-per-engagement (CPE) buys are becoming increasingly popular.

Pricing Trends

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 9

Building Confidence Is Key to Bigger Budgets

Early data suggests mobile ads are effective for a variety of purposes, but advertisers are still holding back.

eMarketer forecasts that time spent with mobile devices in 2012 will outweigh the level of ad spending in the channel by nearly a factor of five (11.7% vs. 2.4%). It’s important to note that eMarketer’s estimate of time spent with mobile includes only nonvoice activities in order to more accurately portray the time available for advertising. As mentioned previously, spending on mobile advertising is expected to increase significantly, but despite a robust growth forecast, eMarketer projects mobile will represent little more than 6% of total ad spending in 2014, which will still fall short of parity with US adults’ time spent with mobile devices.

When asked why the floodgates haven’t opened on mobile ad spending, representatives from different corners of the industry acknowledged there were hurdles that still needed to be overcome.

“There are still people holding out because of the measurement issue,” said Harald Kruse, formerly the mobile lead at advertising agency Razorfish and now director of commerce strategy and corporate development at Isis Mobile Commerce. “They don’t feel that they can get quite as much measurement through mobile as they can through desktop display. It’s just harder to tell what’s actually happening from a mobile display perspective because of the cookies being deleted.”

Colleen Gilbert of LBi agreed that measurement was key. “The big jump [in spending] will come once tracking is fully sorted out for mobile. If everything can be measureable—as it is online—there’d be no rationale for not investing more in mobile.”

“Brand CMOs are looking for data, as they do with any new media,” said Pandora’s Trimble. “It takes time to test. It takes time to analyze data. The velocity of mobility consumption and the personalized nature of it certainly warrant more spend against it, and I think you’re going to start to see it at a fairly rapid pace. It’s a matter of everybody getting a bit tighter on measurement and standards that really work for a brand.”

“If we see the metrics and results support the decision to buy more mobile advertising, we’ll start moving more money over. But we’ll take a cautious look at that, because, obviously, we don’t want to pull out of anything that’s really effective right now in the other channels,” said Mark Ortiz, national interactive marketing manager for American Honda Motor Co.

The sheer difficulty of dealing with a new platform is a challenge for many advertisers, said The Weather’s Co.’s Hecht. “There’s a strong correlation between simplicity and spend. It’s hard to understand targeting in mobile, and

measurement is complex. So it comes down to, ‘Just make it simple.’ If we do that, we’ll see acceleration.”

Trackability Is the Sticking Point

A key ingredient for realizing the full potential of mobile advertising is the development of more sophisticated ways of identifying/profiling users and tracking individuals post-click. Without robust solutions for audience measurement and performance, many significant questions linger. Still, industry experts are confident solutions are in the making.

Are We Reaching Who We Want to Reach?

Buyers are uncomfortable with mobile’s lack of precise audience targeting. A premium publisher with user registration information, an ad network run by a wireless carrier with detailed subscriber profiles, or a mobile network like iAd with access to iTunes account data, can provide rich audience profiles to advertisers. Most others, however, are left to infer audience profiles by a publisher’s content category or channel. “The conundrum for media buyers is that if they want to buy premium at scale through a network, there often has to be a level of channel-based or semi-blind buying,” said Lars Albright of SessionM.

Ad networks are beginning to overlay third-party audience data on content channels to provide a greater degree of targeting, but advertisers still feel vulnerable without verification tools.

“What you don’t have on mobile, but do on desktop display, is the ability to get verification that you’re reaching the person that you want to reach. That hasn’t spilled over into mobile,” said Sarah Wilson, media supervisor for agency neo@Ogilvy. This concern was echoed by Gilbert at LBi: “I have 90% confidence in the targeting technologies online, and there are services like DoubleVerify that can prove the accuracy. However, with mobile my confidence drops to maybe 40%, if that.”

Google’s Spero acknowledged the challenges but said the industry is moving quickly to tackle them. “Since there isn’t a standard cookie that mobile advertisers and ad networks can use in apps, it’s difficult to paint a full picture for advertisers and help them reach the right users. We also have to be very careful when it comes to privacy on mobile, and make sure that as a collective industry, we’re giving people the right user controls. Mobile is evolving quickly. Over time we’ll start to see better ways for brands to reach their audience.”

In the meantime, savvy brand advertisers aren’t letting these obstacles stop them from tapping the power of mobile display and vendors are finding them new ways to provide audience data. “One of the most interesting things I’ve seen of late is social data being used to provide ‘interest’ targeting. So, with research and smart planning, you can increase the likelihood that you’re reaching the people that you want to reach,” said Wilson.

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 10

Where’s My Campaign Data?

One of the effects of buying mobile impressions by content channel is a lack of comprehensive performance data. In addition to “fuzzy” audience information, advertisers lack view-through to which apps or mobile websites within the channel performed well and which didn’t. “Many providers in the market either don’t have the capability or are unwilling to provide deep analytics back to the marketers for their campaigns,” said Jennifer Lum of Adelphic Mobile. In turn, the ability to calculate a precise ROI and optimize their buy is not at the level it is online.

Deals made between mobile ad networks and large publishers are typically based on an agreement that the ad network won’t sell or report directly on the publisher’s inventory—to avoid competing with the publisher’s sales team. That leads to ad networks selling impressions by channel and delivering results in the same manner. “We can’t say you ran on this application, here is exactly how many impressions you got and here’s your exact engagement rate, because that often is something that the [publishers] frown upon,” Albright said.

The output of the campaign may be the CTR for impressions served to the entertainment category in the New York DMA (designated market area) compared to the CTR for impressions for the same category in the Los Angeles DMA. While that information is important, advertisers want more. “You need to go much deeper so you can optimize within those line items by parameters that are relevant to the campaign. So maybe within the New York DMA, it’s males that are outperforming females. Maybe it’s males of a certain age demo. Maybe it’s females in the morning,” Lum said.

The ability to go deeper exists within some networks but it raises the point made previously: Advertisers aren’t yet confident in audience-targeting capabilities on mobile, so even if they can get itemized results, doubts linger.

“You don’t have access to all the metrics you do online, but it is improving. We’re doing a lot of tests with a few partners, but we’re probably a year away from being more comfortable with measurement [on mobile],” said Isis’ Kruse.

Which Channel Gets Credit?

Fifty-seven percent of smartphone users surveyed by research firm Ipsos in August 2012 for Google and brand consultancy Sterling Brands said they simultaneously used their phone with another device, and nearly half of the group said they used their smartphone and PC together. With such a sizeable percentage of consumers using both devices simultaneously, it’s easy to imagine how an ad served to a smartphone might spark an action on a computer. Similarly, geotargeted mobile ads are often built to increase offline sales at the retail level.

Yet, if mobile ads are driving sales elsewhere, is the channel getting the credit it deserves? Not likely. And limited attribution

tools aren’t helping marketers gain insight into the impact mobile is having on other channels.

In the desktop environment, attribution has proven to be a useful tool for deciphering a dizzying array of campaign data to determine what’s working and which digital channel (email, display, search, etc.) should be credited for the actions driven. According to a study conducted by Forrester Research for the Interactive Advertising Bureau, 56% of the agencies, service providers and publishers surveyed between May and June 2012 said they used some form of attribution modeling to assess their desktop campaigns.

And data from a Q1 2012 Forrester study showed attribution vendors had made progress in offering marketers tools with the ability to input and analyze data from mobile channels. Of the 74 vendor clients and marketers surveyed, 26% said mobile display data was included in their attribution models.

% of respondents

Digital Channels Used by Interactive MarketersWorldwide in Their Attribution Models, Q1 2012

Paid search marketing (SEM) 96%

Online display media 91%

Natural search marketing (SEO) 81%

Affiliate partners 77%

Email 72%

Website analytics (brand's website traffic information) 57%

Online video ads 49%

Twitter 45%

Other social media 43%

Comparison-shopping engines 40%

Facebook posts 34%

Mobile display ads (mobile web or in-app display ads) 26%

Facebook tabs/pages 25%

Mobile-optimized websites 19%

Other digital 17%

Mobile applications 13%

Facebook applications 13%

Gaming ads 4%

Mobile messaging (SMS or MMS) 2%

Note: n=53Source: Forrester Research, "The Forrester Wave: Interactive AttributionVendors, Q2 2012," April 30, 2012139729 www.eMarketer.com

139729

Unfortunately, without reliable ways to track and measure a campaign’s impact on the user level across devices, the benefits of using attribution in a multidevice scenario are limited. And the reality is there are many detours on the consumer’s path to purchase. “Someone might see something on a smartphone but research it on a laptop and then buy on an iPad or end up going into the store. The multidevice scenario has made the purchase process a lot more complicated,” said Kruse.

A breakthrough in user-level tracking is needed to enable marketers to assess what’s working, what’s not and which devices and channels are delivering the best return on investment—all while respecting consumer privacy. “Mobile

Building Confidence Is Key to Bigger Budgets

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 11

is blurring the lines of online and offline experiences, and our measurement tools haven’t yet caught up. Some savvy marketers are working to understand this full value of mobile, but we’ll see the industry present more tools in the next few years to help bridge that gap,” said Google’s Spero.

The waiting game has its own element of risk, however. As previously mentioned, a quarter of customers surveyed by Insight Express in March 2012 said they had purchased a product after seeing a mobile display ad and more than a third had redeemed a coupon, requested information or downloaded an app—all of which are valuable actions for a brand. The advertisers that dive deeper into mobile advertising using workarounds to achieve their goals, even though they may be difficult and less precise, will be the ones most likely to reap the greatest rewards from the ever-expanding smartphone audience. And then, when better tools and capabilities do arrive—and they will—the advertisers who were in the game early will be far ahead of competitors who opted to wait it out.

Conclusions

The majority of marketers who have invested in mobile display advertising are satisfied with their results, but the lack of online capabilities and tools make many uneasy about investing full bore. CTRs for mobile ads are considerably higher than desktop, even taking into account accidental clicks, and engagement levels with mobile rich media ads far exceed online averages. Meanwhile, mobile CPMs are comparable to online rates and reach is expanding quickly as smartphone usage moves to the mainstream. With such positive indicators, mobile is proving to be an effective channel for display advertising.

Spending on mobile display advertising is expected to increase by 82% in 2013 to reach $3.3 billion. Yet it will comprise only 4.2% of total media ad spending for the year. Growth will be fueled primarily by the increased use of video ad units for branding campaigns, as well as the rapid expansion and use of mobile ad offerings from Facebook and Twitter.

Innovations made in tracking post-click actions such as app downloads and improvements in measuring ad engagement levels have increased advertisers’ ability to calculate ROI. The high degree of post-click engagement (i.e., watching a video, playing a game, sharing ad messages on Facebook) leaves advertisers unfazed by reports of high accidental click rates. And significant progress is being made by companies like Auntie Anne’s to track the impact of mobile display ads on retail sales by linking mobile offers directly to POS systems.

Despite all the positives, advertisers are hesitant to invest heavily in mobile display advertising. Audience-targeting and user-tracking capabilities in mobile are perceived as unsophisticated and unreliable compared to those for desktop. Industry experts agree the big dollars will come once these issues are resolved. In the meantime, the smartphone audience is growing and these consumers are downloading apps, redeeming coupons and buying products in significant numbers as a result of ads seen on their phones. It begs the question of whether those advertisers who wait will be safe but sorry if their competitors decide to tolerate the not-so-perfect conditions and win over the smartphone audience first.

Building Confidence Is Key to Bigger Budgets

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 12

eMarketer Interviews

CMO One-to-One: Auntie Anne’s Recipe for Mobile Is Better Targeting

Heather Neary Chief Marketing Officer

Auntie Anne’s Interview conducted on October 12, 2012

How Mobile Delivers Superior Targeting

Marcus Startzel General Manager, North America

Millennial Media Interview conducted on November 2, 2012

Mobile Gaming Influence Grows at HondaMark Ortiz National Interactive Marketing Manager

American Honda Motor Co. Interview conducted on November 12, 2012

Lars Albright Co-Founder and CEO

SessionM Interview conducted on October 31, 2012

Paul Childs Chief Marketing Officer

Adfonic Interview conducted on October 12, 2012

Brian Colbert Vice President of Mobile

Pandora Interview conducted on October 24, 2012

Maria Mandell Dunsche Vice President, Marketing and Media Innovation

AT&T Adworks Interview conducted on October 24, 2012

Chad Gallagher Director of Mobile

Advertising.com Interview conducted on October 23, 2012

Colleen Gilbert Media Supervisor

LBi Interview conducted on October 24, 2012

Curt Hecht Chief Global Revenue Officer

The Weather Company Interview conducted on October 24, 2012

Matt Heindl Director of Social Media, East Coast

Razorfish Interview conducted on October 10, 2012

Harald Kruse Senior Strategy Manager

Razorfish Interview conducted on October 10, 2012

Jennifer Lum Co-Founder

Adelphic Mobile Interview conducted on October 22, 2012

Lara Mehanna General Manager, Mobile

DataXu Interview conducted on October 22, 2012

Jason Spero Head of Global Mobile Sales and Strategy

Google Interview conducted on October 30, 2012

Krishna Subramanian Chief Marketing Officer

Velti Interview conducted on November 6, 2012

Elain Szu Director of Marketing

MoPub Interview conducted on November 7, 2012

Mobile Display Advertising: Aspirations, Revelations and Frustrations Copyright ©2012 eMarketer, Inc. All rights reserved. 13

Joe Torpey Communications Manager

Jaguar North America Interview conducted on November 9, 2012

John Trimble Chief Revenue Officer

Pandora Interview conducted on October 24, 2012

Sarah Wilson Media Supervisor

neo@Ogilvy Interview conducted on November 6, 2012

Anna Bager Vice President and General Manager, Mobile Marketing Center of Excellence

Interactive Advertising Bureau Interview conducted on October 24, 2012

Will Stickney Communications Manager

Twitter Interview conducted on October 31, 2012

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Related Links

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Editorial and Production Contributors

Nicole Perrin Associate Editorial DirectorCliff Annicelli Senior Copy EditorEmily Adler Copy EditorDana Hill Director of ProductionJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Production ArtistAllie Smith Director of Charts

eMarketer Interviews

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