Will Search Drive Mobile Ad Revenues?

Last month, BIA/Kelsey released its annual mobile forecast. It projects mobile ad revenues in the U.S. to grow from $490 million in 2009 to $2.9 billion in 2014, a compound annual growth rate of 43 percent.

But more interesting than the total revenue pie is the breakdown of formats that drive this growth. SMS and display ads currently lead in revenue but are projected to be eclipsed by the faster moving mobile search ad category over the next five years.

By the Numbers

So why is that? There are intricate formulas to devise these projections, unique to the way that each of these formats are bought and sold. Inputs include search volume, ad coverage, page views,CPCs, CPMs, etc.

Aggregate revenue for top mobile ad networks are also used to confirm figures. Along these lines, Google's announced $2 billion global mobile run rate was affirming, given its estimated 60 percent share of the U.S. mobile ad market (including AdMob).

But looking back over why search ad revenue will accelerate so rapidly, a few interesting theories arise. First, it's projected that the mobile web is expected to grow at a faster pace than the native apps that have erstwhile ruled the smartphone environment.

Because search is the front door to browser-based experiences, this bodes well for search volume and thus revenues. Add in the fact that the immediacy and commercial intent of mobile users drives search ad "CTRs and CPCs higher than desktop equivalents.

Back to the premise that the mobile web will grow faster than apps, this is a bone of contention as the industry-wide "apps vs. mobile web" debate rages on. This is also one of the increasing points of friction between Apple and Google.

Google's core search business compels it to push for a world where the browser is the front door. Comparatively, Apple's app-centric universe spreads content and features into little self-defined buckets where search isn't quite as necessary.

This is much behind Google's outspoken support for the mobile web and its own practice to "develop first" for the mobile web for products like Gmail, Latitude, YouTube, and others.

World Wild Web

But more so than Google's sway and the rest of the factors above, it could really just end up being a combination of economics and improving mobile browsers that push users and developers toward the mobile web.

Things like HTML5 allow developers to build mobile websites, (a.k.a. web apps), with features previously reserved for native apps. And it's much cheaper to build a web app and reach many more users across platforms.

As these factors take hold, the point is that we'll see more and better content fill the mobile web. By comparison, it now resembles the Wild West environment we saw on the desktop 15 years ago, where content is lacking, hard to find, and under-optimized.

Mobile ad network Chitika reports that only 4 percent of top online domains have optimized mobile sites. It's no wonder why most mainstream mobile users flock to app stores instead.

But this could all change as many of the factors above coalesce and as more content comes online. In parallel, we'll also see mobile users get better and more comfortable at searching the mobile web -- just like they did on the desktop over the past decade.

And don't forget parallel technologies that will make searching easier such as voice and visual search. This includes bar code scanners, voice search, and other inputs that are more intuitive than tapping a tiny keyboard.

Google, again in support of boosting mobile search volume, has made lots of investment in these areas, such asGoggles and voice actions for Android. It even announced that a surprisingly high 25 percent for its mobile searches executed with voice.

To tie all of this to a monetization engine, Google is increasingly adding options to AdWords to build mobile search campaigns. In 2010 it launched mobile pay-per-call ads and hyperlocal ad targeting.

Repeating History

Through all of this, we'll start to see the mobile web become a much more functional, substantive, and friendly place to search. Monetization will follow.

Don't forget, desktop computing over the past five years shifted from being a client-centric environment to one that's more browser-based, where content and software reside in the cloud. We'll see a similar shift in mobile.

Not to be so down on apps -- they aren't going away any time soon. If anything, Apple's move to bring them to tablets and now the desktop will ensure a solid future. But the mobile web will see faster growth.

That of course means more search volume. Combined with higher CTRs and CPCs than desktop search, it becomes a matter of arithmetic to plot a fairly healthy roadmap for mobile search ad revenue.