Thursday, February 11, 2010

Mobile Ad Networks: What's there for startups?

Though the well accepted industry definition of "Mobile Ads Networks" as found in Wikipedia and MMA includes SMS/MMS advertising (which also happens to be more than 90% contributor for MobileAd revenue) but let us not confuse this topic with SMS advertising/spam and rather focus on companies that use the mobile web to deliver targeted/untargeted ads as ad impressions on mobile websites or inside mobile software applications (eg. iPhone apps).

It's interesting how iPhone apps and the significant increase of the use of mobile internet in general has given rise to a booming industry in Mobile Ad Networks. Two such prominent names which come to mind when we talk of Mobile Ad Networks are Admob and Inmobi (A Bangalore start up that has received 2 rounds of funding). Admob serves 7 billion ad impressions on iPhone applications and the mobile internet PER MONTH.

The entry of big players such as Google and Apple clearly indicate a massive trend and that there is something lucrative about this rapidly growing industry. Google acquired Admob for $750m and Apple soon followed with acquisition of Quattro Wireless for around $275m. Not that this has been the only acquisition in this space. The rise of in-app ads has led to a rapid expansion of the space since 2007, when AOL acquired Third Screen Media, Yahoo picked up Actionality, Microsoft bought ScreenTonic and Nokia acquired Enpocket.

In spite of this industry being ridden with plenty of investor money through M&A activity there are very few start ups that are trying to capitalize on this trend? There are currently only about dozen significant companies GLOBALLY doing what Admob and Inmobi do. Why? We would expect "me too" companies to crop up by the dozen every week, but that seemingly isn't the case. 

The reason is because this is a tough market. Running Mobile Ad Network over-the-top is a rather difficult game, and Operators have several tricks up their sleeves which make Mobile Ads lot more attractive, effective and acceptable, if you work with them. This is what makes lives of Startups bit difficult, than what it would be with just over-the-top MobAdNets.

Admob, was the pioneering company that gave shape to this industry. It was founded in 2006 by MBA student Omar Hamoui at Wharton, part time while he was studying. It is amazing to see that something that he started from his dorm room eventually sold to Google for $750m. 

Great article again by mobithinking and an interesting interview with founder Omar Hamoui by Fast Company, puts this deal in perspective.

Inmobi, a Bangalore start-up (2007) was formerly known as mKhoj. The mKhoj business model wasn’t working, so the founder Naveen Tewari quickly noticed in 2007 how Admob was making waves in the west. mKhoj cleverly copied Admob’s model and rebranded as Inmobi. While Admob was busy monopolizing the western world, Inmobi used the ‘reverse market strategy’ where they tested developing nations like India, Bangladesh, Far east (Indonesia, Thailand etc) and slowly took over as the leading player in Asia. They have recently (October/November 2009) entered USA and England to cash in on the huge constant increase in Smartphone use, especially iPhone and Android. 

What is there for startups?
These success stories do lead us to think that there is no scope for start-ups now, big players have already entered the industry and that we are too late. But that’s not the only point. As Founder and CEO of Inmobi, Naveen Tewari, said, “The numbers of people that need to get into mobile advertising are far more than the number of players that exist”. 

However, this isn't a nascent industry either and unless one has a tremendous differentiator, or an absolutely novel business-model, the first mover advantage isn't there, and you can only compete in offering bigger commissions or lower CPI. Some of the key factors which a start up needs to watch out for, include
  • Inspite of massive increase in inventory for advertising made possible by launch of Appstrores, there aren’t enough advertisers yet.
  • over-the-top Ad Networks are soon expected to be surpassed in terms of effectiveness and click-thru's for Operator support AdNetworks, thanks to things like DeepPacketInspection, which is becoming omnipresent quite fast especially for high growth mobile-internet markets
  • the biggest challenge in building a formidable network is in "seeding" it. That takes deep pockets, strong execution capabilities, existing traditional networks/channels and fighting off biggies isn't easy. 
The bigger players have an aggregation of thousands of publishers which may not be available with a startup but still there are 1.1million mobile sites out of which Admob’s total publisher list is around 15000 (including iPhone apps). Inmobi has around 2000. Though not all of these 1.1 million websites are high traffic ones, but then there is a big difference between 1.1m and 2000.

Here are links to some of the interesting articles I found on this topic
How can a start up compete? 
Let us start with looking at companies like Smaato who work as “Ad enablers”.

Ad enablers allow Ad Networks like Admob Inmobi etc to use their (the enablers’) inventory. Smaato for example has relationships with thousands of publishers. With a simple API, Admob, Inmobi or any start-up can have access to Smaato’s thousands of publishers. This works on a revenue share model with smaato out of the total CPC/eCPM. 

So since we have established how easy it is for an ad network start-up to get access to inventory, the only missing part of the equation is ‘advertisers’. With some of the most popular brands on your inventory list (ebuddy, bollywood mobi sites, zedge, fring etc), advertisers/brands will be so much keener to sign up and advertise with your start-up. Doesn’t all this seem too simple?! Or am I missing something? 
Of course the question is if a start-up use Smaato and have their inventory, Inmobi will have the same plus more. So why would the advertiser/brand not chooseInMobi? 

Simply because the advertiser/brand doesn’t know better. This is a very new sector. Brands will probably just try out a start-up if it seems professional and have a decent publisher list. They don’t know that Inmobi has way more. Maybe I am wrong? 

The point to note is that if people like Smaato are really filling the niches that are hitherto ignored by the existing players, then that's a perfect startup situation.

The sinker
Before I close this article I would like to share the latest news which has come from Apple and which I am sure will put lot of startups further in the back bench is the strange move by Apple. Apple have warned app developer to avoid Location based targeted Advert. It’s little strange because 
1) Many believe that Location sensitive advert is next big thing 
2) Apple them self own an Add company now 
3) Loopt do exactly same thing (via cell ID triangulation) but they were allowed to present at WWDC'08  

I wonder what caused the change of heart?  Is it because they want to have exclusivity on LBS Adverts on iPhone??

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