Mobile advertising has grown faster than any other medium in the last four years and is now a significant proportion of online advertising revenue. Initially, it struggled to match the success of mobile app usage and consumer spending.
Early mobile advertising formats such as banners have been borrowed from other online media rather than built to best exploit the very different mobile medium. While older formats may have been relatively easy to implement at scale, they have not been built to address the challenges and take advantage of the opportunities that mobile provides.
Third party in-app native will continue to grow, at an annual average rate of 70.7%
While first party in-app native will continue to be the largest revenue driver, third party in-app native will continue to grow, at an annual average rate of 70.7% and will account for 10.6% of all mobile display advertising at $8.9bn by 2020. However, the paths to adoption of native advertising vary for different types of mobile publishers. A flexible approach which puts the user experience at the heart of the advertising strategy is crucial for the success of native.
Since Apple launched its App Store in mid-2008, global smartphone and tablet application stores have served more than 500 billion app downloads. Over 95% of these app downloads are free and monetised either through advertising, in-app purchases or a combination of the two. By the end of 2015 there were 3.3bn smartphones in use globally, and in the most advanced markets in Western Europe, North America, and mature Asian markets there were more than 85 smartphones in use per 100 people.
There is still room for growth; the global smartphone installed base will pass 5.0bn in 2018. This growth presents opportunities for both app store revenues from in-app purchases and also in-app mobile advertising. Many of these markets will be mobile first in consumer adoption of online services and so mobile advertising will be the dominant online advertising channel.
Spending on mobile apps has grown from $9.0bn in 2012 to $40.0bn in 2015
In 2015 there are more than 53 app downloads per active smartphone and total consumer spending on mobile apps has grown from $9.0bn in 2012 to $40.0bn in 2015. The rise of in- app mobile commerce, enabled by new mobile wallets and payment solutions has created new opportunities for both app developers and advertisers as mobile takes an increasing share of content, advertising and commerce.
As traffic shifts to the mobile, online and mobile budgets are coming not just from mobile-only advertisers, but increasingly also from larger brands. Advertisers particularly in the telecoms, finance and travel sites categories are increasingly moving their ad spend to mobile and expecting novel, native formats to deliver their brand messages.
Mobile advertising innovation and advancements have traditionally come from the sell-side of the advertising ecosystem. For example, mobile programmatic was developed by mobile publishers, learning from the desktop-world to optimise yields. Similarly, native advertising has been primarily a publisher-led initiative. However, advertisers are increasingly savvy about online and mobile advertising and creating digital teams with mobile experts.
Walmart, Target and Netflix now have in-house digital and mobile advertising teams
Companies like Walmart, Target and Netflix now have in-house digital and mobile advertising teams, who although they still work with advertising agencies on their media plans, are making more decisions themselves on which companies to partner with and what formats best address their audiences. As large brands become more savvy, mobile app developers and publishers will have to adapt their offerings and have the capabilities to serve these advertisers.
Mobile advertising has grown stronger than any other medium in the last four years and is now a significant proportion of online advertising revenue. In 2015, global mobile advertising grew 71.0% from the previous year and accounted for 44.6% of all online advertising revenue. We forecast that mobile advertising will increase 42.3% in 2016 and for the first time generate more than half of all online advertising revenue (at 54.8%). By 2020, over three quarters of all online display advertising revenue will come from mobile and amount to $84.5bn.
Related: 5 Pitfalls with Programmatic Native
Native advertising generated $14.1bn in 2015 and accounted for 51.8% of all mobile display advertising. By 2020, native will amount to $53.4bn and 63.2% of all mobile display advertising. This is primarily driven by in-app native advertising, which recorded revenues of $13.6bn in 2015. It is also important to note that the growth of native is also linked with the fast rise of Facebook in-stream ads.
North America is currently the most advanced market for in-app native advertising at $7.5bn in 2015. The majority of third party in-app native advertising is currently sold in the US with 68.3% of global third party in-app native advertising revenue generated in North America. North American mobile already accounts for 43.0% of all North American display advertising and this figure will reach an 83.6% share in 2020.
App developers and publishers in North America were the first to extend their ad formats beyond the traditional banner and are leading the efforts to improve the mobile advertising experience and increase native advertising. IHS forecasts that North American in-app native advertising will amount to $23.8bn by 2020, of which $3.9bn will be third party in-app native advertising, accounting for 11.3% of all mobile display.
After the US, the most advanced native advertising markets are the UK and Germany
After the US, the most advanced native advertising markets are the UK and Germany, followed by other Western European countries. Europe has lagged slightly behind North America in moving into native advertising generating $3.6bn in native advertising in 2015, of which $172.0m was in a third-party environment. Mobile accounted for 35.2% of online display advertising in 2015 and will not take a majority share until 2017 (54.1%).
A smaller available pot of mobile ad revenue will translate into a lesser incentive for European app developers to test out new formats and mechanisms for mobile monetisation. Europe prefers to let its Western and Eastern neighbours innovate first and then benefit from a second-mover advantage. It is thus no surprise that many European mobile publishers partner with North American or Asian companies to deploy native advertising. The challenge with this scenario is that often the North American and Asian companies do not understand the cultural and structural specificities of each European market. IHS forecasts that third party in-app native advertising will amount to $1.3bn by 2020 and 9.4% of all mobile display advertising in Europe.
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