If Mobile Kills the Display Ad, Who Will Win?
By some measures, Facebook, LinkedIn, and Twitter are ABC, NBC, and CBS circa 1964. That makes Zynga ESPN in 1992.
In the past two and a half years, global mobile traffic has jumped from 1% to 10% of total Internet traffic, according to the latest excellent slideshow from Mary Meeker.
And yet, as we see here, while mobile Internet traffic is 10% of all traffic, it represents just 1% of total advertising spending. People spend more time consuming media on mobile devices than they do consuming print media, and yet print advertising spending is 25x mobile.
What's going on? Three things. One, old habits die hard, and for people of a certain generation there still a cachet associated with having a full page ad in the Sunday newspaper. Two, it takes time for advertising dollars to catch up to new forms of media consumption, so we should expect mobile advertising to gain share over time. And three, up until now the primary form of Internet advertising has been the display ad, and it's hard to display a static ad on a 3.5 inch screen size without annoying the user.
But why have we been using display ads anyway? For print media it made sense -- the form didn't allow for anything else. And in the early days of the web with dial-up modems and slower processors there was a logic to display ads that made sense. But now, with touchscreen mobile devices that allow anyone, even a 2-year-old, to manipulate and engage with their digital world? As Stephanie Miller of Digiday puts it, "The problem with display is that it's still based on the old broadcast model, not the new socially savvy, engagement model that consumers use."
So if display is stagnating, what's next?
Promotion and engagement.
We covered promotion in last week's piece (Why LinkedIn and Twitter Have Brighter Prospects Than Facebook), though, while I'm more bullish on the professional graph of LinkedIn (LNKD) and the interest graph of Twitter than the social graph of Facebook (FB), all are clear leaders in the promotion world. Promotional ads work nicely on mobile, as they fit into a Twitter timeline or a Facebook wall, and if targeted well are from brands we already know, like, trust, or may be interested in based on our connections and activity history.
What about engagement? A crude example familiar to many is an ad where you try to "kick" a soccer ball into a goal, and are then re-directed to a site where you're given a promotion. Yuck. But these have evolved and will continue to evolve. For instance, while reading that Digiday piece, in order to see the full article I had to answer a question about whether I watched a certain TV event last week, and which of two logos I found more attractive. I traded my data/feedback for content. That takes us to the company that I think has the most potential when it comes to engagement ads.
Zynga (ZNGA). Like any growth stock I'm involved in, I try to think about how the company could evolve over time, and after reading this interview with CEO Mark Pincus and this Adweek piece on Zynga ads I realized what an incredible opportunity they have.
Zynga is all about "play" and the gamification of life. What better way to engage consumers if you're an advertiser than to create a game out of your brand? Imagine you're the promoter of The Dark Knight Rises and are looking for ways of engaging potential consumers. Now imagine you create a 30-60 second Batmobile-themed game that you insert into a Zynga game, and based on your score you get virtual currency to spend on other Zynga games or a discount on a movie ticket. You work with Zynga to target young males who have a playing and paying history that matches up with the audience you're seeking. What would you pay for that? What other forms of engagement ads are possible when you're talking about an audience already engaging and spending leisure time on media? It's hard to think of any audience more attractive for engagement ads than Zynga's 65 million daily active users. And in fact, Zynga's advertising revenues grew 117% year-over-year in Q1 to $28.2 million.
What if social media companies are going to be the dominant global media platforms of the 2010's as the Internet continues to take mindshare and advertising dollars from radio, print, and possibly television? What if Facebook, LinkedIn, and Twitter are ABC, NBC, and CBS in 1964, and Zynga is ESPN in 1992?
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