2017 was a year of transformational change for the mobile advertising industry: The Duopoloy reached a level of combined marketshare that raises real questions of market robustness; Snap went public and spent the year serving as a cautionary tale around competing against Facebook; streaming video presented a real challenge to gaming for the title of mobile’s cash cow, resulting in the thawing of the Top Grossing chart; Google subsumed all of its advertising formats into its UAC system, shifting advertising activity on its platform to event-oriented bid types; and Apple released the iPhone X at a price point of $1000, increasing the ceiling on the high-end segment of its device ecosystem while leaving the floor (iPhone 5S / 6) in place. All of these developments seem like evidence of a shift toward a content ecosystem that looks more like the world of television than the erstwhile free-for-all of the 2012-2014 app economy. And how will this play out in 2018? Imputing the above into trends and extrapolating them forward produces four predictions:
The continued consolidation of bidding types around value optimization
It makes eminent sense that Google and Facebook (with its App Event Optimization and Value Optimization bidding types) would want to shepherd advertisers toward event-based bidding: that type of bidding strategy allows the companies to capture ever more data within the dynamic between targeting and monetization, creating a virtuous cycle of data ownership that increases channel switching costs.
And so, by logical extension, it makes sense for other advertising channels to employ the same tactic: to invest into the algorithmic infrastructure that allows them to offer event-based bid strategies to advertisers. Many advertising networks already offer this, and I’d expect that those that don’t will launch some form of event-based bidding in 2018.
This is probably a positive development for most advertisers, but as I wrote in this article, “high quality at low volumes” isn’t really something that should appeal to most mobile marketers. Advertising networks needs to be able to offer both volume and quality to advertisers in order to differentiate themselves, and event-based ad serving optimization generally works against this unless a network lords over a massive inventory of impressions (as Google and Facebook do). So the race to universal event- and value-based optimization could, ironically, hasten the demise of some of the advertising networks in the lower tiers of the industry hierarchy.
The Duopoly generates even more market concentration and invites scrutiny from governments
As noted, Google and Facebook have uniquely valuable ownership of the data that makes “hands free” advertising on mobile possible. In 2016, the two companies captured 89% of all growth in the industry, leaving just 11% for everyone else:
And although Amazon is probably best positioned to become the #3 advertising platform on mobile, the “everyone else” bucket appears to be a pluralistic dog fight:
This market reality is great for Facebook and Google, but, increasingly, questions are being raised about the level of responsibility these companies should take in preventing their platforms from being abused by bad actors. The more ownership of the advertising market that Google and Facebook take, the more pressure may be placed on governments around the world to ensure that the companies police their networks properly. An important, open question for 2018 is whether Facebook and Google can pre-empt punitive regulation of their advertising platforms by preventing abuse, propaganda dissemination, or discrimination; this is a more incommodious proposition than it may seem, as it involves, essentially, applying ethics to advertising algorithms. As Facebook and Google continue to succeed in growing their advertising market share, they’ll increasingly have to grapple with the government scrutiny that such success invites.
The explosion of streaming video on mobile expands the market for advertising and draws new participants
The growth of streaming video on mobile was the transcendent advertising story of 2017, and it has produced incredible knock-on effects for industries across the entertainment ecosystem.
One effect of the rise of streaming video on mobile has been, predictably, the growth of video advertising on mobile. This dynamic has created new categories of apps and new ad formats for the developers that produce them: whereas advertising in non-gaming apps had previously been seen as clunky and intrusive, many developers are now able to place video advertising in their apps in a way that they and their users can feel comfortable with. This has made it possible for advertisers that may have viewed mobile as an ecosystem by and for games to take a second look.
The end of net neutrality in the US splinters mobile into a number of different advertising marketplaces
One of the more unfortunate developments of 2017 was the recent vote by the FCC to end net neutrality in the United States. This means that internet providers no longer have to adhere to the rules, instituted in 2015, that prevent them from discriminating against any type of traffic. In countries where net neutrality doesn’t exist, internet providers are able to create “fast tracks” for certain types of internet traffic, and on mobile this means excluding certain apps from data caps on specific plans (eg. in Guatemala, certain mobile plans provide for unlimited usage of WhatsApp, outside of the data limits on those plans).
The impact of this on advertising, especially given the point above, is fairly obvious: since consuming video is relatively data-intensive, the apps that manage to buy their way into fast-lane access will have an advantage in selling video advertising over the apps that can’t. This could fragment advertising markets: if Facebook is fast-laned on mobile carriers, for example, then it will have an easier time recruiting advertisers than other app developers.
It’s likely that many mobile carriers will want to bundle the largest and most widely-used apps together, but some mobile carriers might offer curated app bundles at lower price points to appeal to specific demographics (eg. an Instagram / Snapchat package for teens). While this isn’t good for anyone except carriers, it might create opportunities for some developers and advertisers to reach audiences in segmented markets in a way that didn’t exist previously, and it’s something that will need to be accommodated in 2018.
(One important caveat to all of this: the FCC’s vote will likely be challenged in court, and net neutrality rules may ultimately be decided by the US congress, so it’s premature to declare net neutrality dead.)