VC Roundtable: The Future of Mobile Advertising

It’s spring, which means it’s time for the CTIA Wireless conference, which bills itself as the largest trade show for the wireless industry.

CTIA, which kicked off yesterday in Las Vegas and lasts through tomorrow, comes at a time when mobile advertising sales worldwide reached $530 million last year and is expected to jump to $13.5 billion by 2013, according to Gartner.

With CTIA Wireless in full swing, I resorted to an electronic roundtable format and asked seven VCs what they think is hot in the mobile advertising sector. I edited their comments here for clarity, by the way.

Scott Johnston, venture partner Alloy Ventures:

As mobile phone markets continue their torrid growth and consumers spend more and more time with these devices, we anticipate innovation in and around the call experience.

While smart phone-based mobile Web apps rightly receive a lot of attention, we’re seeing a number of companies working to integrate advertising into the call experience, because the “killer app” for mobile phones is still making phone calls.

Apptera [which is backed by Alloy and others] is one example of a company delivering this kind of capability. Their Voice & Visual Mobile Advertising Network serves voice ads to callers and enhances those calls with interactive visual engagements. Callers can opt-in to voice ads and have special offers such as coupons and promotional codes, videos, even maps and directions sent directly to their mobile device.

This in-call placement captures 100% of the consumer’s attention and, when combined with Apptera’s content and behavioral targeting, results in engagement rates superior to other forms of advertising.

John Chadwick, managing director of Claritas Capital:

One of the hottest trends I’ve seen is in mobile couponing. Mobile advertising is securing a premium due to its interactivity, personalization and on-the-go features, but it looks like mobile coupon transactions are poised for one of the largest jumps.

Analysts predict that the number of mobile coupons redeemed in North America is set to increase more than 10 times in 2010. And, about $2.37 billion worth of mobile coupon transactions will take place in North America in 2013, up from just $5 million this year. The mobile channel is also a natural fit for hyper local advertising and direct response advertising.

One innovator to watch in this space is edo Interactive [backed by First Avenue Partners and Clayton Associates] and which is using SMS and smart phone applications to alert consumers that discounts have been loaded to their credit or debit cards. Edo’s platform requires no technology integration for retailers since the discount is automatically applied when consumers use their payment cards for a purchase.

Solutions like edo’s do not involve a significant change in behavior by either consumers or merchants, and early campaigns are showing up to a 12% redemption rate, which is more than 20 times the redemption rate of traditional coupons.

Ben Holmes, partner of Index Ventures:

With the advent of more fully featured smart phones, particularly the iPhone, there is now a substantial inventory against which to serve advertising. However, if you look at what mobile advertising is being served today, much of it relates to other mobile products and services, such as games and ring tones. Search and other performance advertising will only take off more broadly when other categories of product start to be transacted on the mobile.

So in a sense, we need to see further growth of mobile ecommerce before mobile advertising can move to the next stage. When it does, coupons and location-based promotions will be a substantial part of the mix. The mobile platform can provide advertisers with opportunities they don’t have on the PC-based Internet.

David Thacker, associate partner of Greylock Partners:

To date, mobile advertising has been dominated by mobile search ads and by mobile display advertising.

However, one emerging opportunity we see is in advertising tied to location-based social networking services, such as Gowalla and FourSquare [Greylock is an investor in Gowalla]. “Checking-in” to businesses and locations using mobile devices provides an opportunity to show users highly relevant, targeted mobile ads. For instance, at the recent SXSW conference Gowalla teamed up with several brands in which digital items on Gowalla could be redeemed for real world rewards.

For example Gowalla partnered with a local taco truck near the convention center and Gowalla users could find a digital taco which could be redeemed for a real taco. In another promotion with Chevrolet, Gowalla users checking in upon arriving at the Austin airport could win a free ride downtown in a Chevy sports car.

Ajay Chopra, general partner of Trinity Ventures:

Mobile advertising will grow, although I do not believe we’ll reach the $13.5 billion number that Gartner predicts by 2013. Search will lead the way, followed by location-based advertising and then direct response oriented display advertising, in that order.

Without a doubt, location-based local advertising will be the biggest opportunity area for startups in the next few years.

Mobile browsers that bring the entire PC Web experience to the phone, such as [Trinity-backed] Skyfire will make mobile searches more natural and efficient. FourSquare and other location-based services are perfect vehicles for targeted local ads.

Satya Patel, principal of Battery Ventures:

Mobile advertising has a great deal of promise. But in talking to the major ad agencies, video advertising and social media advertising are of much greater importance this year. Mobile advertising will continue to attract test budgets, but it won’t be a line item in ad budgets until next year, at the earliest.

Mobile advertising still faces the challenges of scale, consumer acceptance and ad effectiveness. But these challenges also represent the greatest opportunities in the coming year. New targeting technologies, ad formats/models and ad effectiveness measurement approaches that leverage the things that are inherently unique to mobile, specifically the location and the form factor, will get plenty of interest.

I wouldn’t want to be just another mobile ad network or mobile ad serving technology without proprietary targeting data and technology or without proprietary inventory, and even those things may not be enough to stave off the inevitable crush from Google and Apple.

Scott Raney, partner of Redpoint Ventures:

For some time it has always seemed that we were a year away from the “year of mobile advertising.” Last year marked a turning point as advertisers moved into mobile in a committed way. The advertiser base grew beyond mobile content providers to include early adoption by brands. This growth was in large part due to the explosion of the mobile Internet driven by the proliferation of smart phones and 3G network adoption, and it is becoming readily apparent that it has established itself as a significant part of the media landscape.

It is growing faster than the traditional Internet, and the number of users accessing the Internet from mobile devices will surpass that from PCs within the next few years. Clearly there is considerable optimism regarding its potential, and we are experiencing the growth firsthand through our investment in Jumptap.

We expect 2010 will be a very big year for the industry as brand advertisers looking for targeted engagement move into the market in a significant way.