Why Mobile Video Advertising Is Set To Explode

Editor’s note: Yoni Argaman is the vice president of marketing and business strategy at Inneractive

Mobile video has been growing steadily for years but it is now close to justifying the hype that it generated throughout the years. Mobile video ad spend in the U.S. more than doubled from 2013 ($720 million) to 2014 ($1.5 billion) and will reach $6 billion in 2018, representing about half of the total online video ad spend.

The growth in mobile devices, broadband coverage and 4G services, device screen size and video consumption on mobile devices are the first obvious drivers. Other, less obvious drivers relate to the way users consume video on mobile. More and more of users’ time on mobile is spent in applications (86 percent of users’ time in mobile in 2014).

Since in-app video inventory is usually more engaging and can be coupled with more data, it is usually valued higher than mobile web video inventory. More users are watching video on tablets than on smartphones, which is another contributor to the bottom line since we are seeing that tablet video ad inventory is usually 30-50 percent more expensive than smartphone video inventory.

Another interesting driver is the democratization of video production and distribution. Some of the most beautiful, professionally produced videos I have seen lately were created with smartphone video cameras. Talented individuals are creating niche category mobile video hubs, “unbundling” YouTube and other large, more general video hubs. Mobile sharing is easy and intuitive and has immediate, powerful distribution potential across multiple, viral channels.

This significantly increases the rate of growth of video “inventory” – potential ad slots for the more expensive video ad units – pre/mid/post-rolls. I say “potential” because most user-generated content is not ripe for ad monetization. Video ads are usually a brand awareness play and the big brands behind the ads prefer to have their brand associated with premium content.

The democratization trend does produce a lot more cat-walking-on-piano videos, but it also generates more professionally produced video content, at scale, contributing more inventory that is relevant for pre/mid/post-roll demand.

Multi-channel networks such as Maker Studios (acquired by Disney) and Fullscreen also assist in the production and distribution of quality video content for brands. As these entities seek to branch out of YouTube, they also look to significantly increase their mobile footprint. Competing new environments, like the up-and-coming Vessel platform, are built primarily for smartphones and tablets. In time, these tectonic shifts will translate into a spiked surge in mobile video inventory.

Large, classic publishers such as Yahoo and AOL also understand the potential of video and are investing significantly in producing, partnering and syndicating video content (Yahoo’s Brightroll acquisition and various video content partnerships) and building video infrastructure (AOL’s acquisition of Adap.TV, Facebook’ acquisition of LiveRail and RTL’s investment in SpotXchange). They also understand that users’ attention is shifting to mobile, especially to applications. However, while their traffic shifts from desktop to mobile – it mostly shifts to mobile web, and apps still account for a small portion of their mobile inventory.

And so publishers are trying to compete on users’ attention by reimagining themselves in mobile environments. This will no doubt be including a mobile-specific video consumption experience. Better mobile-specific content and environment, along with first-party data that these large publishers can apply for targeting in their properties and beyond will contribute to increasing CPM rates.

Facebook and Twitter are already there, at least in terms of in-app user experience and native display ad monetization. Video advertising is definitely next. Social and communication apps such as Snapchat and Tango are generating tons of video content and have figured out creative, relatively user-friendly ways to monetize it.

Increased standardization around this medium, better measurement capabilities (mostly around completion rates and viewable impressions but also TV-specific metrics such as GRP that provide a familiar benchmark for TV buyers) and increased targeting capabilities beyond device ID and lat/long (and with more video inventory, more refined targeting executions will be possible at scale) will go a long way in helping brands and agencies identify the right KPIs and quantify value. These understandings will lead them to allocate more dollars to a standalone mobile video budget item.

More sophisticated, video-specific pricing models will make it even easier for advertisers to not only better calculate their ROI but also shift the risk to the publisher side, making them even more open to this medium. Cost per thousand views (CPMV) will enable brands to only pay if their video ad was actually viewed by a user. Cost per Completed View (CPCV) takes it even further in minimizing the risk for advertisers who are only required to pay for an ad that was viewed in its entirety by a user.

Views and especially completion rates are arguably indicators of engagement, but they are not easy to implement and require some market education. However, based on what we are seeing, these metrics and related pricing models assist to allay concerns among advertisers still new to the mobile video medium and, in my mind, will become the norm in the not-so-distant future.

Finally, the way mobile video ads are sold also affects the evolution of this medium. Online video is still mostly sold through direct channels, as publishers prefer to secure the high CPM rates that they can command for such premium, in-demand inventory.

The largest brands and agencies work with video exchanges, but these marketplaces are considered less premium channels. Publishers are concerned about Real-Time Bidding (RTB)-based buying triggering a race to the bottom, resulting in low prices and sales-channel conflicts. This is especially true for mobile video, leading to a reality in which mobile video exchanges are having a difficult time getting their hands on premium inventory.

This will still be the case this year. However, with the development of more premium programmatic platforms such as private marketplaces (a private, more premium version of the current open exchange model) and programmatic direct (the automation of the current direct sale process), we are seeing that publishers are feeling more comfortable directing more of their premium ad inventory, including video, into those automated platforms. This change of perception is key to unlocking the true potential of online video in general and mobile video in particular.

The combination of increase in (premium) inventory, higher prices, clear KPIs for advertisers and publishers and the rise of more efficient, automated marketplaces to facilitate trade is guaranteed to take mobile video advertising to the next level.