Five years ago in Businessweek I wrote the real threat to Google wouldn’t be Apple or Facebook, but instead the migration of consumers to mobile devices that have less “visual inventory” — physical screen space — for advertising. This threat continues, except now, newer players in mobile communications are squeezing Google, Facebook, and others by reducing the space for ads to nearly zero.
Evelyn M. Rusli reported this week in The Wall Street Journal that mobile apps such as WhatsApp, Line, WeChat and Kakao Talk are rapidly gaining on older social networks such as Facebook and Twitter due to their immediacy, simplicity, and tight integration with smartphones. In Brazil 80% of iPhone owners use WhatsApp, and in Germany the number is 87%. Facebook is trying to defend itself with its Messenger, but so far only 13% of U.S. iPhone owners use it monthly.
Such messaging apps undercut Facebook’s ad revenue — and carriers may get killed, since this web-based messaging leaps over AT&T and Verizon’s ability to extract high margins from normal phone text messages. The WSJ estimated that consumers pay about 20 cents to send a single text via carriers, but the actual cost to the carrier for that transmission is a fraction of a penny.
This pattern is part of an ongoing devolution of the visual inventory required for effective advertising interception. Think back to the newspapers of the early 1990s, filled with vast broadsheets of sellable advertising space. Every few years, another format rose that was more efficient in driving advertising response, but at the same time destroyed the prior visual inventory system:
- Newspapers (Display ads and classifieds)
- PC browser-based web (Google search + Craigslist + Facebook PPC ads)
- Tablets (smaller screens)
- Smartphones (apps with almost no ad inventory)
- Apple iWatch (coming soon — with almost no ad inventory)
- Google Glass (coming soon — with I suspect zero ad inventory)
At the SXSW tech conference this month, I ran into a guy wearing Google Glass prototype goggles in the men’s room. Two thoughts struck me: I hoped he wasn’t filming at the urinals, and I doubted a search ad was floating anywhere in his field of vision.
Television feels the same pain
Today, television advertising is still alive and well, with $70 billion spent annually on television ads in the U.S. (and another $74 billion paid in cable subscription fees). But TV is facing a similar squeeze in inventory as users move to YouTube and Hulu, where there is less patience for 40% of each hour to be used as promotional interruptions. Hulu launched successfully in part by deliberately limiting the commercial intrusions per hour. In each of its reports, Nielsen notes non-TV consumption of video is growing compared to traditional TV use. ComScore hits the threat best, showing that mobile device usage now accounts for 37% of all digital time and 10% of all daily media time. “If businesses don’t adapt,” comScore wrote in a recent breathless manifesto, “they may not live to see tomorrow.”
All of this is not to say that advertising is going away. U.S. households now have more than three TV screens on average; consumers still spend more than 4 1/2 hours each day watching giant video; advertising will always be required to support the “free” content consumers are unwilling to pay for. Consumers for instance could remove all Facebook ads if they were willing to pay 1.6 cents a day for the service (1 billion users * 1.6 cents daily would equal Facebook’s current $6 billion in ad revenue). But they won’t.
Advertising is being reset in smaller boxes. The challenge for marketers is to find out how to make advertising work in newer, tighter media formats with reduced visual inventory.
Graphic credit: ComScore Brave New Digital World