DM: So Sephi, you have this theory about where the three biggest players in mobile advertising - Google, Facebook and Yahoo - stand, and what the differences are between them, so tell us more, but also, where do you draw the line. Why is Twitter not in that list, for example?
SS: Yes, there are a few other players, like Twitter as an example, but they are significantly smaller in terms of reach. This is why I focus on Google, Facebook and Yahoo. I think you can begin to analyse each company’s core strengths by looking at three things: their tagline; what is unique about their offering and why they are interesting; and their technology approach.
So if you start with the tagline, Google is the king of mobile search and the largest mobile advertising company, controlling close to 85 per cent of mobile search and 50 per cent of total mobile ad spend globally.
Facebook is the king of mobile display, but only for app promotion. So if you want to distribute your app globally, Facebook is the only player to go to. It’s by far cheaper than anyone else, it has proprietary ad formats, plus it has reach and tracking. But for anything else outside of app distribution, such as mobile search, for example, it’s very small.
DM: So for how long has this been the case?
SS: Not very long at all. If you look at Facebook’s IPO document, you will see that mobile is not a significant part of the company’s revenues, and that’s just a year ago. It shows how volatile this industry is. Today, it controls 16 per cent of the market, and that’s all happened in the last year.
As for Yahoo, they are not the king of anything, and they were not a major player in mobile until the new CEO invested $200m in hiring new people to build their mobile capabilities. What they do differently is proprietary creative ad formats. They will build proprietary ad inventory for advertisers, build content or an app around the product and sell it to the brand in the form of sponsorship, so for a haircare brand, they might build a haircare app, and then feature the company’s products within that. I think of them as the closest you get to TV in mobile advertising.
DM: OK, so tell us what’s unique about each company’s approach?
SS: For Google, it’s the reach – every single Android device built with the search bar widget gives them 1bn devices currently activated, and this figure is growing at the rate of 1.6m activations per day. So they are the de facto search engine on Android, and in addition to that, you have the mobile mobile video inventory through their ownership of YouTube.
Facebook also has reach as an attribute in common with Google, due to the very large installed base of mobile Facebook apps and usage of them. They’re not quite up to 1bn, but they are not far behind. They also have their orientation towards performance and tracking and targeting. They enable demographic targeting, for example, which Google and Yahoo don’t. And they are the only one of the three to have incorporated a mandatory tracking system; you need to install the tracking SDK so that they can monitor which clicks convert into downloads. Added to this, Facebook also has the native ad format, which makes users more predisposed to clicking on the ads.
For Yahoo, their unique asset is their native ad format, the way they build customised ads, where the ad is built into the content, so the user doesn’t really see it as an ad.
DM: OK, so what about the tech?
SS: Let’s assume you have a chart with two axes. On the y (vertical) axis you have performance-based advertising at the top and impression-based at the bottom. On the x (horizontal) axis, on the far left you have manual media buying, and on the far right, you have programmatic buying.
Google sits bang in the middle of both axes. Below and to the left of Google is Yahoo, with its much more manual processes and greater orientation towards the impression model. Facebook, with a lot of programmatic buying, is above and to the right of Google. We see the industry converging into two trends: transparency and performance. Transparency is the bottom right, performance is upper right.
DM: But isn’t everything shifting to the programmatic side of the x axis?
SS: It is, yes, we will see a lot more movement into the upper and lower right corners.
DM: So just going back to Facebook, there are a lot of ad networks playing in the app promotion space; given Facebook’s dominance, should they just turn out the lights and find something else to do?
SS: No I don’t think so. The market is huge, so there is room for other players. Facebook didn’t take market share from other companies, it created its own market. I think Facebook’s success shows that a massive opportunity exists in the market for new players to come in and take a large chunk of the market. In a market where there’s no room for new players, that’s when it’s time to move on.
DM: You mentioned earlier that Google now captures close to 85 per cent of mobile search volume. That figure was once over 90 per cent. Yahoo has 11 per cent and Bing has just under 5 per cent. Should Google be worried?
SS: I don’t think so. I think what we’re seeing is the initial reaction to Yahoo filling in a vacuum. It had a lot of inventory, but its users were not being managed correctly and it wasn’t being sold. The new CEO took the inventory that wasn’t being sold and started to sell it. Yahoo’s focus is elsewhere, I don’t think Google is in any immediate danger.
Keep an eye on Google though. They recently changed their publishing guidelines, and they are moving more towards the Apple model of allowing less flexibility to app developers to change the user experience. I think there is more of that to come. At present, app developers are able to put an SDK into their app so that when a user opens the app, Chrome is replaced by something else as the default browser. But I think Google is going to change this, with new guidelines that will further inhibit the entry of other players into this market, by putting restrictions on changing the default browser, in an “Apple-like” manner.
DM: And back to Yahoo. How are they looking, in your opinion, because there was a moment, perhaps five years ago, where they looked like they were going to be a big player in mobile and then, it all seemed to die a death.
SS: They are still a big player, not just in the US, but in Japan as well. They own a lot of media and they have a lot of users committed to their services. Some products have done well. Yell finance is good, and YahooMail for tablets has increased the number of daily active users by 120 per cent. So they are doing a good job, but they are not showing same sort of growth as someone like Facebook.
DM: And right at the start of the conversation, you mentioned smaller players. Are there any of those we should keep a particularly keen eye on?
SS: Here I have to defer to one of my favourite management gurus, Peter Drucker, who said that the most dangerous competitor is the one you can’t see. The biggest players in mobile, the next Facebook, we are not currently aware of them, and there is plenty of room for them to emerge, because there are a few areas that are still completely untapped.
DM: Such as?
SS: Location is the obvious one. No major player has yet to address this in a satisfactory manner. But Twitter, Tumblr etc, it’s just my opinion, but I’m less excited about what these guys are doing thqn I am about what Facebook is doing in performance or Google is doing in wearable devices; that’s much more exciting to me.
I have an opinion about smartphones which a lot of people don’t agree with, but I think that in five – seven years’ time, they will have disappeared. I find the smartphone a cumbersome device; it’s a jack of all trades and a master of none. It’s not a good browser; it’s not good for gaming, or for talking. It’s not really good for anything, and I think it will be replaced by vertical, specialized devices, one for browsing, one for talking, and other wearables that all specialize in doing one thing very well.
DM: If you’d said that each of the 20 things a smartphone can do would be replaced by separate ‘point’ solution devices, I would say that’s mad, but if each one is wearable, then maybe you’re on to something.
SS: I like to use visual correction technology as a parallel. We started out with the telescope, this huge thing. Then we went to binoculars, and from there to spectacles, then to contact lenses, and then laser surgery to correct your eyesight, at which point the tech has disappeared and it’s just part of your daily life. In mobile terms, we’re at the spectacles stage.
DM: So just before the midwife hands the baby over, she asks which network you’re on and where you’d like the micro-SIM inserted?
SS: That’s a pretty Orwellian view of things, but in the meantime, I would urge anyone who gets the chance to experience Google Glass. The moment you put it on and the internet is always 3ft in front of you, and it’s able to track your emotional response to what your retina is seeing, you see what the future might look like, and personally, I like it.
Sephi Shapira is founder and CEO of MassiveImpact