Barry Lowenthal is president of The Media Kitchen. Follow him at @barrylowenthal
Recently, I spent a few days on the West Coast visiting some VCs, tech companies that look like media companies, and startups. I spent an amazing day at Y Combinator’s Demo Day, which is always a highlight and really inspiring. It’s fantastic to watch people who truly believe they have a business that will change the world present their ideas. I’m also sure that some of those businesses will go on to truly make a difference.
Many of the businesses we met have a mobile core. A lot of them make apps providing a subscription service, some manage and analyze big data, and others are designed to improve our health care system. The hitch? None of them rely on advertising to generate revenue. A few years ago, before the rise of mobile, every new startup had a line item on its business plan that assumed some advertising revenue.
I found this contrast a little startling and a little scary. My colleagues cautioned me not to read too much into this. They said that the startups we were meeting with were all early stage and focused more on the product than on revenue. But I don’t think that’s entirely true. I’m actually impressed that most of the mobile-oriented startups I’m seeing today — in Silicon Valley and New York — do have a plan for revenue. Usually, it’s subscription or some other fee for service. And usually there’s little to no assumption of advertising as a revenue stream.
The startups I spoke with believe there are better ways to make money in mobile than advertising. I think this is very telling and worrisome for all the people reading this piece: Advertising on mobile devices is still broken. Most of the non-search budgets are going to display and everyone wonders whether tiny little banners at the bottom or top of the screen work. Search is the killer revenue driver and is locked up by the same companies that dominate desktop search. Targeting and geo-location tools are advancing rapidly, but they’re being used to make poor creative units work a little better instead of re-shaping the whole mobile experience.
Facebook and Twitter are doing a great job serving native ads on mobile devices and have shown us that native on mobile is a requirement. But how many more companies have been able to create native mobile experiences? A number of companies — like Tinder, Jelly and Spotify — are experimenting with the card design format (thanks to kbs+ Ventures director Taylor Davidson for pointing this out in his blog). But too many seem to still rely on the 300 x 50, and there still seems to be fundamental infrastructure problems.
Reliable cross-device audience attribution is nearly impossible without first party data (e.g. log in info) and creative experiences are mostly horrible. The medium that most of us spend most of our time with is not an ideal way to engage customers outside of brand-owned apps.
Startups are creating mobile businesses because we’ve become a mobile society, but advertising is being left behind. As an industry, we don’t seem to be working fast enough to fix these issues, and we don’t seem entirely worried. Looking back on the rise of agencies, it seems like our growth has been connected to the rise of new mediums and media innovation. As the fortunes of TV went, so did our fortunes. As we applied innovation to the media-buying marketplace, we grew and our companies became more valuable. But what happens when the new medium isn’t advertising-friendly and the people who are innovating in the medium aren’t trying to make the medium work for advertising?
I love this business, and I believe that some of the smartest and most innovative people work in this business. But I’m a little worried that we’re not moving fast enough to create meaningful mobile advertising experiences and we’re not trying to solve the attribution and measurement challenges fast enough.
On our tour of Silicon Valley, we met with a brilliant guy at Twitter. He said something like, “Mobile is hitting the nuclear reset button.” He’s right.