Gusher of Mobile Ad Inventory Finds Few Buyers

The issue of inventory oversupply continues to frustrate online publishers, but the problem is even more pronounced in mobile thanks to the medium’s rapidly growing audience.

Many signs point to similar dynamics at play in mobile. The proliferation of smartphone devices is causing an explosion of inventory. But marketers’ mobile budgets aren’t keeping pace, driving prices down and forcing publishers and developers to rely on networks and exchanges to shift their ads. Speaking at Digiday’s mobile conference in New York last month, for example, Erin Wilson, DataXu’s director of mobile, estimated an average of 87 percent of mobile inventory goes unsold by its publishers’ clients’ direct-sales teams.

Even networks are struggling to fill impressions. According to data from mobile ad-yield-optimization firm Smaato, the average fill rate across the top 40 mobile ad networks was just 18 percent in the second quarter. What’s more, that figure represents a 2 percent decline from the previous quarter and a 3 percent decline year over year. The supply-demand imbalance isn’t getting better; it’s getting worse.

“The market is under threat of commoditization as inventory increases at a faster rate than budgets,” said Smaato CMO Harald Neidhardt. “There’s just too much inventory up for grabs. We will absolutely see more ad dollars coming to mobile and the average campaign size increase, but this will be across a much wider range of inventory which will in turn drive costs down.”

Even agencies recognize the difficulties publishers face, but with so much inventory on offer they’re at liberty to shop around for the cheapest opportunities. “The acceleration of mobile usage has created so much inventory that the deals are getting better and better,” said David Berkowitz, VP of emerging media at 360i. Patrick Moorhead, group management director for mobile platforms at Draftfcb described similar experiences, stating, “There’s been this inventory stockpile where there’s too much inventory and just not enough people to buy it.”

Despite that fact, “premium” mobile destinations appear to be faring better, maintaining CPMs by shunning networks and selling exclusively through direct channels. The Weather Channel, for example, currently employs a mobile-specific sales staff of six and says mobile remains the fastest growing part of its business.

“We’ve been fighting networks at rock bottom since we started,” said Pete Chelala, the company’s mobile specialist. “It’s easy for a client to dump budget on a network buy, but for us we continue to hold the line on quality. We wouldn’t do it if we didn’t believe it worked.”

Chelala suggested pricing will begin to stabilize as the market matures and investment picks up. “It’s hard for clients to make a quick change and just start putting money in mobile. … The toughest part for them is to find out where budget is coming from,” he said.

Despite The Weather Channel’s bullish outlook, however, other premium ad providers are still struggling to shift inventory. Apple’s iAd product, which promised to revolutionize the mobile ad experience, has struggled to gain market traction, thanks largely to such competitive pricing form rival networks. “There’s so many third-party providers offering 98.5 percent of what you get from iAd, and with a completely flexible approach to media buying,” Moorhead said, adding that none of the agencies’ clients have expressed much interest in the product.

Ultimately, though, the pricing pressure mobile currently faces appears largely a result of market immaturity. The audience has arrived, but marketers just aren’t there yet. People aren’t likely to spend less time with mobile in the future. Marketers will catch up, but only if the mobile industry makes more headway solving things that give advertisers pause, like the rudimentary targeting, uncertain metrics and limited creative palette.

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