John Shinal's Tech InvestorWhere the fat mobile margins are
6/16/12 6/16/2012 (MarketWatch)
SAN FRANCISCO (MarketWatch) -- If you're wondering what
One set of data in the document -- the latest monthly version of the "State of Mobile" report, put together by mobile-ad provider
Some types of mobile content generate more-lucrative advertising rates than others, so garnering more of it should yield higher ad margins for Facebook (FB) and other Internet companies such as
Conversely, if those companies see a large percentage of their mobile traffic coming to view less-attractive content, the ongoing transition from desktop use to mobile use will yield less revenue per user and a lower profit margin.
For example, ads that are placed alongside weather- or education-related content or mobile apps consistently have had the highest average CPM (cost per 1,000 impressions) rates so far this year. In May, education-related mobile content garnered a CPM rate of 92 cents, while weather-related ads had a CPM of 89 cents.
On the other hand, ads paired with sports-, finance- or business-related content had the lowest CPMs in May, with average rates of 62 cents, 61 cents and 58 cents, respectively.
To be sure, there's an important caveat to interpreting the data. Most importantly, the mobile-advertising industry is still in its infancy, so the numbers can swing wildly from month to month.
The CPM rate for the games category, for example, rose to 75 cents in May, a rise of nearly 50% from its rate of 51 cents in March. While that rise should cheer those who are bullish on Zynga's prospects, the volatility of the number also shows why Wall Street is having a hard time figuring out how to value these new companies.
Even so, education and weather have shown to have staying power. Those two types of content -- known as verticals in online-marketing circles -- also topped the mobile list in March, with weather-related ads earning an average CPM of $1.24, while the education vertical garnered a rate of $1.17.
This suggests that mobile platforms with large amounts of education and weather content will support higher profit margins.
Low-budget, but gaining
Overall, mobile advertising isn't nearly as lucrative as ads served onto desktop platforms. In March, for example, desktop advertising earned an average CPM of $3.50, five times the average mobile CPM of 75 cents, according to that month's report.
This is one reason investors grew more skeptical of Facebook's prospects after its amended IPO filing showed a growing number of its users were coming via its mobile platform.
Facebook's first-quarter financial report bears out that trend. While its ad revenue surged 37% year over year, its average revenue per user fell 1% as its number of mobile users skyrocketed 69%.
Yet the growing mobile trend is affecting older Internet companies as well.
The best news in the latest version of the "State of Mobile" report, which was released June 12, is that marketers are offering more expensive products and services for mobile users, and that consumers are getting more comfortable using mobile devices to spend.
The size of the average mobile transaction on the Velti platform rose 9% in May to $3.22, compared with three months earlier, the report said. The most frequently purchased items include in-game currency, donations and software downloads.
So if you're trying to figure what the raft of newly public Internet names are worth, keep an eye on CPM trends for different verticals. Those figures can give you an idea which types of content will support higher advertising margins -- and which may become commoditized most quickly.
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