'Tough year ahead' for mobile ad platforms

Chinese mobile advertising platforms are set to face cutthroat competition in the coming year, before the market enters an "explosive growth" phase in 2015, according to industry insiders.

Global advertisers will spend at least $2.2 billion in the world's largest smartphone market by that year, which will represent a surge of 70 percent year-on-year, said industry research company eMarketer Inc.

China's mobile ad market is estimated to reach $722 million in this year.

"The growth of the advertising industry usually lags behind hardware adoptions by a bit," said Robert Woolfrey, Southeast Asia managing director of Millennial Media, one of the world's top three mobile ad agencies.

Although the nation's mobile ad market is on track to catch up with world leaders such as Japan and South Korea over the next two years, Woolfrey warned that early movers may fail to make a profit because of increasing competition, low demand and unstable Internet connections.

Japanese and South Korean ad agencies have been handling this kind of business for long enough to have developed many choices for advertisers, but Chinese platforms are not focused enough, said Woolfrey, and smaller platforms will find it hard to survive.

"Companies such as Baidu Inc and Tencent Holdings Ltd are already starting to look at mobile, and look at it in a big way," he said, adding that platforms with heavier traffic are better-placed to succeed.

Most Chinese advertisers are hesitant to put their money into the mobile segment. The diverse user population makes China a difficult market, he said.

Although China's smartphone market has grown rapidly for years, the advertising segment is just picking up speed.

Woolfrey said that there's a fast-emerging opportunity hidden in the vast smartphone population.

As of June, 464 million Chinese were using mobile phones to access the Internet, according to the China Internet Network Information Center.

United States-based industry consultancy IDC has estimated that China's smartphone population will grow by 450 million next year. Most of those gadgets will have Web access and offer online ads.

Tan Guangzhu, a researcher at CNNIC, said local platforms have yet to develop a mature business model. "With the smartphone penetration rate continuing to grow, mobile devices will prove to be a golden advertising vehicle," said Tan.

Researchers also suggest advertising platforms should devote more energy to exploring demand from more vertical industries, which would boost their profits in the long run.

Current big spenders in the sector are telecom operators and handset makers, said Woolfrey, adding that vehicle manufacturers and finance institutes are spending more.

Many more vertical industries will be willing to advertise on mobile devices because videos and rich media Web pages will give audiences a more comprehensive way of understanding a product, he said.

Ads on smartphones in the future will be colorful, rich and watched repeatedly, he added.

Message-based ads, which are going out of fashion, contribute more than half of agencies' revenues.

"Given the size of the addressable market, the engagement of the audience,and the widespread availability of speedy mobile connections, it is no surprise that advertisers have finally had to step up," said eMarketer.