According to the Interactive Advertising Bureau (IAB), mobile advertising revenue soared in the first half of the year. What the association did not mention is that marketers usually pay so little for these ads that their increase almost certainly undermines the online ad industry’s profitability, and the problem will get worse.

The IAB’s new analysis shows that:

Mobile revenues soared to $3 billion in the first half of 2013, representing triple-digit growth at 145 percent, from $1.2 billion in the same period last year

Randall Rothenberg, IAB’s president and CEO, said:

Mobile advertising’s breakneck growth is evidence that marketers are recognizing the tremendous power of smaller screens.

However, $3 billion spent on mobile ads is not equivalent to $3 billion spent on other online marketing initiatives.

Earlier this year a study by research house Fiksu titled the “Fiksu Mobile App Marketing Platform” pointed out that:

Mobile CPM (cost per thousand impressions) rates are the second lowest among all advertising mediums — broadcast, print, and digital — behind only social networks.

Mobile display advertising CPCs (cost per click) are up to 90 percent cheaper than desktop pay-per-click (PPC) campaigns for major brands.

An article in the Financial Times gave support to a similar notion:

The rapid surge in people visiting mobile websites and applications doesn’t help. Instead, it has perversely created an oversupply of opportunities to buy mobile ads, forcing down the price that publishers could charge for any individual ad. Media buyers report opening negotiations with mobile ad sellers by asking for at least a 50 per cent price cut — and receiving it.

At the core of the problem is that media companies have no choice other than to bow to the quickly rising consumer desire to read content on smartphones. Large and small media companies have even created thousands of apps to display their content in a way that is appropriate for these devices, which in turn accelerates the process of new-platform-based consumption by media consumers. Without having an alternative, these organizations are bleeding themselves of profitable advertising inventory.

The mobile ad business is growing, and along with that much of the media industry is experiencing deep financial wounds.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.