How viable is mobile advertising in an economic slowdown? How will the current economy impact businesses that derive revenues from mobile advertising? Can mobile advertising count on VC funding?

These were just a few of the key questions that thought leaders, startups, investors, mobile carriers, device manufacturers, and mobile application developers debated during Mobile 2.0 in San Francisco.

The mobile conference – organized by the Mobile 2.0 Organizing Committee ( Daniel Appelquist, Senior Technology Strategist at Vodafone Group; Gregory Gorman, Principal at Tertius Advisory Services; Mike Rowehl, Scalability Architect at Skyfire; Peter Vesterbacka, Founder Some Bazaar and Mobile Monday and Rudy De Waele, Co-founder dotopen / mTrends) in partnership with AMF Ventures – brought together a stellar line-up of professionals and practitioners in a frank (translated: no-hype) one-day discussion of the topics and trends that matter.

The most dominant theme: The economy. Or more specifically: How companies can survive in the global downturn that is already impacting businesses at every level.

Overall, attendees were upbeat about the outlook for mobile advertising. But this was more than a hunch.

New numbers from mobile social networking company Limbo and GfK Technology, a market research firm, underlined the increasing importance (and reach) of mobile advertising in the U.S. market. A recent study from these firms found that 40 percent of mobile phone users in the U.S., about 100 million people, recalled seeing an advertisement on their phone during 3Q08 (about two-thirds of the ads were text messages; the other one-third were display ads). It was the first time mobile advertising awareness in the U.S. reached such a level during a single quarter, and it represents a sure sign that mobile advertising is getting the attention of brands/advertisers despite the economic downturn.

More evidence that advertising is indeed delivering positive results came from Brian Cowley, president and CEO of AdInfuse; Jason Spero, vice president of marketing at AdMob; and Ragnar Kruse, CEO and founder of Smaato.

Each reported that they are seeing continued and strong interest in mobile advertising, and each backed this up with some interesting observations. Jason, for example, told us that AdMob has not seen a drop in mobile advertising budgets among its partners. To the contrary, companies are asking for more ad placement and increasing their budget with AdMob. This view was echoed by Brian at AdInfuse, who said his company has never seen more interest in advertising by top brands than it is seeing today.

A driver is the consumer expectation that content must be and will remain free of charge – subsidized by advertising. Granted, there are many examples of companies making money on content and apps – such as Apple, which has built a lucrative business by selling applications via its App Store, and Google, which follows the same blueprint with its new Android Market. However, executives from GetJar and MySpace asserted at the conference that in most contexts, the most scalable and sustainable business model is just giving away mobile apps for free.

Don’t count on distribution via carrier decks,  because it is hard to get in the door with operators and it does not guarantee a worthwhile income. This was the view of Ilja Laurs, the founder of GetJar. His company, widely considered to be the world’s largest mobile applications portal, has harnessed mobile advertising to fund the successful distribution of free apps on behalf of its developer partners.

Consumers are also not willing to pay to join or interact in mobile social networks. Brandon Lucas, senior director of mobile business development at MySpace, pointed out that consumers’ unwillingness to pay a monthly fee for mobile MySpace services has pushed his company to phase out its premium-based mobile services. The focus is now on moving to a pure ad-funded model.

For many mobile companies, mobile advertising works. But will it pay? This was the question that made for a lively discussion during the VC panel. Their view: Companies that are not dominant in their sectors may find it hard to succeed with an advertising model, and those that are trying to get off the ground with this approach are likely to face an uphill battle.

Tim Chang, a partner at Norwest Venture Partners; Peter Barry, head of venture capital and startups for Vodafone Group; and Rick Segal, a partner at JLA Ventures and Blackberry Partners Fund, agreed that VC firms are not dazzled by mobile app and services startups that depend on ads for revenue. The reason: A startup has to reach a lot of eyeballs, and the market is chock-full of companies that have bet their bottom lines on this approach.

In a nutshell, only a few of these mobile newcomers can hope to survive – and that isn’t a risk many VCs are willing to take.

What excites VCs? Companies that provide the infrastructure and middleware to deliver mobile advertising or reduce the costs associated with it are hot properties now. AdMob, which recently pulled in $15.7 million in its third round of funding, was cited as an example of a desirable mobile advertising investment.

Mobile advertising experts at the event also expressed strong interest in companies that collect and wield customer data (all the better if they do it in new and innovative ways). This new focus makes business sense if we consider the underlying logic: The more data an application can generate about users, the more advertising it will attract and, ultimately, funding. It’s a virtuous cycle. Likewise, companies that can develop infrastructure and techniques that will bring in more metadata and metrics via mobile applications are also high on the radar.

Tags: AdInfuse, AdMob, Apple, GetJar, Google, Mobile Advertising, MySpace, Smaato, VC

This entry was posted on Monday, November 10th, 2008 at 10:44 pm and is filed under Mobile Advertising, Mobile Content, Mobile Research, Mobile Social Networking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.