Digital Advertising: Telecom Carriers, Cable MSOs in Focus

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Internet advertising revenues reached a new milestone in the third quarter of 2015, as reported by two renowned research firms Interactive Advertising Bureau (IAB) and PwC US. According to the reports, Internet advertising revenues in the U.S. reached $15 billion, up 23% from the third quarter of 2014 and up 5% from second-quarter 2015. The research includes data concerning online advertising revenues from web sites, commercial online services, free e-mail providers, video streaming services and several other companies selling online advertising services.

Burgeoning demand for data, induced by increasing penetration of smart phones and tablets, is likely to drive up ad revenues in the industry. Meanwhile, the expenditure related to mobile-based advertising is also set to touch new highs over the next few years, according to research firms Strategy Analytics and eMarketer. According to Strategy Analytics, the advertisement market has the potential to reach $425 billion in 2021 while eMarketer projects that the market will hit $100 billion in 2016 itself.

The Numbers

To date, the growth rate of the expenditure in this field indicates a colossal 430% increase over 2013. In addition, eMarketer also expects the share of mobile based ad-revenues in the digital advertising segment to reach 50% next year. It expects Alphabet Inc. GOOGL and Facebook Inc. FB to consolidate their shares in this segment, driven by the consumer usage of their services. The glittering prospects of this industry has attracted a number of companies to foray into the market, with telecom giants Verizon Communications Inc. VZ and Comcast Corp. CMCSA being some of the noteworthy ones.

In-depth Analysis

Ad revenues are significantly higher in the mobile app segment compared to the general web. Companies have taken note of this trend and are now launching their own apps to grab the budding opportunity. Some companies have gone the extreme way, directing users to adopt app-only services.Moreover,programmatic ad-buying tools like real-time bidding are transforming the digital advertising industry by enhancing the efficiency of target-based advertisements.

With the use of social media and web search grasping the bigger slice of the pie, the Google division of Alphabet and Facebook command the online ad industry, closely followed by Twitter and Apple. However, as Business Insider reports, the fastest growing mobile ad format is display and video. This opportunity has lured telecom giants like Verizon and Comcast to step in and launch their own video streaming services. Verizon recently acquired AOL and Millennial Media to boost its streaming services while AOL took over Millennial Media to ramp up ad-based revenues. Likewise, Comcast acquired Freewheel and This Technology for its Internet TV services.

The Road Ahead

It is evident that mobile-based ad revenues are set to occupy the larger chunk in the digital ad world. With people spending more time on their mobile devices, the zeal for mobile-optimized ad formats such as rich media keeps growing. Companies are looking to increase the effectiveness of targeted ads and monitor their efficiency, with the aim of propping up revenues.

With Google and Facebook apparently set to rule this segment for some time, it remains to be seen whether the telecom operators can adequately challenge them. It must be noted that the telecom carriers and cable MSOs are competing simultaneously in two industries here - one, the ad revenue market and the other, the video streaming space.

In the video streaming segment, Verizon and Comcast have to compete against established players like Hulu, Netflix, and HBO. The history of failures in this market tranche like Qualcomm, MobiTV Inc. doesn't paint a bright picture. While their acquisition and collaboration strategies will make them more competitive, time will tell whether these telecom operators can provide a resilient ad targeting platform to become a serious contender.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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