For years, mobile was the underachiever of digital advertising, tipped for great things but never delivering its true potential. Many brands regarded advertising on mobile phones as an afterthought, while the campaigns that did run on mobiles were uninspiring, using basic SMS text messaging to reach customers.
However, the iPhone and Google's open-source operating system Android have been "game changers" for the industry, according to Shaun Gregory, managing director of media business at iPhone service provider O2 - and the mobile advertising market has caught fire.
Both services offer fast and easy internet access on the move, and have been developed for mobile phone rather than PC users. The fashionable iPhone, for example, provides access to thousands of applications that advertisers can use to reach consumers, from virtual pints to a driving game for the new Volkswagen Polo. Last month, Apple's app store notched up its one billionth download for the iPhone and iPod Touch.
"Serious money is flowing into mobile advertising. Mobile has come of age," says Russell Buckley, global chairman of the Mobile Marketing Association and vice-president of global alliances at agency AdMob, whose clients include Coca-Cola, Procter & Gamble, and MTV Europe. He says: "Thanks to the sophisticated advertising formats made possible by the mobile internet, it is a completely different medium and is developing a new identity."
Edward Kershaw, vice-president of mobile media at Nielsen Online, agrees. "Adoption and usage are snowballing. Consumers are already open to mobile advertising, albeit with reservations. But, when they do experience mobile advertising, their ad recall is significant and the response rate high - particularly when you target specific usage."
In the UK, the mobile advertising market is still small but growing fast. In 2008, the market was worth about £28.6m, according to the Internet Advertising Bureau and PricewaterhouseCoopers. And Nick Lane, chief researcher at consultancy d2Mobile, estimates the market will expand by about 20%- 25% over the next year, driven by WAP sites and SMS and Bluetooth campaigns alongside iPhone applications.
About 20% of spend on mobile advertising comes from major brands, with the rest from mobile content providers, such as games companies and ringtone specialists. The car industry has been quick to exploit mobile opportunities, after realising that mobile ads are an effective method of generating sales leads and test drives.
However, demand is strongest among media, entertainment and fast-moving consumer goods, with campaigns often featuring downloads for ringtones and video clips and SMS text voting for virtual reality programmes.
Todd Tran, managing director of WPP's mobile marketing agency Joule, says: "Media, film and music are key categories because they advertise content. FMCG advertisers are important, because they target a young audience and did a lot of promotions via text in the early days of mobile marketing, about nine years ago."
Portal giants are also keen to secure their share of the mobile ad market. Yahoo places display and search activity through the principal UK mobile operators: 3, T-Mobile, Vodafone, Virgin and Orange. Last month, it announced plans to offer "contextual-based" advertising across its mobile homepage.
The Yahoo Mobile services, to be launched in eight markets worldwide, will include a new homepage and an application for Apple's iPhone. The homepage will be available on more than 300 handsets and, for the first time, the new browser and application will include targeted advertising, such as banner ads. Advertisers will be able to sponsor or affiliate themselves with stories, based on consumers' personalised updates.
Matt White, head of mobile sales at Yahoo UK, says: "We are positioning ourselves as the starting point for your mobile internet journey. The user experience is far richer. Where the audience goes, the money will follow - and the audience is moving to the small screen."
White predicts search advertising will be a significant trend over the next few years, mirroring the development of online advertising. Location-based advertising will also become more common. Later this year, Yahoo will allow advertisers to tailor their ads to the location of mobile phone users by postcode, with the consent of the user. For example, a pizza delivery service in London could advertise only to people in its local area.
Judging the effectiveness of advertising is a perennial problem, although the interactive nature of mobile advertising makes this easier. In the US, research has found the most efficient advertising medium to generate a test drive has always been the PC. However, the "cost per lead" for a mobile phone ad is a seventh of the cost for a PC ad.
As with online advertising, the effectiveness of mobile ads can be measured through the number of users clicking on ads, requesting more information about a product or service, or downloading film and music clips. In addition, companies can use "analytics" software to track what happens after someone clicks on an ad.
However, the mobile phone still has to overcome limitations as an advertising medium. Experts point to the variable quality of the web-browsing experience, the small profit margins for advertising agencies involved in mobile campaigns, and a fragmented customer base, scattered across different mobile networks.
According to d2Mobile's Lane, too much mobile advertising transfers the worst of online ads onto the small screen of a mobile phone or portable device. Meanwhile, Joule's Tran admits mobile advertising has a low profile among many agencies and advertisers. "The key challenge is education, as with online marketing 10 years ago," he says.
"Most advertisers and agencies do not understand mobile marketing. They need to make a proactive effort to learn more about it and mobile marketing agencies need to provide education."
Furthermore, O2's Gregory believes the mobile industry is too crowded and needs to consolidate to encourage more large-scale advertising. He says: "There are too many people in the mobile industry value chain, for example small mobile companies, technology companies and creatives. The economic pinch will squeeze people out."
However, Gregory's former employer Blyk, an ad-funded mobile phone service that targets 16 to 24-year-olds, is finding new ways to reach customers. Users receive text messages from advertisers, click through to a branded WAP site and can then request more information about a product, click on a link to see a film preview, or download music.
In return for receiving ads on their mobile phones, Blyk customers get free calls and texts. Blyk uses the Orange network in the UK, where it has more than 200,000 customers, but plans to partner further mobile operators to launch in other countries.
The company claims the average customer response rate for its advertising is 25% (see box, below), which it says is well ahead of the 3% to 6% average response rate for conventional mobile advertising and the 2% rate for direct marketing.
"All our members are opted in," says Antti Ohrling, co-founder of Blyk. "Our users have profiled themselves to tell us what they like and don't like, and that enables us to have a meaningful dialogue with them in relation to advertisers."
The iPhone has given the mobile advertising industry a racing start, and the momentum will be sustained by increased take-up of rival smartphones such as the Nokia N70, the flurry of new technologies for mobile ads, and the relative ease of measuring the effectiveness of mobile.
"We call the last 12 months ‘the post-iPhone world'," says Tran. "Not only are iPhone users using the mobile internet and downloading apps more, but the rest of the industry is mimicking or trying to better the iPhone. This competition is enabling consumers to have better products and services, and so they are using the internet more often and downloading more apps. This could finally be the tipping point for mobile marketing."
Mobile ad formats Options for marketers
When a new advertising medium emerges, it often uses many of the characteristics of media that came before it, according to AdMob's Russell Buckley.
For example, the first TV ad, created in 1931, used a static black-and-white image, which was broadcast in 20 seconds of nearly total silence, before a short strapline was read aloud.
Early mobile advertising was basically text and banner ads, copied from the PC-dominated web and shrunk down to the smaller screen.
The launch of the iPhone in 2007, and the subsequent rise of the smartphone, has triggered a flurry of innovation in mobile advertising.
Click to call
Perhaps the advertising format most identified with mobile, where consumers touch an icon to be connected straight to a call centre.
Consumers watch a video streamed straight to their phones. For example, the user touches an icon to see a movie trailer on the phone, looks up film times, and then clicks on a "touch-to-call" icon to book tickets.
Mobile users see an ad for a band, listen to a sample on iTunes and then download and automatically pay for the track.
There are more than 25,000 downloadable applications in the Apple Apps Store, including a flight simulator game, film trailers and reviews, and the ability to control your home TV from the office. The volume of apps makes it hard for brands to stand out, although apps such as Carling's iPint, which turns the phone into a virtual beer glass, have achieved cult status.
Entertainment, news and communication tools that provide relevant information by recognising where you are. One example is Google's Latitude, which allows friends to share their location with each other by using Google Maps.
Users can touch an ad to go to a "landing page" on the mobile web. Car companies use landing pages to show videos of the car in action, allow consumers to look up their nearest dealer, or initiate a call to organise a test drive.
Yell.com Using Blyk to target 16 to 24-year-olds with local attractions
When Yell.com wanted to raise the profile of its online directories service among young people, it turned to Blyk, the free mobile network for 16 to 24-year-olds.
The mobile campaign, which used SMS messages to target Blyk customers, wanted to highlight how Yell.com could give young people listings information relevant to their local area.
Blyk customers were sent a text message inviting them to visit Yell's website for mobile users, mobile.yell.com.
Users then entered a postcode alongside themed search criteria such as weekend activities, health and beauty, and St Valentine's Day.
The month-long campaign, which ran earlier this year and did not use an external media agency, helped raise the profile of the Yell.com brand.
During the campaign, nearly half (48%) of the young people who received the ads used the Yell.com service at least twice, while the average click-through rate for the campaign was 6.3%, according to Blyk.
James Dare, mobile product marketing manager at Yell.com, says: "Internally, we were impressed with the results of the campaign.
"While we always hoped we would see tangible search volumes as well as reaching out to the young demographic, it was great to get almost 50,000 high-value searches through the strategy."
Antti Ohrling, co-founder and executive director at Blyk, adds: "Contextual search can lead the audience to relevant information that is useful in a timely way.
"Young people don't need double glazing services, gardeners or accountants. They want take-away food, late-night off-licences, leisure facilities and recruitment agencies. And they want these listings from their local area, not from vast geographical zones."