October 1, 2012, 12:00 AM

Small ads, great potential

Tiny mobile search ads could offer big opportunities for retailers who develop a clear strategy.

Lead Photo

There's a new paid search advertising game in town. It's small. It's cheap. And it's been attracting more players in recent months. It's called mobile paid search. And it has Google Inc. excited, online retailers curious and vendors studying up on how their clients can make money from it.

U.S. marketers in 2012 will spend $2.3 billion on mobile ads that appear in search results, mobile web sites and mobile apps; that's a 91.7% increase over $1.2 billion in 2011, according to a new forecast from research firm eMarketer Inc. Marketers' increased interest in the mobile formats will help drive mobile ad spending worldwide to $6.4 billion in 2012, up 60.0% from $4.0 billion in 2011, eMarketer finds.

As retailers explore mobile paid search, they can't just replicate their desktop paid search strategies, experts and retailers say. That's because consumers use mobile devices in different places than they do PCs, for different reasons, and often with a greater sense of urgency. So grabbing desktop paid search ads and placing them on mobile devices won't work.

Armed with this basic knowledge, some enterprising retailers are testing out mobile paid search ads. They are thinking about what consumers are likely to want when searching from a smartphone and changing their ads accordingly. It's still too early to report clear results because merchants are still learning and, for the most part, investing a small amount of their total online advertising budget in mobile ads. For now, retailers testing the mobile ad waters are enjoying the lower cost and higher click-through rates of the ads, and the benefits of learning the ropes before many of their competitors.

"With any growth channel, being early is an advantage," says Bernard Luthi, chief marketing officer and chief operating officer for Buy.com Inc., a unit of Rakuten Inc., which began trying its hand with mobile paid search about two years ago. "Just like any other channel it will become more expensive over time, so learning early makes a lot of sense."

Early days

Google is betting big on mobile paid search ads, as it expects the format to eventually surpass desktop paid search ads. "Mobile is quickly becoming a backbone of many clients' overall advertising strategies and has huge headroom to grow," Nikesh Arora, senior vice president and chief business officer for Google, said in an earnings call with analysts earlier this year. "In the long term, we think mobile will monetize better [than desktop search ads]."

What's clear is mobile paid search is rapidly growing. Google's U.S. mobile ad revenue is growing four to eight times faster than its desktop revenue, according to a new report from advertising management firm Marin Software. U.S. paid search clicks from mobile devices (including both smartphones and tablets) on Google increased 132% between January and December 2011. By the end of 2012, 25% of all U.S. paid search clicks on Google will stem from these mobile devices, Marin forecasts, up from 5% in 2011.

Those figures aren't surprising given that smartphone-based paid search ads in the United States register a 72% higher click-through rate than PC-based ads; tablet rates are 31% higher, according to Marin.

Those click-through rates can be deceptive, however, because search engines only display one or two paid search listings on mobile screens. They show many more ads in search results on PCs, says Udayan Bose, founder and CEO of NetElixir Inc., a search marketing agency.

That's not to mention mobile ads' lower conversion rates. NetElixir finds mobile ads for its clients convert 2.39% of the time on average, while desktop ads convert 4.48% of the time. He believes it's because many retailers are sending mobile shoppers to sites designed for computers. "The mobile searcher gets frustrated with the on-site navigation and abandons the site," Bose says.

That's why Luthi's team assures shoppers in mobile search ads that they will be directed to mobile-optimized sites if they click on the ad rather than a slow-loading, e-commerce site on their smartphones. For example, a retailer's ad might read: "Jeans from $12.99! Shop from our mobile site now!" Luthi says.

Google has the same idea. The search giant in August said it is testing ways to improve the mobile search experience, including placing little mobile icons in mobile search results to denote listings that will take consumers to mobile-optimized pages. It also suggests retailers tell consumers that they will be sent to a mobile site in mobile ads on its mobile ads overview page.

Different devices, different goals

Even if a retailer has a mobile site and presents a shopper with an optimal mobile shopping experience, that consumer might not be interested in completing a transaction on her phone. For instance, 57% of consumers in a recent Kantar Media survey said they used their mobile device to look for store information. Those types of actions are why mobile searches often lead to offline purchases. "The search process that may have started on a smartphone may end with a purchase from a neighboring store," Bose says.

To track in-store purchases that stem from mobile search, Bose suggests offering consumers who click on mobile ads store coupons—be they scannable coupons or just a coupon code—then track the redemption rates. Others suggest implementing a click-to-call feature in mobile search ads so a consumer who wants to buy in a store can easily call and see if, say, a nearby location has a particular pair of boots in stock or is open on Sunday.

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