Mobile Advertising Finally Makes It Big in Israel

Mobile ads took only 5.7% of the pie last year, but in recent months their share has been rising sharply as content providers offer attractive platforms.

Tomer Appelbaum

The PC is dead, or at least dying. Long live the smartphone.

That sums up the somewhat belated regime change transpiring in the Israeli digital market over the last year. The big content websites have discovered the goldmine hidden in mobile devices in the last few months as advertisers begin spending on the smaller screens. The share of mobile ads in the overall ad pie has now made the new segment a major force in the Israeli ad industry for the first time.

Meanwhile, the old desktop and PC advertising models in Israel have turned out to be disappointing, failing to give good value for the money for mass market advertising. But the new smart phones have completely changed the market and mark a return to the time-tested method of paying in the ad business: CPM (cost per thousand, or impression), in other words payment according to the number of viewers who see the ad, rather than the number of clicks or sales.

“There’s been a dramatic drop in advertising on Israeli sites,” says Guy Eliav, an expert in Internet advertising and the former CEO of the website Nana10.

The mobile ad market, made up of tablets and smart phones, is different in Israel than elsewhere in the world, say industry executives. While everywhere else Google and Facebook take up the lion’s share of the market, in Israel the mobile ad pie is divided almost equally between the two Internet giants and on the other all the content websites.

Facebook’s financial reports for the first quarter of 2014 showed revenues from mobile made up 59% of the company’s total income, or $2.5 billion, as the number of daily mobile Facebook users passed the one-billion mark. It took the company a while, but it seems they have finally solved the major problem of how to make a buck off its smart phone and tablet users. Google is also increasingly relying on the mobile arena, especially in its core search business.

To put it in perspective, search-related mobile advertising grew 120% in the United States in 2013, while advertising in the PC market grew only 2.3%, reports market research firm eMarketer.

The big change will come next year, predicts eMarketer. Not only will the mobile market boom, but the traditional advertising model of sites for PC users will shrink for the first time.

While the giant multinational firms have been preparing themselves for these changes and the move to mobile, most U.S. content sites are well behind the curve in finding ways to combine large-scale advertising on the small cellular screens. Small banner ads don’t stand out, and many of the sites with paywalls simply use their smart phone and tablet apps as just another end user, the same as on the desktop. Another revenue model, which is less common among quality journalism sites, is integrating paid marketing content among the site’s regular items.

Google will continue to attract the largest share of the mobile advertising pie and reach 50% of the total budget in 2014, says eMarketer. The other major names – Twitter, Facebook, Pandora and others – will take in about 25% together. The remainder will have to be split by everyone else in the world, forecasts eMarketer.

The threat is real

Israeli mobile ad budgets totaled only some 50 million shekels in 2013 ($14.4 million), a mere 5.7% of the total digital ad market, reports ad agency Zenith Optimedia. If Israel mimicks the U.S. growth rates for the mobile ad business then Israeli mobile ad revenues will still be only some 200 million shekels in 2018, while PC ad revenues will fall – though it is not clear how many people believe this assumption.

What is clear is the drop in desktop ad revenues is real and results from the fact that advertisers pay based on the number of clicks or leads. And that is not only because of the strengthening of Google and Facebook, but also because Israeli sites do not provide effect ad solutions, says Eilav. He attributes that to the absence of customer segmentation, which undermines the effectiveness of line ads. Advertisers go where they can get such data and target their ads.

By contrast, Israeli content providers on mobile devices have succeeded in generating new revenue by using the old fashioned methods of audience measurement long used by newspapers and television: Bringing readers to the platform by providing attractive content, and selling advertisers exposure to these readers.

The most significant methods used in mobile advertising, and it seems the most aggressive, too, are the full screen ads you see when you load the app, switch between different parts or view a story. They last for up to five seconds during which the user focuses on a single large ad if for no other reason than lack of choice. This is an almost uniquely Israeli method, certainly to the huge extent it is used. It started mostly during the last Knesset election campaign a year ago, with ads by the political parties, in particular Naftali Bennett’s Habayit Hayehudi.

This is the hottest real estate, says Yoav Tzuker, CEO of Zenith Digital. He estimates that some 30% of revenues come from such mobile ads. If a year ago Israel was well behind the rest of the world in mobile ad spending, it is now catching up, says Tzuker.

Using the smart phone much more

The real reason cellular advertising is taking off is that we are simply using our smart phones, along with tablets, so much more. A survey conducted by Google Israel in 2013 showed that 36% of Israeli content was viewed on PCs, and 22% on mobile devices. Since then it has only risen.

“The Internet is first of all a place where you consume information,” said Eliav. It is moving from the desktop to mobile and email is also moving to mobile devices. Data from Facebook shows the switch, said Eliav.

The Mako website, which has two different applications including its Mako television streaming site, seems to be an exception. The traffic is divided almost evenly between desktop computers and mobile, said Mako CEO Uri Rozen. Even though half the traffic comes from mobile devices, the ad budgets have not kept up with the switch - even though they are growing at a crazy pace, he said. But when he does his own advertising for Mako, Rozen says he relies much more on mobile, and finds time after time that it is much more effective.

All the editors at Mako must now think about mobile, too, in every decision alongside the desktop, and they can no longer ignore half the viewers, he said.

While most people still spend their eight hours a day in the office facing a PC, the big changes are in what has happened after work and outside the office, said Omri Argaman of mobile marketing firm Moblin. Even at home we don’t sit in front of the computer, but use the mobile device even when watching television, he added.

Estimates are that some 30% to 50% of all use of large content websites in Israel is already via mobile devices, and rising. But mobile browsing has different characteristics than PC use; usually each visit is shorter.

“For years they said all the time that mobile is the coming thing, but we continued to wander in the desert,” says Tzuker. “This year it will happen. By 2013 it was possible to see the awakening in mobile and the switch in more budgets,” he said. The election campaign signaled mobile as being very attractive for advertisers, and the rest of the market is following. Only until a few months ago even Google had separate campaign managers for mobile and desktop, but that has changed now, says Tzuker.

The small screens allow not only greater exposure, but also more effective advertising and more customers. This is not just because the mobile device tends to lead people to be more active and respond to the ads, such as by tying the ads to the person’s location and the possibility of creating an immediate connection; but also the cell phone’s main disadvantage, its small screen, is what allows advertisers to stand out and have exclusivity.

On a normal website there are dozens of ads and banners on a page, but on a mobile device the ads are much fewer, says Eliav. It also has only one column, which allows reading from top to bottom – and this is more effective. Mobile users have become accustomed to what PC users hate, seeing a full page with nothing but ads, because that is the way it almost always has been with mobile ads since they started. Also, since mobile advertising is still relatively low in quantity, it has not become too stale or annoying – yet.

The advantage for the websites is that while on a desktop web page there is no limit to the number and amount of advertising, on mobile devices it is much more limited – and this limit translates into lower supply and higher advertising rates. Argaman estimates mobile sites can charge 20% to 50% more than a regular site for their ads – but the desktop sites can of course offset this by selling many more ads.