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MMA Mobile Marketing Economic Impact Study

Peter A. Johnson, PhD and Joseph Plummer, PhD

MMA Mobile Marketing Economic Impact Study

Peter A. Johnson and Joseph Plummer

With the assistance of Marina Bregman, Barbara Clark and Douglas Clark

In Partnership with IHS / Global Insight

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty, whether express or implied, is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, the authors do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Copyright MMA/mLightenment/IHS Global Insight, 2013. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the copyright holders.

About the Authors

Peter A. Johnson, PhD
Principal, mLightenment Adjunct Professor, Columbia University Peter A. Johnson founded mLightenment in 2012 as a virtual consultancy of leading academics currently or formerly affiliated with Columbia University in New York City, where he has taught full and part time since 1992. During his professional career, Peters research on the impact of metrics and data on public policy, finance, and the economy has brought him national and international scholarly recognition. His major work, The Government of Money, demonstrated the key role played by metrics in establishing public trust in monetary policys ability to secure stable prices, and found its way onto graduate economics and business school syllabi at over 30 major universities around the world. As a subject matter expert, Peter conducted a multi-year study for the German Chamber of Commerce on the economic redevelopment and investment opportunities in the former East German economy. His work on the digital economy led to invitations to present his economic research to the US Congress, state-level and international legislatures and regulatory agencies, and to co-author a brief to the US Supreme Court on consumer data issues. His work has also been cited in official publications of the US Federal Reserve and the German Bundesbank. In addition, his work on marketing data and metrics led to invitations to serve on the Board of Directors of the US Marketing Accountability Standards Board and later to join the Board of Directors of the US Media Ratings Council. In these roles, he has developed extensive research into mobile marketing, social, and other direct and interactive media and e-commerce. These interests have led him to take private sector research positions, including vice President of market intelligence and strategy for the Mobile Marketing Association from 2008 to 2011, and vice president of research and senior economist at the Direct Marketing Association from 2004 to 2008.

Joseph Plummer
Adjunct Professor of Marketing Columbia University School of Business Dr. Joseph Plummer is adjunct Professor in the Columbia Business School and Senior Associate at Olson Zaltman Associates. He is co-author of The OnLine Advertising Playbook, focusing on the emergence of the Internet as a marketing platform. Prior to teaching at Columbia Business School, Dr. Plummer was EVP at McCann Worldgroup, Vice Chairman at DMB & B, EVP at Young & Rubicam, and SVP at Leo Burnett. He was also a managing director at Paine Webber/Y&R Ventures, and chief research officer at the Advertising Research Foundation. Dr. Plummer is a board member of Media Advisory Partners LLC, Zogby International, Voxpop Investing, AdSafe, Innerscope Research, Inc., and C3 Research. Previously he served on the board of directors at

Sunstus, Audits & Surveys, McCann Worldgroup, DMB & B, and Young & Rubicam. He was a member of the board of trustees at his alma mater, Westminster College, where he earned his BA, and on the Presidents Council at the Ohio State University, where he received his masters and PhD degrees. In addition to The OnLine Advertising Playbook, Dr. Plummer has published more than 25 articles in journals, written over 20 chapters for books and been the editor of The Journal of Advertising Research. He was selected Distinguished Marketing Practitioner by the Association of Marketing Science in 2007. This year Dr. Plummer received the distinguished Lifetime Achievement Award from the Advertising Research Foundation.

About mLightenment

mLightenment is a virtual consultancy of leading academic researchers, many of whom are currently or formerly affiliated with Columbia University in New York City. They provide clients with objective assessments of the expenditure, sales and public policy impacts of emerging media and communications technologies on their businesses, and communicate these findings clearly, effectively, and authoritatively to key client stakeholder groups, including customers, business partners, press, and policy-makers.

About IHS Global Insight

IHS Global Insight is one of the leading economic analysis and forecasting firms in the world, with an established track record for providing rigorous, objective data and forecast analyses to governments and businesses around the world. Among its areas of expertise are the economic impact, tax implications, and job-creation dynamics of multiple sectors core to national, state and local economies. It also helps companies and governments at all levels interpret the impact of proposed investments, policies, programs, and projects.

Acknowledgments
The authors would like to thank the hundreds of marketers, agencies, supplier firms, public policy experts and academics in the mobile marketing ecosystem who generously answered our detailed survey questionnaires, offered their experiences and insights during confidential interviews, and replied to our email inquiries. We regret we cannot thank them individually by name, we promised them all confidentiality. Special mention goes to our partners in economic impact research at IHS Global Insight, particularly Mike Raimondi and Scott Fleming and their associates in the economic consulting group. We also would like to thank current and former staff of the Mobile Marketing Association for their very helpful administrative assistance with fielding our surveys and in helping to arrange some of our interviews. Finally, the principal author gratefully acknowledges additional research assistance provided by Elizabeth Margid and Scott Aronin.

Table of Contents
Executive Summary ..................................................................................................................... 1 Understanding Mobile Marketing ............................................................................................. 13 Expenditure on Mobile Marketing Communications and Related Services .............................. 28 Mobile Marketings Sales Impact on the US Economy ............................................................. 49 Mobile Marketings Employment Impact .................................................................................. 80 Consumer Data Best Practices and Privacy ............................................................................... 84 Social Benefits from Mobile Marketing ..................................................................................... 95 Conclusion: From Mobile-Enhanced Media to a Mobile-Enhanced Economy ........................ 100 Methodology: Measuring and Modeling US Mobile Marketing Communications .................. 104 Appendix I: Summary Tables for Expenditures, Sales and Employment Impact by Industry .. 112 Appendix II: Definitions of Major Industry Groups .................................................................. 117

Executive Summary
The Economic Impact of Mobile Marketing In the United States
The pages that follow report the results of a six-month investigation by the principal authors into the size and scope of the impact of mobile marketing on the United States economy, conducted at the behest of the Mobile Marketing Association.1 We found that the mobile marketing ecosystem exhibits remarkable levels of investment for an industry so young: $6.7 billion spent on it by client-side marketers and retailers across all industries in 2012, a figure likely to reach almost $20 billion by 2015; contributes even more impressive levels of incremental output to the U.S. economy: $139 billion in 2012, and reaching $400 billion by 2015, with at least 85% of this sales impact taking place in off-line, brick and mortar locations; currently sustains over a half million jobs in 2012, and will likely support upwards of a million and a half workers by 2015, including both direct and indirect employees; in fact, every single employee in a direct mobile marketing communications role will support over 23 workers in non-mobile occupations throughout all 50 states and the District of Columbia in that year. In interpreting these facts, the reader should bear in mind that these figures of increased economic output and employment are entirely comprised of supplemental U.S. income and jobs that would not exist but for the successful exchange of marketing communications through mobile media. We would be remiss if this first recital of mobile marketings quantitative achievements somehow failed to pay tribute to what we consider its no less impressive qualitative accomplishments. Every day that we worked on this project, we could not help but notice how the very industry we were studying so intensively was so busily transforming our society extensively. We would wake in the morning to hear one of its new gadgets lauded as the object of fascination on a radio broadcast; stepping outside our door, we saw the object of our study in constant use by our fellow pedestrians and commuters (heads down, hands and device forward, ear buds in); its
1

The Mobile Marketing Association commissioned this study in the summer of 2012, but the research was conducted entirely under the independent direction of the two principal authors from that moment forward. 1

productivity tools indispensable to our own collaboration; its capacity to reinvent itself seemingly every few months dizzyingly if intoxicatingly relentless. But whether one uses hard numbers or soft impressions, the mobile marketing ecosystem presented us with a picture of economic vitality that in our experience is almost certainly unequalled anywhere else in the nation. It is that picture we briefly summarize in the next few pages, and fill out in the sections that follow. (Note: additional state-level information and information about individual industries can be found in the spreadsheets that accompany this report.) Study Objectives Our main goals in conducting this research were to: Provide the mobile marketing ecosystem with its first objective and comprehensive picture of its own size and contribution to US economic performance; Provide business decision-makers with data that can help them gauge overall trends in mobile marketing communications investment, sales impacts and employee resourcing in their industries; Take a snapshot of the industrys current consumer data collection and privacy policy landscape so as facilitate forecasting of economic impacts and provide policy makers with a baseline from which to gauge the economic consequences of potential legislative changes.

Research Design: Expenditure, Sales, Employment mLightenments approach measures mobile marketings economic impact consistent with mobiles core value proposition as a marketing medium, namely its ability to increase sales (and by extension, employment) for client-side industries that invest in its services. This required us to quantify three key metrics: Expenditure by industry on Mobile Marketing Communications and related services Sales Impacts (incremental net top-line revenues) to industry in any location resulting from marketing communications accessed by end-customers via their mobile devices. 2

Any location means sales impacts could take place either on-line, as mobile-enabled digital purchases (ie mCommerce ) or in the offline, brick and mortar world, such as in a convenience store, doctors office, or automobile dealership; all such real-world venues we group together under the umbrella term mShopping. 2

Employment Impacts comprising both advertiser employment (supported directly by industry expenditure on mobile marketing communications or related services); and seller employment (supported by the increased sales revenues resulting from mobile marketing communications.)

In addition, we calculated mobiles marketing impact ratio (MIR), which is an industrys total media sales impact divided by its total media expenditure. This metric allows us to compare the efficiency of marketing in a given media on a per-dollar of expenditure basis across industries, regardless of industry size. (See below, and methodology section of the main report.) Expenditure On Mobile Marketing Already Significant & Will Grow Strongly In 2012, mobile marketing communications expenditure in the US we estimate to be approximately $6.7 billion. This includes spending on three principal marketing communications categories of interest: mobile advertising, mobile direct response / enhanced traditional media and mobile CRM. Within the overall mix of mobile marketing communications, Mobile Media Advertising will remain the largest single component of spending over the forecast period, reaching $9.2 billion by 2015. But expenditure on mobile marketing communications is not limited merely to advertising in on-device media. Expenditure on mobile direct response (DR) advertising or mobile enhancements within non-mobile media is projected to grow the fastest, growing over four fold from 2012 to 2015, to almost $3 billion; and mobile CRM will continue to be the second largest source of expenditure -- indeed, almost as significant as mobile advertising -- through 2015, when it is expected to reach $7.6 billion. Combined expenditure on mobile marketing communications is forecast to grow at a compound annual rate of 52%, to reach $19.8 billion by 2015. In addition to the media buy of mobile marketing communications expenditure, we also measured separate overhead expenditures on supplemental marketing services and internal support costs that marketers and retailers incur as a direct result of their mobile marketing activities. (These include such costs as agency and PR fees, media measurement and metrics services, etc.) This class of expenditure represented an additional $3.9 billion in 2012, and will likely rise to $10.5 billion by the year 2015. Thus, when spending on mobile marketing related services and supplemental internal support is combined with that on marketing communications in mobile, total mobile marketing expenditure in the US attains $10.6 billion for 2012, and will reach $30.4 billion by 2015.

Table 1: Mobile Marketing Communications Spending in United States ($Millions)

Mobile Marketing Investment Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM 2010 2011 2012 2013 2014 2015 CAGR 2010- 2015 52% 56% 77% 44%

2,405 3,957 6,693 10,456 15,162 19,806 991 1,743 3,060 166 336 669 1,248 1,878 2,964 4,871 1,312 4,273 7,078 2,174 5,910 9,207 2,912 7,686

Source: mLightenment

We also compared mobile marketing spending across the 16 broad industry groups into which we classified the US economy for the purposes of this study. Finance, retail (excl. CPG), and manufacturing (excl. CPG) are the three largest industries in terms of spending on mobile marketing. The three industries spent over $3 billion in 2012 or about half of total mobile advertising spending. In terms of growth, the resources industry (agriculture, mining, utilities, and construction) is projected to grow the fastest, followed by manufacturing (excl. CPG), and educational services. (Summary results for each industry can be found in the main body of this report, and full details for each industry can be found in excel workbooks that accompany this report.) Finally, we examined mobile marketing spending as it occurred at the state level. This shows differences across the states depending on the size of the states in terms of the economic and demographic attributes. The three largest states that generated the highest mobile marketing spending in 2012 were California ($865 million), New York ($587 million), and Texas ($573 million). We expect that these three states will comprise more than 30% of the total mobile marketing spending by 2015. North Dakota, Washington, and Texas are the states with largest expected rate of growth in mobile marketing spending, through 2015. (Full details for each state and the District of Columbia can be found in excel workbooks that accompany this report.) Mobiles Very Substantial Sales Impact On The U.S. Economy Marketing communications via mobile have a very substantial and positive sales impact on the output of the U.S. economy, amounting to almost $140 billion in additional sales realized during the course of 2012. This figure is forecast to rise to just over $400 billion in 2015. 2015s amount represents a vigorous five-year compound annual growth rate of 52%, relative to the $48 billion in net sales that mobile added to the U.S. economy back in 2010. Mobile Media is the largest contributor to advertising driven sales impact, followed by Mobile CRM. The sales impact and growth rates are expected to be roughly in line with the level of investments in the respective marketing categories.
Table 2 Mobile Marketing Sales Impact in United States ($Millions)
2010 2011 2012 2013 2014 2015 CAGR 2010- 2015

Total Sales Impact Mobile Media Adv Mobile DR Enhanced Adv Mobile CRM

48,627 25,530 2,705 20,392

85,300 46,814 5,694 32,792

139,003 73,811 10,280 54,912

216,931 115,010 18,866 83,056

311,566 163,052 30,059 118,455

400,971 204,345 36,682 159,943

52% 52% 68% 51%

Source: mLightenment

The sales impact of mobile marketing varies across our 16 major industries and the expected rate of growth is influenced both by the extent of marketing investment and also the trend in mobile device adoption, media consumption and marketing engagement by key population demographics, particularly as these affect mobile marketings share of mind and share of buying power among end-customers relative to other media. While we have seen that the resources, manufacturing (excl. CPG), and the educational services are the fastest growing industries in terms of marketing investment, retail trade (CPG), manufacturing (CPG), and educational services are the fastest growing industries in terms of mobile marketing driven revenue contributions.

Marketing Impact Ratio (MIR) for Mobile Marketing Communications Marketing Impact Ratio (MIR) is calculated by the simple formula: $ Total Industry Sales Impact / $ Total Industry Expenditure. Our research indicates that the marketing impact ratio (MIR) for mobile marketing communications probably peaked at a high of $20.77 in 2012. It is now expected to plateau or decline very slightly over the forecast period, reaching $20.25 in 2015. Two factors in particular account for this leveling off: first, we expect increased expenditure on mobile by marketers; second, we expect the demographic profile of the mobile end-customer, which previously was disproportionately comprised of younger, high income demographics, will begin to more closely resemble that of the U.S. population as a whole, especially as late-adopter segments acquire the latest generation of smart devices.

Figure 1: MIR for Mobile Marketing Communications

$30 $25 $20 $15 $10 $5 $0 2010 2011 2012 2013 2014 2015

Total Mobile Marketing Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM

However, not all categories of mobile marketing will have falling MIR Mobile CRM is projected to grow at an annual rate of 4%, growing from $18.53 in 2012 to $20.81 by 2015. This is due to the increased role of consumers themselves in the distribution and even creation of marketing content via mobile-enabled social media and location-based services. Marketing Impact Ratio by Industry: Does Mobile Escape the Law of Diminishing Returns? The MIR and spending data raise one unexpected question: is it possible that the law of diminishing returns may not apply to mobile marketing spending? We observe that MIR figures for the top and bottom four mobile marketing spenders, by industry, seem to show that spending more does not decrease the impact rate as expected; on the contrary, the highest industry expenditure and the highest industry impact ratios go together, as do the lowest expenditures and the lowest MIR. While no more than suggestive, this observation is intriguing and deserves further exploration. We give more discussion and offer possible explanations for this at the end of the section Mobile Marketings Sales Impact on the US Economy. Mobile Marketings Impressive Employment Impacts Our research reveals that in 2012, spending by marketers on mobile marketing generated 524,000 jobs from the combination of advertiser employment and product seller employment. This is expected to reach an impressive 1.4 million jobs by 2015. Mobile marketing communications advertiser jobs are the most direct form of employment generation employing a number of people in activities such as ad designing, programming, analytics, marketing, administrative staff etc. In 2012, over 21 thousand persons were directly employed in mobile marketing communications occupations and the industry is projected to
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employ 64 thousand such individuals by 2015, growing at an average rate of 44% per year. The Mobile DR category is expected to grow fastest, employing over nine thousand people by 2015.
Table 3: Advertiser Employment From Mobile Marketing Communications
Total Advertiser Employment Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM 2010 7,983 3,265 549 4,169 2011 12,672 5,540 1,073 6,059 2012 21,275 9,655 2,123 9,497 2013 33,453 15,465 4,190 13,798 2014 48,744 22,568 6,978 19,197 2015 64,053 29,512 9,402 25,139 CAGR 2010-2015 52% 55% 76% 43%

Source: mLightenment

The number of mobile advertiser jobs by industry is proportional to the amount of expenditure in adverting. Thus, finance, retail, and manufacturing industries are also the largest markets for advertiser jobs. About 3.3 jobs were created in 2010 for every million dollar spent on mobile advertisement. This was 3.18 in 2012 and is projected to stay close to 3.2 during the forecast years. The incremental product sales resulting from successful deployment of mobile marketing will require hiring additional workers by the product sellers, manufacturers, or the service providers in order to scale up the production. In 2012, the seller employment attributed to mobile marketing is 502,562 persons. This is projected to grow at a rate of 40%, employing about 1.38 million persons by 2015. While the advertising spending is highest in the Mobile Media category, the seller employment impact is highest in Mobile CRM category.
Table 4 Mobile Marketing Seller Employment
2010 CAGR 2010- 2015 Mobile Marketing Seller Employment 188,913 312,914 502,562 773,685 1,091,017 1,379,587 49% Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM 84,055 145,013 222,885 340,840 11,557 23,010 40,438 72,766 93,301 144,891 239,239 360,079 468,767 113,173 509,077 570,239 134,068 675,280 47% 63% 49% 2011 2012 2013 2014 2015

The seller employment by industry is driven by incremental sales demand generated in each industry as a result of the successful distribution of mobile marketing communications. In 2012, 75 seller jobs were created for every million dollar of mobile advertising spending. However, this is projected to fall by 2% annually, reaching 70 jobs per million dollar of advertising spending. Industry-specific seller employment impacts show that retail (other), finance, and professional services are the largest job creators. Seller employment in retail trade (CPG) will grow the fastest, followed by the professional services industry.

Mobile Marketings Consumer Privacy Landscape All of the foregoing impacts presuppose that the mobile marketing ecosystem continues to enjoy its current baseline levels of consumer trust and freedom from technologically inappropriate or economically counter-productive privacy legislation. Without consumer trust, no marketing media can sustain the high levels of customer engagement necessary to deliver scalable sales impacts. The always-on, always-present personal character of the mobile device introduces new communications opportunities for mobile marketers while raising new issues for the industry about how best to ensure consumers continue to trust the privacy practices of a medium they are already deeply engaged with. Various areas particularly mobile apps ability to access consumer data, such as current location, address-books, etc.currently represent areas of mobile technology where industry best practices are rapidly developing. On the self-regulatory front, the Digital Advertising Alliance (DAA), a coalition representing all the major marketing and advertising trade groups, will be releasing principles and guidelines for mobile. This forthcoming guidance, based on the existing and widely implemented DAA Self- Regulatory Principles, will apply to the mobile environment and respond to the fact that the principles may vary based on technological demands. The guidance therefore explains how the DAA principles of transparency and consumer control should be implemented in a mobile device setting. Data covered by the new guidance will include precise location data as well as data gathered across non-affiliated applications over time. Finally, and perhaps most significantly, the controls offered by platforms continue to evolve, providing consumers with new controls over data collection and use, as well as greater transparency, which should engender trust. Ultimately, our economic impact assessment for both sales and incremental jobs assumes that incremental adjustments at the regulatory and industry best practices level will continue to communicate trust and value to customers in a manner that sustains the massive shift underway to consumer media consumption and commercial activity via smartphones and tablets. That said, our report cannot exclude the possibility that a major economic shock arising from a legislative change to the public policy framework from Congressional or state-level legislators could alter the impact assessments reported here at some point during the forecast period. (For a more detailed discussion of privacy issues, see the section of this report on Consumer Data Best Practices and Privacy.)

Envisioning the Mobile-Marketing Enhanced Society and Economy of Tomorrow Mobile marketings impact in the United States reaches beyond the most obvious benefits that are easily measured in jobs and revenue. These include hard, but not impossible to quantify benefits to society at large, together with even subtler changes in marketer and consumer expectations about what the products and services and even communications opportunities in the marketplace of tomorrow will look like. These developments are pointing towards a mobile marketing enhanced economy just over the horizon. In the section of our study on mobile marketings social impact, we looked at several examples of how mobile marketing communications and have begun to merge with valuable consumer content services that are already starting to show the potential for enormous benefits on American society in areas that are not conventionally considered part of a medias economic impact. For example: by reducing the time and thus gasoline expended looking for a parking spot, a simple parking app such as was introduced two years ago in San Francisco could potentially save $360,000 each day in gasoline and reduce air pollution. If it were extended across all major cities nationally, a simple app could have the potential to save hundreds of million of dollars in wasted gasoline each year, avoid significant quantities of air pollution, and save drivers untold hours of time. Likewise, currently existing apps from national pharmacy chains could easily have a dramatic effect on reducing adverse drug events (ADEs), many of which are attributable to missed does of prescription medications. ADEs lead to 700,000 avoidable emergency room trips each year, and well over 100,000 avoidable hospitalizations. Apps that remind customers to refill prescriptions or simply take medications on time could very conservatively save tens of millions annually in health care costs, simply by supporting U.S. patients suffering from diabetes, high cholesterol, and high blood pressure. These are but a tiny sliver of the blending of marketing and social benefit that is beginning to take place. We believe it heralds a new mindset in consumers that marketers themselves need to pay attention to. Too much of the debate about mobile we believe has been about its importance as the third, second, or even first screen for delivering advertising or marketing communications. We think the image of mobile as [mere] screen needs to be deleted and replaced with something better: mobile as camera (or microphone, or digital crayon box -- any active image will do.) Why is it important for marketers to replace screen with camera? Simply this. As mobile smart consumers go about their daily lives, they do not think of themselves as passive inboxes for the branding ideas of others; instead, smart mobile consumers (younger ones, especially) think of themselves as directors and stars of their own lives; armed with mobile video camera, microphone, and yes, lights, they are the creative co-
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producers and co-distributors of original marketing communications that expresses their passionate interest in products or services or experiences they care about. And many of which mobile consumers will begin to co-create. In the mobile-marketing enhanced marketplace of tomorrow, the confluence of marketer-created but consumer directed mobile communications opportunities will open up more places for things to become far more than just products or services. As mobile-enhanced products and services, consumer-generated mobile content will add value that greatly exceeds the physical object to which it may be attached, or through which it may be delivered. The best of these mobile enhancements to brands we suspect will not necessarily come from brand managers. We suspect that eventually even the products themselves will be developed, promoted and perhaps even built by the smart mobile consumer with mobile baked in from the beginning -- who knows, by building it using the 3-D printer in their garage -- and of course, another mobile consumer will take a picture and post it, making the new mobile enhanced product of tomorrow a viral sensation before the paint on it is even dry. And all of this will be possible because the smart, mobile-enhanced marketers of tomorrow will find new ways to help it happen. Addendum: An Overview of mLightenments Methodology This study quantifies both the size of mobile marketing spending in the US and also the sales and employment impact of such activities. While the sales impact measures the value of additional revenues generated as a result of mobile marketing communications, the employment impact measures both the advertiser employment and seller employment. The advertiser employment includes the number of persons employed directly in the mobile marketing businesses. The seller employment includes the number of persons hired by the product seller or the manufacturers, in response to the incremental product demand arising out of mobile marketing communications sales lifts. For the purposes of assessing mobile marketings impact on the US economy, we began with the Mobile Marketing Associations current definition of mobile marketing: A set of practices that enables organizations to communicate and engage with their audience in an interactive and relevant manner through any mobile device or network.3 Accordingly we defined mobile marketing communications expenditure as money spent by any industry to send, receive, or exchange any form of marketing communications (bought advertising, marketer owned content, or so-called earned social or word of mouth media) with mobile consumers via consumers qualifying mobile devices; and we defined mobile marketings sales impact as purchases of any industrys goods or services in any location by
3

MMA Updates Definition of Mobile Marketing, MMA, November 17, 2009, http://www.mmaglobal.com/news/mma-updates-definition-mobile-marketing 10

end-customers as a result of marketing communications accessed via their qualifying mobile device.4 To ensure our economic metrics included the full scope of todays mobile marketing, we researched mobile marketing communications in each of three different categories of marketing activity: (1) Mobile Media Advertising (bought media) (2) Mobile Direct Response (DR) Enhanced Non-Mobile Media, (also bought media) (3) Mobile Content and Relationship Marketing (mCRM) (owned and earned media). To ensure that expenditure and sales impacts within each type of marketing communications were non-overlapping and genuinely mobile, these marketing communications were analyzed into seven specific mobile media or connective technologies: (1) Mobile Voice, (2) SMS/MMS, (3) Mobile Email, (4) Mobile Web, (5) Mobile Apps, (6) Proximity (Bluetooth, NFC, RFID), (7) Recognition (primarily QR codes, audio & image scanning, etc.). Mobile marketings expenditure and economic impacts were measured by classifying the US economy into 16 major industry groups and applying an econometric modeling process that correlates categories of productive investment across all industries with sales accruing to those industries. These broad industry groups are based on the North American Industry Classification System (NAICS) and are described in the Appendices to this report. (For a more thorough discussion of what our taxonomy includes, and why, please see the section titled Understanding Mobile Marketing.) The underlying calculations used to determine the sales and employment impact were done at the direction of mLightenment by its economic partners at IHS Global Insight, the worlds foremost industry research and econometric forecasting firm. Global Insight used its large macro-economic input-output model of the US economy, in which statistical methods compared industry expenditure on media and marketing with expenditures on other media and other factors inputs (e.g., IT, raw materials) for major industries. These were then correlated statistically with variations in intermediate and final demand for industry output across end- customer segments (both mobile and non-mobile) over time. The models resulting input-
4

Qualifying devices primarily means feature phones, smartphones, tablets and eReaders; and mobile consumers always includes business users, unless otherwise indicated.) In addition to expenditure on the variable costs of the media buy, we separately calculated the more fixed, or overhead costs incurred with related mobile marketing services providers, such as agencies, research providers, etc. 11

output coefficients identify that portion of any industrys revenue that is uniquely attributable to mobile marketing communications.

12

Understanding Mobile Marketing

The objective of our research was to measure the size and impact of mobile marketing on the US economy. More than we realized when we first embarked on this work, the necessary first step of defining what mobile marketing isdeciding what counts as mobile marketing and what does notwould prove to be a research undertaking unto itself. What we found was a device whose power, ubiquity and versatility was already beginning to sweep away a centurys worth of deeply held assumptions and categories. A decade ago researchers could have counted on knowing automatically what the various marketing media were, what their boundaries were that separated them, what were the specific, separate and distinct roles of players in the industry: retailers sold things, publishers distributed news and entertainment, marketers bought advertising or distributed coupons and anonymous, ordinary people leaned back to consume media at home and buy products in stores, while researchers tried to connect the former to the latter. Today, in a marketing world more and more conquered by smart consumers armed with smartphones and smart tablets, this clarity is no longer the case.

What Is Mobile Marketing?

According to the Mobile Marketing Association (MMA), Mobile marketing is a set of practices that enables organizations to communicate and engage with their audience in an interactive and relevant manner through any mobile device or network.5 Our study takes this definition as our point of departure, but makes a slight adjustment to make it more immediately applicable to an economic impact study. For us, therefore, mobile marketing comprises any exchange of or engagement with marketing communications that occur between or among marketers and end customers via customers wirelessly connected mobile devices. By the term wirelessly connected, we mean all the various means of transmitting voice, text messages, Internet traffic (data) and GPS over a wide area and also the proximate ways that mobile devices can exchange information within and with their immediate environmentse.g., scanning, swiping, tapping, bumping, etc. By the word exchange, we mean not merely the one-way broadcasting of messages from marketers to end users or customers, but also end-user communications to marketers, whether they are responses to such messages or messages sent on a consumers own initiative; we also include word of mouth marketing communications6 that may be created by mobile
5 6

www.mmaglobal.com According to the Word of Mouth Marketing Association, WOM is the sharing of marketing-relevant information among consumers and WOM marketing is efforts by an organization to encourage, facilitate and amplify marketing-relevant communication among consumers. We follow WOMMA in regarding Social Media marketing and WOM marketing as closely related but not synonymous. For definitions and discussion of WOM and Social 13

consumers about a third-party product, service or company or mobile-shared with peers, such as when a consumer snaps a picture of a product in a store with their smartphone and forwards it to a friend or family member with a recommendation that they buy it. This may seem like a fairly sweeping definition, and it is. As we will see below, we believe it fits the facts of todays mobile marketing. Anything more restrictive would mislead the reader about how much mobile marketing is poised to explode the meaning of marketing well beyond traditional advertising pushed to a screen. Who are the players in mobile marketing? For measuring expenditure on mobile marketing, the key players are, first of all, marketers in any industry that spend money to create, send, or receive mobile marketing communications. Marketers, for us, include retailers. Industrys marketing communications dollars are spent with business services providers of two kinds: a) providers of mobile advertising inventory (publishers and networks, including non- digital - about this, see more below) and mobile content platform providers and developers (such as those providing access to the SMS network for marketers, or who develop proprietary apps on marketers behalf); and b) providers of related mobile marketing services, such as advertising and PR agencies, audience measurement and analytics services providers, and network access providers. In terms of measuring the sales impacts, our population of interest is mobile equipped end- customers and prospects. This termwhich we shall generally avoid using in favor of mobile consumersincludes all end users of wirelessly connected mobile devices, whether they own the device (and pay its network access charges) or are merely users of devices owned and paid for by someone else. Mobile consumers therefore include individuals whose device is part of a family plan owned by a principal subscriber as well as individuals whose employers have issued them a device. In the pages that follow, then, the corporate road-warrior with her company- issued Blackberry or iPad is not forgotten.

How Mobile Marketing Is Transforming Marketing

Although the use of mobile phones is nearly universal in the U.S.published figures estimate that over 85% of the American adult population has a mobile subscription, the great majority of which are at 3G speeds, or fasterthe mobile phone as a vehicle for exchanging phone calls is but a tiny piece of the communications platform on which mobile marketing rests. Three important implications followed for our study.
Media Marketings ROI implications, see Solving The ROI Riddle: Perspectives from Marketers on Measuring Word of Mouth Marketing, p. 3ff. Word of Mouth Marketing Association, 2012. Available at http://members.womma.org/p/cm/ld/fid=17&tid=38&sid=128 14

The first is that Americans are now more and more ubiquitously tethered to digital communications via their mobilephysically and virtuallyand we realized that the form and content of communications could no longer be defined by the device or network that carried it. If we didnt already realize that video was no longer synonymous with TV in the living room, audio with radio in the car, or news was delivered by paper or direct was to be followed by mail, studying the myriad ways in which mobile devices transgress ancestral media, content, and format boundaries has convinced us of it. Whether it was disentangling the volume of Internet traffic that was PC or mobile based, or figuring out what difference it made whether much social media video was being consumed on tablets while the consumer was watching TV, the media researcher has their work cut out for them. A decade or so ago, it would have been easy to say what was mobile and what wasnt: it was the black plastic brick you held to your ear while you shouted to make yourself understood. Todays mobile device is a toolkit of multiple media held in front of us like an electronic dowsing rod, a communications matrix of virtual ecosystems, each of which seems to have not only its defining technical attributes but also its own folkways. These devices are redefining the entire media landscape and creating a variety of mobile microclimates based on the varying combinations of devices people choose to employ for particular places and purposes as they travel through their daily lives. For marketers, understanding mobile microclimates such as show-rooming is the heart of the mobile marketing challenge and opportunity. The second implication is that consumers, particularly in the US, are adopting an increasing variety of smart mobile devices (such as iPods, iPads, mini tablets, and e-readers) that are no less mobile than their phones and, from a marketing standpoint, may become even more valuable. These devices enjoy greater compatibility with various kinds of consumer content (such as video and games), greater flexibility in marketing communications (such as rich media advertising through apps), and greater utility in certain marketing situations (such as interactive, out-of-home advertising, and in-store comparison shopping). The third consequence for us involved realizing how beholden marketers are to some very static measurement assumptions and resources, systems that, except for those of out-of-home advertising and drive-time radio, assume that content and marketing communications are distributed in discrete, self-contained chunks and that viewership, readership, and listenership take place at certain fixed spots at certain appointed hours. But all of this is far too static for the mobile media delivery and consumer consumption habits that stared us in the face. The more flexible, dare we say mobile, metrics needed to measure mobile marketing are still, relatively speaking, in their infancy, but more are needed, and more marketers need to learn them when they arrive.

Location: The Defining Attribute of Mobile Marketing

In principle, every mobile device must be uniquely locatable in real time within an electronic network in order to receive and correctly route individualized, two-way network
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communications. For that reason, we consider identifiable location to be THE defining feature of the mobile marketing ecosystem. We define mobile devices as those that are uniquely identifiable and location-aware while roaming anywhere within an electronic network. Usually, these devices integrate one of the following forms of location-aware technology. Location-Based Services: From Network Location to Real-World Location Originally, network location in cellular was necessary for routing calls between devices. It was determined by calculating the distance a cell phone was from numerous short-range broadcast towers distributed in a honeycomb of cells around the country. But it was not long before the mobile ecosystem realized that by converting a meaningless network location into an approximate real-world geographic location within a several-block radius (assuming an urban environment), new kinds of services could be provided to the consumer - and eventually, to marketers. This opportunity became even more attractive once mobile devices equipped with GPS transceivers allowed the device to be located in real-time within a very precise radius -- often a matter of a mere meter or two. Location-based services (LBS) are perhaps the most important and distinctive content contribution of the mobile ecosystem to the marketing industry, since other media, including the desktop Internet, are normally not able to target user location much more precisely than within the radius of a city or county. They comprise publisher and/or marketing communications content containing structured geographical information tailored to the mobile recipients precise real-time location.7 LBS includes things such as maps, turn-by-turn driving and walking directions, buddy-locators, location-based social media platforms such as Yelp and hyper-locally targeted advertising, including so-called geo-fencing in which the mobile device receives different advertising content based on its presence within a perimeter defined by the advertiser. For marketers, real-time awareness of consumers hyper-local current location opens new and exciting vistas of popular consumer content and marketer segmentation and targeting that many expect to attract large audiences and boost the effectiveness of almost all marketing communications associated with them, potentially allowing marketers to inferthough not quite yetwhat consumers are most likely interested in buying at certain times in a particular context or while traveling along certain routes, thus increasing the relevance of marketing communications, resulting in increased utility and higher net impact for the marketermuch as the less precise ZIP-Code and census tract segmentation does for direct mailers. But first the consumer must opt-in. Tapping I agree when an apps privacy dialogue box pops up to ask if you want to share your current location is a vote of confidence the marketer or publisher is asking the consumer to make millions of times a day. Sharing location information with publishers and marketers offers numerous benefits, including access to mapping services, directions, social connections, weather reports, and even astronomical data.
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Various popular apps such as Foursquare, Gowalla, and Loopt rely on location information, but our study had to confront how many consumers take the location plunge, and what difference it makes for the economy. Our research suggests that though the exact formats and beneficiaries of locations based services are likely to change, location-based technologies and services will continue to grow in power and precision as marketers learn how to make more effective use of them and as consumers understand and become comfortable with the benefits of sharing location information. SoLoMo (Social-Location-Mobile): An Acronym to Reckon With A similar situation confronted us with social media, especially the confluence of mobile and location with social networking known as SoLoMo. Readers whose formative experience with social networking was shaped by the desktop (or laptop) Internet may not fully appreciate just what a perfect marriage has been consummated between smart devices and socially enabled on-the-go, any-format-any-time consumer content creation and sharing. Enjoying your restaurant outing? Snap a pic of the dessert youre sharing with your wife and share it with the in-laws on Facebook. Wondering where the guys went after the game? Search for their check- ins. Want to rave about the latest hipster fashions roaming the streets of Williamsburg? Take a video and post it on YouTube, while waiting for your next sampler pack of new products to review on Influenster. Where you are and who you are come together on the mobile device but how much of Pinterest, YouTube or Twitter is mobile? The capability of the consumer (again, always remembering to include the B2B end customer) to use their mobile device to generate and share marketing relevant content anywhere, anytime, must therefore be factored into what we mean by mobile marketings economic impact. Mobiles Marketing Value Proposition: Mobility, Portability, Individuality, Personality Mobile is often said to be uniquely attractive to marketers because of its always present, always on, always connected nature, an attribute said to offer unrivalled opportunities for ubiquitous 1:1 personalized communications. On reflection we realized this phrase conflated several distinct aspects of how mobile devices are redefining the marketing relationship, features that may work simultaneously and synergistically with each other, but are worth distinguishing to define what mobile is, in order to calibrate its impact correctly. The first is mobiles mobility, which we define as the devices ability to roam geographically while remaining connected to its networks. Mobility depends as much, if not more, on the provision of network access than it does on the devices themselves, though the latter can be an important consideration for consumers who may decide what type or amount of network access they are willing to pay for. Many customers of the first wave of iPads, for example, elected not to buy a wireless subscription for their devices, which limited their mobility (our sense) to Wi-Fi hotspots, even though they were completely portable. Mobility also includes a devices ability to interact with its immediate context using its non-networked connective technologies media, e.g., by scanning a QR code displayed on a shelf tag inside a store, or NFC to tap an N-Mark contained in an electronic billboard in an airport.
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 The second important aspect of mobile medias value proposition refers to portability. Portability is the propensity of a consumer to keep a medium or device on their person at all times, and to engage with it, even as they move from place to place and from activity to activity. It is often said mobile devices are the one thing people always have with themand compared with other devices this probably a good rule of thumb. But how much engagement mobile audiences have with their devices throughout the day, and with what specific content or for what purposes depends on many contextual and circumstantial variables, and the exact amount of time spent matters for comparing mobiles share of mind with that of other media. And this should be researched, not merely asserted. Individuality for us means the capacity for communications exchanged via the device or any particular media therein to reach a unique individual, only that unique individual, and the whole of that unique individual. It is closely dependent on the individual level addressability of different media (SMS is, the web less so); and the exclusivity of device or media by the end- consumer (i.e. do they have multiple devices or not; do they share this device or not.) Personality, finally, refers to the ability of particular mobile media and device hardware to support the creation, uploading, sharing, receiving, and downloading of personally created or customized content. It is closely connected to the openness or customizable quality of the device or operating system, and the ability of the media to support interactive, two-way communications: In other words - how much scope does the device allow the consumer to make it their own, or to become their own publisher? Mobiles Impact on Categories of Marketing Activity The mobile value proposition analyzed abovemobility, portability, personality, individuality necessarily required us to update traditional categories of marketing activity so we could clearly recognize the different types of expenditure and sales impacts arising in these quite distinct marketing communications environments. Mobile Media Advertising: The most obvious and traditional of our categories, it involves the (paid) placement of marketing communications within third-party published content transmitted directly onto the mobile device. It may be purchased on a scale of audience basis (cost-per-thousand views or impressions) or it may be purchased on a performance basis, such as pay-per-click. While this category is normally fairly clear-cut, it does include such ambiguous activities such as paying for sponsored stories in social media. Mobile Direct Response or Enhanced Advertising in Non-Mobile Media. As discussed below, todays smart devices have the potential to integrate with virtually any other medium, object or context. This means first, that mobile has an important role as a conduit for responding to direct-response calls to action placed in non-mobile media. This may involve calling an 800 number, or texting to a short code, etc. to receive an
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offer from a marketer, or to opt-in to receive SMS alerts, or icons prompting the consumer to follow the brand on Twitter or some other mobile-social media. But not all mobile-enhanced interactions with non-mobile media involve direct response in the classic sense of a message returned to the marketer. The interaction may involve supplemental communications delivered to the device with no further expectation of response (e.g., many QR codes simply convey additional product information when scanned). Importantly, the versatility of mobile enhancement technologies is such that the range of advertising media had to be expanded to include things like packaging, which traditionally was not considered an ad medium. Mobile Content and Relationship Marketing (mCRM). In contrast to the above two bought media advertising categories, this activity includes any communications transmitted to or from the mobile device that is owned by the marketer or earned by them as a result of user-generated content or viral sharing on mobile devices. Thus, owned media would include the marketers content on its mobile websites (in fact, all of what is now being called content marketing finds its way into this category so long as it is accessible via mobile devices) or on-going communications the marketer sends to customers who have opted-in to receive SMS alerts, or who follow (subscribe to) its communications on a social media site, or use a downloaded branded mobile app utility, (e.g., to compare prices, get recommendations, place orders for home delivery, etc.) Mobile earned media includes marketing communications pertaining to a particular company, product or service that are created or distributed by end-customers or by third-parties (such as bloggers or journalists) via mobile devices or media. Such media is earned because strictly speaking, the marketing communications is not sponsored by the marketers themselves. Examples would include consumer-filmed short videos of a friend enjoying a product which gets posted to mobile-accessible social media, virally forwarded links in mobile messaging, tweets about products advertised on TV, product reviews and recommendations, or consumer likes of brand pages on social mediaall to the extent they are accessed by end-customers via qualifying mobile devices.

Types of Qualifying Mobile Devices

What then is a qualifying mobile device? Here we list the principal categories of electronic devices that our report defines as mobile for the purposes of measuring the size and impact of the mobile marketing ecosystem. This categorization shapes our efforts to interpret historical data on mobile marketing and forecast future developments, because so much of the expenditure opportunity and sales impact of mobile marketing depends on the adoption and usage rates in the US population of successive generations of mobile devices with increasing power and utility for transmitting mobile content and marketing communications. Our four major device categories and some of their distinguishing attributes:
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 Basic or Entry-level Phones No screen Simple 123/ABC telephone keypad Support cellular voice calls only Note: these devices have almost disappeared from the market; the few remaining may have some marginal impact on calls to 800-numbers Feature Phones A twelve-button ABC/123 keypad A small postage-stamp screen Support cellular voice; texting (SMS and MMS); Limited access to data / messaging, usually at 2G or 2.5G speeds Limited ability to display certain simple mobile websites (WAP), usually via the mobile carriers portal Can download limited digital content, such as ringtones, screensavers, wallpaper, and games A low resolution digital camera Smartphones8 Network accessibility includes cellular voice, texting, data, and Wi-Fi Cellular voice, text, and broad-band data at 3G speeds or faster Nearly full access to the Internet via web browsers GPS, Wi-Fi, and Bluetooth Large screen displays, usually touch, pinch, spread, and swipe sensitive A full Qwerty keyboard, whether built into the hardware as buttons, or via touchscreen The ability to download apps from an app store that deliver rich content and enhance device functionality Front- and back-facing cameras for good quality still and motion photography A multitude of additional passive sensors, including motion sensors such as accelerometers, gyroscopes, etc. Fully supported music and video content Some most recent models include voice recognition, pre-installed smart code readers, and NFC Tablets (including Mini Tablets and E-Readers) Mostly similar to smartphones, except: Significantly larger screen format and lacking cellular voice;
8

This includes advanced email readers such as BlackBerrys, networked MP3 players, such as the iPod Touch, and certain advanced digital assistants made by Palm and others, to the extent they have more or less complete Internet access. 20

Below is a list of devices that our report does not include under the definition of mobile. Desktops, Laptops, Netbooks: These are not included as mobile device for our purposes, since most do not meet our test of mobile network locatability and awareness. Nor do we include laptops or netbooks tethered to mobile devices network, though we recognize a case could be made for doing so. Game Players and Consoles: While many of these devices are responsible for a large volume of sales of digital, downloaded game content, we felt that they do not meet the test of location mobility. Smart Automobiles: Many US automobiles are now networked in a variety of ways, particularly via GPS devices, OnStar type driver assistance platforms, satellite radio, etc., many of which can be updated remotely (thus enabling a kind of mobile publishing). In addition, many late-model automobiles, especially at the high end of the market, are now including more sophisticated Internet-capable devices that remain networked as the car moves, thus meeting our mobility test. However, because these devices stay with the vehicle, not the driver, we exclude these devices for failing our studys personal portability criteria. Smart Homes: Similar to the case of smart vehicles, the future suggests growth in smart homes. To the extent that mobile devices are capable of access information from a smart home (e.g., a smart refrigerator, freezer, or pantry) to determine which items need to be restocked, and use that information as the basis for a marketing relevant communication, such as in a shopping list app, we consider the marketing communication to be on-device, and therefore mobile. But exchanges of information between the static location of the smart home and another static location, such as a retail outlet or an appliance manufacturer, would fail our tests of mobility and portability. Mobile Apparel (watches, glasses, wristbands, etc.). Clearly, many wearable items are now being designed to access mobile networks of one kind or another, and thus meet the criteria of mobility and portability as our study defines them. We exclude these devices only because they are too new and too few to be measurable. We expect this situation will change very rapidly, and that future iterations of this study would need to take them into consideration.

A mobile data subscription is often not automatically bundled with a tablet purchase, meaning many tablets are Wi-Fi-only

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Drilling Down: Individual Mobile Media and Connections

As noted above, mobile is not a single media but a diverse range of networks, connective technologies and sensory capabilities (such as accelerometers and gyrsoscopes) that may be found on the devices indicated above. To the extent they enable or enhance other, non-mobile media or contexts, they transform those media into mobile enhanced media, at least in part. These considerations oblige us to clarify the features and uses of these distinct components of the mobile marketing media landscape, since the technologies involved often create very distinct opportunities for, and constraints on, how consumers, publishers, and ultimately marketers can use them, and thus generate the economic impacts we seek to measure. Thus, the following is an all-too-brief overview of some of these defining attributes of the major mobile marketing media. Mobile Voice Mobile voicethe original mobile mediumrefers to the use of cellular networks to communicate the spoken word, usually between two devices, i.e., peer-to-peer (P2P) conversations.9 The use of mobile voice for marketing purposes is extremely limited, since under US law outbound telemarketing to cell phone numbers is prohibited except under extremely limited circumstances. Mobile voice expenditure within this study is therefore included only insofar as a portion of advertising in other media stimulates inbound, consumer-initiated calls to a call center, or prompts consumers to place inquiries or orders via automated interactive voice response (IVR). For mobile voice, then, the economic impact consists of the estimated value of the orders received from mobile voice calls, regardless of whether placed with a live person or with an automated, menu-driven service. Mobile Messages: SMS, MMS, and Instant Messages (IM) SMS, or short message service (due to the formats 160 character maximum), was the first mobile-native technology to be used for marketing purposes. The message network, like the voice network, is addressable via a unique cell phone number either associated with a SIM card or hardwired into a mobile device. The sending of bulk unsolicited text messages, i.e., spam, is prohibited under US law, though sending of bulk messages on an opted-in express consent basis (A2P messaging) is permitted.10 Access to cellular networks for sending opt-in, A2P messaging is itself tightly regulated by US carriers and industry associations. Use of short codesa five- or six-digit number that can be
9 10

Currently, we classify VoiP (i.e., internet-based voice services, such as Skype) as part of mobile apps. The sending of text messages is not free anywhere, but the US differs from other markets in that recipients are also charged when they receive texts. Consumers may be billed on a per-text basis or may buy all you can eat messaging plans. This cost consideration may be a disincentive for some consumers who might otherwise opt-in to participate in CRM marketing programs or subscribe to branded content. 22

displayed in non-mobile mediaare used to facilitate direct response or ongoing communications, and the marketing communications plans that use them require preapproval by mobile carriers and industry associations. Because of messagings individual-level addressability, it is a natural vehicle for opt-in, subscription-based publishing (in which a tiny amount of space can be available for third-party advertising). It also supports direct one-to-one marketing relationship communications between marketers and opted in customers. Texting is also easily incorporated with non-mobile media for direct response campaigns. SMS may also be used to market and distribute downloadable and other premium content, such as ringtones, a feature known as Premium SMS (PSMS). PSMS is charged to subscribers phone bills or a prepaid account. MMS, or multimedia message service, is sometimes referred to as picture or video messaging to help differentiate it from SMS. MMS is delivered almost the same way as SMS, but can include multimedia attachments such as images, audio, video, and rich text, often in a slide- show format. Instant messaging takes place via the Internet, and therefore technically is a different medium. It is primarily embedded in websites, proprietary device operating systems, or within certain social media. Though there are recent indications that IM may be replacing texting among some audiences, its role in mobile marketing is too nascent to be included in this study. Mobile E-Mail While its origins predate the mobile phone, email is now an important part of the mobile marketing landscape. An e-mail message can be transmitted to or from any standard data network, whether landline or Wi-Fi, or through a mobile carrier network. E-mail can be an effective means of delivering messages to a smartphone, a data-enabled mobile device (such as a tablet), or a dedicated e- mail device (such as a BlackBerry). Any meaningful difference in addressability between mobile and non-mobile e-mail lies in the metadata that the device appends in the header to the e-mail transmission, thus enabling a response to be identified as coming from a mobile device. And, like its PC-based original, the bulk sending of unsolicited commercial email (spam) is prohibited except under certain limited exceptions. As an opt-in marketing medium, mobile e-mail offers all the possibilities of conventional email, such as direct response and opted-in CRM owned media communications, such as newsletters. But it also offers the great advantage that the customer or prospect often has the device on her person, allowing for the potential of a more immediate impression or response in many more contexts. In addition, mobile email intended for a smartphone or tablet can include links that enable the recipient to leverage features unique to the mobile device, download the marketers mobile app, or click to call features embedded in the email.
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For purposes of calculating mobile emails sales impact, we look at mobile-accessed marketing e-mail i.e., all e-mail containing marketing communications that are accessed and read on qualifying mobile devices by end-customers. For our expenditure calculations, we measure mobile-optimized marketing e-mail as those marketing communications marketers intentionally send to and design for the form factors of mobile devices as distinguished from those of the fixed-line e-mail environment. Mobile Web As in the traditional PC-based Internet, the Web refers to digital content that has been created using specially designed computer code for display via a browser, and which the browser pulls from the host by using a Universal Record Locator, or URL. In mobile, the power and utility of the web depends on the device. Basic phones have no web access at all. Feature phones can only access limited function sites that have been specifically created for them, usually so-called WAP sites. However, mobile marketing in the U.S. really achieved lift-off in 2007 when Apple introduced the iPhone, the first truly popular smartphone. The iPhones HTML compatible browser and touch-screen (spreading, swiping, pinching, and tapping) permitted more or less unrestricted access to PC-based web content, but with some key limitations for marketers: the iPhone did not support Adobes JavaScript, the programming language in which much online advertising was displayed, nor did the iPhone accept third-party cookies (the workhorse used for online advertising measurement and targeting) and some video formats. The upshot was smartphone browsers gave access to lots of great content, but stripped out the means to pay for it. When mobiles share of web traffic was tiny, this could perhaps be overlooked. Today, with tablets and smartphones often the first screen for many consumers, publishers and marketers are greatly concerned about optimizing their sites for mobile advertising, such as by using alternative coding and design strategies, adopting HTML5, etc. But even when the advertising is not optimized for mobile devices, underlying mobile Web content offers the content-marketing possibilities of the Internet but again, as in the case of mobile e-mail, enhanced with the immediacy presented by a device that is often on the consumers person in specific contexts. Likewise, it also offers the possibility of upgrading the relationship by convincing the user to download an app and take advantage of the devices full hardware capabilities. Mobile Applications Apps Applications are specialized software programs specifically designed to increase the functionality of mobile device hardware or software. They may be pre-installed by the device manufacturer or more often they may be wirelessly downloaded and installed on the device by the user. Apps are primarily a creature of smartphones and tablets, though there are some apps that feature-phone users can access and install. Depending on their size and type, apps
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may support a wide range of content, from games to rich-media imagery to video and much more. There are two basic types of smartphone and tablet apps: Browser apps are designed to be accessed by and reside in the major browsers on the mobile handset (Safari, Chrome, Firefox, etc.) and add functionality or content when the user is browsing the mobile web. They are most commonly used to create games, or other published content in a highly scalable way so that any user can access them. Native apps are designed to be installed directly on the device itself, and so must be specifically designed for each hardware operating system (iOS, Android, etc.) Operating system fragmentation and the need for consumer discovery and download can make developing native apps less efficient. Their attraction, however, lies in their power to leverage the full range of the devices underlying hardware, such as the camera, its microphone, its GPS sensors, its accelerometers, etc. Native apps can also be designed to access other software installed on the device, such as address books, music playlists, etc. With the potential to access so much additional functionality, mobile apps, especially in their native configuration, greatly expand the scope of communications opportunities offered to marketers. By downloading and using an app, customers are not just visiting a site momentarily but are opening up a direct conduit with a publisher or granting a marketer a certain presence on a device that a user will carry with them throughout the day. While much of this is possible with web apps, the native app offers the possibility of a far richer mobile experience for the customer since it is created specifically for it. The possibilities for one-to-one communications are thus greater through apps than through the web. In particular, the use of notifications and alerts within the app means that the app can become an ongoing channel of two-way communication in which publishers can offer highly creative rich-media advertising opportunities, or sell virtual goods (e.g., within games). The possibilities of apps would appear to be limited by little more than marketers creativity. A brief visit to Apples iTunes App Store or Googles Play will quickly find a wide variety of marketer-branded, marketer-sponsored apps across virtually every sector of the economy. A few of the most interesting features of the app for marketers are the ability to push notifications to users, providing reminders, updates, coupons, account information, and other useful information. Location datas usefulness also serves marketers in two ways, allowing marketers to help customers find them at physical store locations, or allowing marketers to know where users are, with permission, so that they can customize a shopping experience, provide offers or special options, and more. Apps also allow users to initiate contact and provide their own content, such as through submitting photos. They even provide the possibility for users to connect and interact with one another through a user community.

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Mobile Proximity Media Mobile proximity media refers to limited-range communications technologies that operate independently of cellular or Wi-Fi data networks. Each employs its own radio spectrum that enables smart mobile devices to identify or communicate with other mobile (and other) devices within narrow geographic parameters. Proximity media include: NFC (near field communication), Bluetooth, and RFID (radio-frequency identification). Because these media are still in early stages of adoption and experimentation among consumers and marketers alike, we treat them as one category. Of these, NFC appears to be poised for a significant breakthrough, though Bluetooth marketing appears to have significant pockets of use also. NFCs uses include contactless payments, interactivity with advertising in non-mobile media, and customer accesse.g., an NFC-enabled phone can simply tap a reader on a turnstile and open the door to an office or other secure location. NFC-enabled phone can tap an N-Mark on printed media and posters to display additional information or download detailed event information, and two individual with NFC-enabled phones can share large volumes of data instantaneously by touching their phones together; and perhaps most significantly, NFC devices enable secure in-person, tap-and-go mobile payments. Recognition: Scanning and Augmented Reality Recognition technology involve sensory inputs received by the mobile device hardware, such as via the camera or microphone, which are rendering into marketing relevant communications, often via accessing additional information over the Internet. The main examples of recognition media are smart barcode scanning, audio scanning, and augmented reality. Recognition enables a consumer to use a mobile device to digitally interact with his or her immediate physical surroundings. The two principal pieces of hardware involved are a digital camera and a microphone. The camera can not only scan 2-D smart bar codes, which in turn launch Web sites or apps, it can also overlay digital information about what it sees in the camera viewfinder, augmenting the captured image. The microphone can supplement visual information by detecting, identifying, and responding to audio inputs it hears from a nearby radio, TV, or other source of sound, such as a song or advertising message. Smart 2-D bar codes, sometimes generically called QR codes even though that is but one of several smartcode technologies, can store information and be read via a mobile phone for quick access to stored content, such as a URL, image, or address. The code can also be displayed on the device itself and read by a piece of peripheral equipment so that the consumer can use the code as a ticket or coupon. These codes are easily incorporated into many traditional and nontraditional media, such as magazines, signs, buses, business cards, T-shirts, coffee mugs, product packaging, or just about any object that consumers might encounter in daily life. A camera-equipped smartphone with the correct reader application can scan the QR code and
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display text, images or video, connect to a wireless network, or open a Web page in the phones browser. This act of linking from physical-world objects creates a kind of real-world hyperlink, sometimes called a hardlink. The most common use of smart bar codes is to provide supplemental information, services, or content through a Web site or app download. The content can provide details of a promotion, a discount voucher, the activation of a download (such as a ringtone, song, or game), or even a telephone connection to an IVR or human agent. Smart bar codes are free to the consumer and often free to the marketer. But the marketer typically pays for the metrics that measure a bar- code campaigns effectiveness, as well as network usage charges based on consumer engagement or response, usually on a per-click, per-download, per-view, per-redemption, per- sale, or per-call basis. Augmented reality is a technique that allows users of a mobile device to view their physical (real-world) environment with certain of its elements augmented by virtual, computer- generated information or imagery. AR happens in real time. It can be used to identify the names of retail stores, provide historical information about a park monument, or supply sports scores for a game broadcast on TV, among many other uses. If a user views a print advertisement through an augmented reality application on a mobile device, the device will show an interactive portrait of that advertisement, with things like 3-D imagery, video, and other highly interactive content. Augmented reality requires a smart mobile device with data access and a digital camera and a preinstalled or downloaded augmented reality mobile application.

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Expenditure on Mobile Marketing Communications and Related Services

Having defined what todays mobile marketing ecosystem looked like, we set out on the more quantitative tasks. To establish the economic impact of mobile marketingwhether in terms of its contribution to US sales output or to increased employment our first step was to determine its input: the amount marketers across all industries in the US were spending on mobile marketing communications and mobile-related marketing services.11 What follows are the expenditure totals we found, together with some of the key developments in the ecosystem that help understand their underlying trends and significance. For 2012, we estimate that across all mobile and mobile-enhanced non-digital media, marketers and retailers spent a total of $6.7 billion on mobile marketing communications, a figure we expect to rise to $19.8 billion in 2015.
Table 5: U.S. Expenditure on Mobile Marketing and Advertising Mobile Mktg Invest $ Millions Total Mobile Mktg Expenditure Mobile Ad Expenditure Mobile DR Expenditure Mobile CRM Expenditure Source: mLightenment 2010 2,405 991 166 1,248 2011 3,957 1,743 336 1,878 2012 2013 2014 2015 CAGR 52.5% 56.2% 77.4% 43.8%

6,693 10,456 15,162 19,806 3,060 4,871 7,078 9,207 669 1,312 2,174 2,912 2,964 4,273 5,910 7,686

In addition to core expenditures on mobile marketing communications, we examined industries mobile marketing related expenditures in marketing services (such as agency or PR fees, audience research fees, etc.) together with supplemental internal support costs (such as staff training, systems overhauls, etc.) that marketers and retailers may incur as a result of their mobile marketing activities. As shown below, these expenditures amounted to an additional $3.9 billion in 2012, and this will likely rise to $10.5 billion by the year 2015.
Table 6: U.S. Expenditure on Mobile Marketing and Advertising, plus Related Expenditures $ Millions Total Mobile Marketing Expenditure 2010 3,703 2011 6,181 2012 10,563 2013 16,375 2014 23,412 2015 CAGR

30,355 52.3%

11

To clarify the difference between these two categories: Mobile marketing communications expenditures in table 1 are the base used to calculate the ecosystems sales impact (and ultimately, indirect seller employment impacts); while expenditure on related overhead expenditures as displayed in table 2 are added to the sub-total of marketing communications expenditures to arrive at the grand total of all mobile marketing expenditures that are used to calculated direct (advertiser) employment. 28

Mobile Mktg Communications Other Marketing Services Supplemental Internal Support Source: mLightenment

2,405 1,130 168

3,957 1,947 277

6,693 3,401 468

10,456 5,188 732

15,162 7,188 1,061

19,806 52.5% 9,163 52.0% 1,386 52.5%

In the following pages of this section, we compare and analyze our estimate of current and forecast levels of mobile marketing expenditure using our earlier map of mobile marketing. We also identify the major trends that explain marketer adoption and levels of expenditure on mobile marketing across three principal categories: mobile advertising, mobile-enhanced direct response, and mobile CRM, or permission-based marketing. The importance of this review of mobile marketing expenditure can be seen by putting it in the context of recent forecasts of U.S. advertising expenditure. To take but one example: For Zenith Optimedia, one of the worlds foremost authorities on advertising expenditure, mobile remains all too buried within other categories like Internet, even though by our estimates mobiles 2013 expenditure compares with more established media, such as outdoor or cinema.
Table 7 Projected Growth of Non-Mobile Media Expenditures MEDIUM OR DISCIPLINE Major Media TV Radio Magazine Newspaper Outdoor Internet Cinema Marketing Services Direct mail Telemarketing Sales promotion Public relations Event sponsorship Directories Grand Total
12

2012 159,699 $60,990 16,718 18,062 24,975 7,589 30,639 725 208,438 50,442 51,397 68,063 3,885 25,755 8,896 368,137

2013 165,774 $63,096 17,208 17,520 22,977 7,968 36,243 761 214,305 51,451 52,425 70,233 4,157 27,944 8,095 380,079

% CHG 3.8 3.5 2.9 -3 -8 5 18.3 5 2.8 2 2 3.2 7 8.5 -9 3.2

12

Display, Internet video/rich media, classified, paid search, Internet radio, podcast, paid social-media ads and mobile. See Methodology. 29

Source: Zenith Optimedia December 2012 Forecast13

Mobile as a Share of Overall Marketing Expenditure Total expenditure is driven by both how many marketers are using mobiletheir adoption rateand the percentage of budgets that adopters allocate to it. Significant increases in adoption of mobile techniques were found by our own primary survey work, and are being reported across most third-party industry surveys we looked at. For example, a 2012 StrongMail survey of some 600 marketers asked about current usage of mobile marketing of any kind and found that 45% of marketers surveyed were employing it as of 2012.14 Combining responses to other questions about how long users had been utilizing it, and how soon nonusers were likely to adopt it, we derived the following table of adoption rates by marketers.
Table 8: Percent of US Marketers Employing Mobile Marketing or Advertising Year 2009 2010 2011 2012 2013 2014 2015

% of Marketers Employing 6% 19% 33% 45% 53% 69% 86% Mobile Source: Author calculations benchmarked against StrongMail and ChiefMarketer survey results

We found a similar pattern regarding mobiles share of marketing budgets. To illustrate, Chief Marketer magazines annual mobile survey indicated roughly 4% of [digital] marketing budgets went to mobile marketing in 2011.15 Its 2012 survey indicated that this amount was less than 10% of the marketing budget.16 A StrongMail survey estimates that mobile represented 5.1% of digital marketing budgets in 2012.17
Table 9: Weighted Distribution of Mobile Marketing Activity Advertising: DR CRM Advertising Search LBS QR, etc. 11.3% 7.6% 4.3% 15.8% 23.2% 15.8% 61.0%

13 14

Publicis Groupe's Zenith Optimedia, Advertising Expenditure Forecasts, June 2012, www.zenithoptimedia.com. StrongMail Survey, 2012 15 Chief Marketer, 2011 Mobile Marketing Survey: Many Roads to Mobility. 16 Chief Marketer, 2012 Mobile Marketing Survey: Mobile Goes with Everything. 17 Strongmail Survey, 2012. How share of marketing budgets translate into total marketing dollars depends on what the survey respondents understood by total marketing budgets, and whether this can be projected to the entire population of US marketers. 30

 Push 7.7% SMS 12.9% Website 22.6% Apps 17.7% TOTAL 100% Source: Author calculations based on StrongMail and Chief Marketer Surveys, 2012.

Expenditure on Advertising In Mobile Media

Mobile advertising is the largest component of mobile marketing communications in 2012 and will hold this position through 2015.
Table 10: Top-Line Mobile Media Advertising by Media Type MEDIA F $ 2010 Millions Total 991 Mobile Voice Expenditure 20 Mobile Messaging Expenditure 235 Mobile Web Expenditure 629 Mobile Email Expenditure 6 Mobile Apps Expenditure 101 Mobile Proximity Expenditure 0 Mobile Recognition Expenditure 0 Source: mLightenment 2011 1,743 35 266 1,168 12 263 0 0 2012 3,060 61 298 2,092 23 585 0 0 2013 4,871 97 313 3,157 37 1,266 0 0 2014 7,078 142 326 4,836 54 1,721 0 0 2015 9,207 184 328 5,370 66 3,260 0 0

SMS SMS-based advertising helps support a wide variety of content publishers for whom SMS content delivery is particularly well suited. Of these, the most famous is Twitter, but there are many other SMS-reliant content providers, whether providing news, weather alerts, coupon opportunities, social media / microblogging sites, etc. Twitter advertising, however, is increasingly app based.
Table 11: SMS Application-to-Person (A2P) Messaging Estimate $ Billions US % Publishers $ Publishers 2010 $11.88 0.86 $10.22 2011 $12.96 0.85 $11.02 2012 $13.95 0.84 $11.72 2013 $14.85 0.83 $12.33 2014 $15.66 0.82 $12.84 2015 $16.38 0.81 $13.27 $3.11

$ Marketers $1.66 $1.94 $2.23 $2.52 $2.82 Source: Author estimates based on Statista, Juniper Research and ABI releases.

31

Our estimate of SMS advertising takes as its base the value of SMS publishing expenditures paid to platforms providers, as estimated above. Occasionally, third party research estimates the value of SMS advertising, as for example, in October 2011, eMarketer estimated that SMS advertising represented more than one-third (36.1%) of all US mobile ad spending that year. Despite a significant expansion in the overall market for mobile advertising, eMarketer predicts that the SMS advertising share of this expanding market will decline to 14.4% by 2015.18 Mobile E-mail IABs most recent study reports a small portion of Internet advertising dollars is allocated to e- mail advertisingabout $156 million in 2012, down 27% from 2011, the most recent year for which complete-year estimates are available.19

Table 12: 2012 Internet Advertising Revenue $ Millions 2012 Internet Ad Revenue Total $36,570 100% Search $16,932 46% Display / Banner $7,700 21% Mobile $3,400 9% Classifieds $2,400 7% Digital Video $2,300 6% Lead Generation $1,700 5% Rich Media $1,100 3% Sponsorship $845 2% Email $156 1% Source: IAB and PwC, IAB Internet Advertising Revenue Report: An Industry Survey Conducted by PwC and Sponsored by the Interactive Advertising Bureau (IAB) 2012 Full Year Results, April 2013

Mobile Web To arrive at the value for Mobile Web advertising, we estimated an aggregate value of web- based mobile search, display, and local advertising. We then benchmarked these estimates against third-party published reports, such as those of eMarketer, Forrester, IAB-PWC, Strategy Analytics, and others. Benchmarking against third-party data was often tricky, because of potentially overlapping or discontinuous categories of classification are used, often within the
18

US Mobile Ad Spending to Top $1 Billion for First Time in 2011 Read more at http://www.emarketer.com/newsroom/index.php/mobile-ad-spending-top-1-billion-time- 2011/#0eaO6c7wuZyuopRq.99 eMarketer, October 4, 2011. http://www.emarketer.com/newsroom/index.php/mobile-ad-spending-top-1-billion- time-2011/ 19 The IAB PWC report began to report mobile as a separate category in 2012. As part of this effort, it reclassified some 2011 expenditures previously reported as part of other categories (such as display, search, etc.) as mobile; however, e-mail advertising was not one of these. 32

same report, as with social and display. Nonetheless, some were quite helpful, e.g. Strategy Analytics forecast of $556 million in US mobile Web display advertising for 2012.20

(Similarly, BIA/Kelseys study on location-based searches helped us assess how much is being spent on mobile location-based searches, both web and non-web.)

Table 13: Location-Based Search Local Search Queries (Billions) 2010 2011 2012 36.2 62.2 800 6,600 2013 52.7 69.5 1,600 7,500 2014 69.2 76.8 2,133 8,400 2015 85.9 84 2,733 9,300 Mobile 10.7 19.7 Desktop 47.6 54.9 Revenue ($ Millions) Mobile 200 400 Desktop 4,800 5,700 Source: Author calculations based on BIA/Kelsey.

Apps (Search, Display, Video, Other) Surveys from developers / publishers are an indicators of in-app advertisings importance. A 2012 survey of mobile app developers asserted that the application market is shifting from pay- to-download models to models where other revenue sources, especially advertising, are becoming important revenue sources, with 25 percent of phone-app developers and 18 percent of tablet-app developers choosing to incorporate ads within their applications.21 Strategy Analytics expected in-app advertising to account for $1.2 billion in 2012 revenues, compared with just $556 million in mobile Web display advertising.22 We believe that the rapid adoption of tablets will drive mobile video consumption, and with it expenditure on mobile device video consumption. In particular, we note that leading cable and mobile broadband providers are developing apps and integrations responding to the tablet opportunity, including Xfinity TV by Comcast, Verizon FiOS, HBO GO apps, which are increasingly incorporating advertising.23

20

Paul Ausick, Mobile Market Spending to Reach $150 Billion in 2012, 24/7 Wall St., April 23, 2012, http://247wallst.com/2012/04/23/mobile-market-spending-to-reach-150-billion-in-2012-t-vz-vod-znga-p-aapl- goog-mm/ 21 Amy Cravens, A demographic and business model analysis of todays app developer. GigaOM Pro, 2012, appdevelopersalliance.org/files/pages/GigaOMApplicationDevelopers.pdf 22 Paul Ausick, Mobile Market Spending to Reach $150 Billion in 2012, 24/7 Wall St., http://247wallst.com/2012/04/23/mobile-market-spending-to-reach-150-billion-in-2012-t-vz-vod-znga-p-aapl- goog-mm/ 23 Onward and Upward, Screen Media Daily, http://www.screenmediadaily.com/marketing-dpaa-digital-place- based-advertising-association-out-of-home-media-planning-buying-survey-centro-mobile-tablets-0629909.shtml 33

Expenditure on Mobile DR / Mobile Enhanced Non-Mobile Media

Table 14: Marketer Expenditures on Mobile DR / Enhanced Non-mobile Media $Millions 2010 2011 2012 2013 1,312 210 155 16 177 57 417 36 84 77 66 2014 2,174 493 188 27 273 74 687 54 120 104 132 2015 CAGR TOTAL 166 336 669 Direct Mail 21 70 140 Magazines 22 44 88 Business Papers 9 9 13 Newspapers 36 66 96 Radio 8 16 24 Television 22 37 127 OOH 3 7 18 Event 11 24 52 Sponsorship Packaging 12 25 50 Miscellaneous 19 34 50 Source: mLightenment based on IHS Global Insight

2,912 77.3% 630 97.4% 337 72.6% 38 33.4% 297 52.5% 110 68.9% 943 112.0% 78 91.9% 161 133 167 71.0% 61.8% 54.5%

Perhaps one of the most compelling aspects of mobile is its ability to integrate with nearly any non-mobile marketing channel. To account for mobiles integration in non-mobile communications, we looked at the three following categories of mobile enhancements to non- mobile marketing media and advertising. Mobile Enhanced Calls to Action. This includes short-code-based SMS calls to action as well as the classic direct response vehicles of voice (dialing a 800 number from a mobile phone). Although using a phone to visit a site or send an e-mail constitutes mobile response, our study counts only a tiny fraction of such real estate in other media toward mobile expenditure, since we found a negligible portion of this activity to be specifically mobile-optimized at this point. More significant are the increasingly frequent calls to follow us on Twitter (or Facebook or many other mobile-accessible social media sites), to the now almost ubiquitous silent calls to action represented by the numerous social sharing icons placed on all manner of media.24 Recognition. This includes the use of barcodes, a fast-growing technique over the last 18 months,25 and the popular QR code.26
24

We make certain assumptions about whether the placement is intended to reach a mobile audience: social media sharing, following or liking calls to action or icons that appear in outdoor contexts, eg we count as more mobile than a placement in other media where the respondent is likely to use their PC. 25 Jack Loechner, Mobile Barcode Scanning Explodes, MediaPost Blogs, August 20, 2012, http://www.mediapost.com/publications/article/181094/mobile-barcode-scanning-explodes.html 26 Taking the volume of scans as an indicator of expenditure is problematic, since the value at any given time necessarily includes noise from consumer behavior (share of scanning consumers or their frequency). Nonetheless, it appears that total scans must be bounded by marketer provision of total opportunities to scan, i.e., the extent to which they display codes more prominently on more media. Data on scan volume from Mobile 34

 Proximity. This includes NFC, Bluetooth, and RFID enhancements. Since these nascent technologies require expenditure by mobile and non-mobile platform providers before marketers can even think about using them, at least some of the expenditure dollars reported here constitute platform providers self-promotional marketing efforts (in effect, place your mobile ad here advertising). Following are highlights of major developments accounting for the expenditure on mobile enhancements to non-mobile media. Direct Mail Though postal revenues appear to be in long-term decline, direct-mail expenditures, as suggested by Zenith Optimedias data cited above, remain in the tens of billions of dollars. Our estimate of expenditure on total direct mail is based on the volume of pieces shipped by the USPS within the standard (advertising) rate, which in 2012 amounted to 79.8 billion pieces.27 Of these, roughly 3 billion were so-called flats, which we take as our proxy for catalogs; the remainder we assume to be bulk direct mail letters of one class or another. Total marketing communications costs per letter piece we assume to be about $1 inclusive of postage; for catalogs, we assume a per piece marketing communications cost of about $3. Mobile-enhanced direct mail and catalog expenditure. There has been an organic move within the direct mail industry to incorporate mobile interactive and direct response elements within their overall direct mail campaigns. In addition, the USPSs financial crisis has led it to a number of mobile-focused direct-mail initiatives.28 Most significantly, the USPS launched two initiatives in 2012 and 2013 providing discounts to direct mailers who newly incorporated mobile enhancement such as QR codes, mobile apps, and mobile-optimized websites in their campaigns.29 Our estimation of total expenditure on mobile enhancement recognition in direct mail includes the estimated costs of the USPS programs partial subsidy. It also includes the remaining unsubsidized amount incurred by marketers, with a calculation for an incremental marketer
Barcode Trend Report from ScanLife, Q2 2012, http://www.scanlife.com/pdf/scanlife-trend-report-inforgraphic- Q2-12.pdf. 27 This volume is a drop of 4.9 billion pieces or 5.8% from 2011. USPS Revenue, Pieces and Weight Report for FY2012. www.usps.gov. Thus while some spending on direct mail, such as the catalog, is clearly migrating elsewhere, we do expect overall direct-mail expenditures to remain in the billions of dollars annually for the foreseeable future, thanks to its extremely high ROI for certain categories of verticals and the rising average expenditure per piece. 28 See USPS, Progress and Performance: Annual Report to Congress 2012, http://about.usps.com/publications/annual-report-comprehensive-statement-2012/annual-report- comprehensive-statement-2012.pdf 29 For press releases and press coverage on this USPS initiative, see https://ribbs.usps.gov/index.cfm?page=mobilebarcode 35

expenditure for legacy mobile enhancements, such as SMS calls to action, that are not covered by the new initiatives.30 Print: Magazines and Newspapers Like direct mail, print and newspaper advertising expenditures overall are experiencing long- term decline. Mobile recognition in magazines/newspapers. Probably the best publicly available source on the prevalence of mobile enhancements to print advertising comes from the marketing firm Nellymoser, which reported that in December 2011 QR codes appeared in 8.4% of all magazine ads, up from 3.6% from the end of the prior year.31 Our own spot-check of print-magazine advertising available on newsstands in the New York City area in late 2012 suggests they are not quite as ubiquitous as this figure suggests.32 We also observed a small but growing trend to integrate mobile into the creative of magazine advertising in other ways, such as by making mobile scanning part of the delivery of the final print artwork, which increases the net percentage of the print real estate that we count as mobile enhanced.33 Television and Radio Despite concerns about the erosion of the traditional TV and radio audience, marketers are unlikely to forsake tried-and-true budgeting assumptions until overwhelming evidence forces them to do so. Thus, the base of expenditure in these media from which we derive the slice of the pie represented by mobile enhancements will remain in the tens of billions of dollars for the foreseeable future. Mobile-enhancements. TV broadcasters and advertisers increasingly recognize that mobile co- consumption or multi-screening is a fact of life for many viewers. Advertising creative often implicitly assumes that a TV ad will be shown while the consumer is texting or using an app on their tablet, and not infrequently includes dialogue or text meant to prompt a soft mobile response such as a social-media tweet or search, even in the absence of a formal mobile response call to action.34 In addition, SMS, email, and 800-numbers have been and will
30

The amount spent only includes the cost of printing envelopes and enclosures with QR codes. The cost of building and maintaining a mobile website is not counted here, but it is included in expenditure on mobile CRM mobile websites and/or apps, as appropriate. 31 Mark Milian, QR Code Fatigue, Bloomberg Businessweek, (June 28, 2012), http://www.businessweek.com/articles/2012-06-28/qr-code-fatigue 32 The marketing industrys own Advertising Age experimented with using mobile recognition to enhance content delivery for its print editions. See for example the January 30, 2013, issue. 33 For an example of a print advertisement whose creative devotes a high percentage of its real estate to mobile recognition without the use of QR codes, see AXA: When iAds Meet Print Ads, Digital Buzz, September 29, 2010, http://www.digitalbuzzblog.com/axa-when-iads-meet-print-ads/ 34 Advertising Age recently reported that the 2012 Super Bowl saw 8 commercials mention Twitter and 8 mention Facebook. 36

continue to be a popular method for getting viewer attention especially outside of prime time broadcast TV. Mobile recognition. Visual recognition technologies such as QR codes that require the viewer, with mobile device in hand, to do something, does not appear to be widely adopted by marketers. On the other hand, audio recognition may be the bigger piece of the pie for two reasons. First, active audio recognition behaviors among TV viewers have already begun, for example, when they use apps such as Shazam to scan songs that accompany ads.35 Secondly, audio interviews with digital agency experts and client-side marketers lead us to believe there is great interest in passive mobile ad syncing technologies for TV, which is more likely to gain dollars because audio recognition doesnt have to be aimed at the TV screen. Properly designed, audio recognition can be an almost completely passive way for the mobile device to hear what is being watched and to create incremental second-device communications or response opportunities, similar to that described recently in the Los Angeles Times.36 Out-of-Home Advertising The overall out-of-home and place-based advertising market is traditionally a small part of marketers advertising budgets that appears to be enjoying something of a renaissance. The reason involves the industrys rapid move to digital, primarily electronically networked transmission of static digital images, video, and other forms of rich media.37 This means that advertising outdoors increasingly can be targeted in real time, interactive, measurable, and, most significantly for this study, growing opportunities for mobile integration and enhancements. Mobile-enhanced OOH. Mobile marketing shows growth in this area not only because out-of- home advertising in general is growing, but because the category is becoming increasingly digital (consider electronic billboards and bus shelters, for example, that can communicate with mobile phones in close proximity.) Initially the most widely used form of mobile integration was SMS-based short-code marketing direct response. More recently, however, the industry has seen experiments with QR code recognition integrations, and in 2012 both Bluetooth and NFC-
35

Parov Solaar, for example, gained a significant boost in popularity when consumers used Shazam to scan Heineken commercials. 36 As described by the LA Times and on ConnecTVs website (http://www.connectv.com/ad-sync-network), ConnecTVs AdSync technology uses the mobile devices audio functionality to recognizes a commercial airing on TV, which creates the opportunity for the marketer to deliver complementary second screen content to the mobile device. Significantly, the syncing opportunity for marketers doesnt seem limited to TV commercials. A feature called TV Words allows advertisers to bid on key terms (most likely a brand or product name or a particular topic) that are spoken on television while the viewer is multitasking on their smartphone or tablet, thus making any in-app ads that are delivered via the ad network (e.g., to the video game they were playing) more relevant to the consumeror at least potentially complementary to their real time background TV co-consumption. See http://www.latimes.com/entertainment/envelope/cotown/la-fi-ct-connectv-20130104,0,7034239.story 37 Onward and Upward, Screen Media Daily, http://www.screenmediadaily.com/marketing-dpaa-digital-place- based-advertising-association-out-of-home-media-planning-buying-survey-centro-mobile-tablets-0629909.shtml 37

based proximity enhancements appeared to gain some more visibility in an effort to capitalize on the latest generation of smartphones with NFC. Event Sponsorship Event sponsorship is an important and growing part of non-traditional advertising media. Because of their site-specific nature, events are a natural fit with mobile marketing, especially for opportunities that leverage geo-location and real-time interactivity, such as text-to-screen (or sometimes, text-to-Jumbotron or iMax). Our research found that using mobile within events of even modest size (>1000 attendees) was now almost de rigueur. Expenditure on mobile enhancements within event sponsorship often included one or more of the following elements: Allowing attendees to access branded collateralwhite papers, one-sheets, downloads, videosvia mobile websites or event-branded apps; Event-wide saturation with branded smart barcodes on everything from display advertising to cocktail napkins; Driving attendees to conference booths through gamification Promoting events within events such as parties, keynote speakers, etc., via SMS messaging and Bluetooth Branding opportunities galore via the events mobile websites and via within-app advertising. Packaging Communications Overall expenditures on packaging communications.38 We estimate the consumer facing or wrapper component of US packaging expenditure to be about $5 billion in 2012, by which we mean net of extraneous (for marketing purposes) non-printed packing material costs the end- customer either never sees or that the marketer would never use to communicate. Mobile-enhanced packaging. Mobile-enhanced expenditures here primarily reflect the percentage of brands incorporating QR or other scannable bar codes on the packaging, a placement that, according to several sources (most notably Scanbuy), is now the most popular

38

We apologize for inventing this awkward name, but a name was necessary since (near as we can tell) annual US packaging-industry expenditures suitable for benchmarking in a media impact study appear not to exist. Packaging prior to the emergence of mobile marketing has primarily been thought of as a means of transporting, storing, and displaying the product through its journey from raw material to the consumer, not as a communications vehicle for any messaging other than a brands logo, product description and priceeven THIS END UP or FRAGILE. As our interest is in the mobile component of this communications opportunity, we have to net out costs the packaging industry typically measures as important: cardboard boxes used in bulk shipments, disposable plastic shrink-wrap, shock- absorbing or insulating material, and much else. We thus took as our marketing-communications base the portion of costs associated with printing aimed at the end-customer or costs associated with labeling on the container surface. Examples include the printed cardboard box a child pours cereal from in the morning, the soda can dispensed from a vending machine that boasts of a football-team sponsorship, and so on. 38

source for scanned bar codes.39 A much smaller portion of packaging real-estate is attributable to SMS calls to action. Our expenditure number also makes a tiny allowance for other forms of mobile responsethe sliver of space allocated on the package to a website URL or an 800 number, either of which may be accessed via mobile devices. Miscellaneous Our estimate of expenditure mobile enhancements reflects a number of digital modernizations in some very traditional marketing communications, many of which are directly related to the rise of mobile marketing. Our research suggests the category really comprises two separate sub-segments of relevance to mobile. The first is the category of electronic customer touch points such as vending machines, kiosks, and ATMs. These are rapidly becoming digital communications vehicles in their own right (to speak nothing of early experiments in incorporation of mobile payments; see below). In many instances, the incorporation of digital displays, keypads, and so forth is creating opportunities for expenditure on mobile-marketing enhancements, such as QR codes in ATM screens that lead customers to download proprietary apps or offers. The second segment is print- and paper-based media such as handbills, flyers, freestanding circulars (typically available for pick up in supermarkets), Yellow Pagestype directories, and so on. Similar to developments already discussed for direct mail, newspapers, and periodicals, printers (who benefit from this surprisingly large, though very local, market) are also increasingly encouraging their clients to include SMS calls to action and QR codes (typically to deliver mobile coupons) as part of the content. We expect this trend toward mobile enhancement to continue, even as the print-based segment of this overall market experiences a slow decline.40

Expenditure on Mobile Customer Relationship Management (CRM)

Our top-line estimate of marketing expenditure on owned mobile media in 2012 is a little more than $3.5 billion; the majority of which we believe is accounted for by expenditure on marketing-related mobile apps.
Table 15: Top-Line Mobile CRM Expenditure $ Millions 2010 2011 1,878 38 748 2012 2,964 59 846 2013 4,273 85 814 2014 5,910 118 806 2015 7,686 154 741

Total Mobile CRM 1,248 Mobile Voice Expenditure 25 Mobile Messaging Expenditure 644

39

Scanlife.com, Are QR Codes Undervalued?: Digiday talks about QR Codes and Scanlife, June 5, 2012, http://www.scanlife.com/en/digiday-talks-about-qr-codes-and-scanbuy] 40 For example, see http://sitmobile-international.blogspot.com/2012/03/sms-mobile-flyers-effective-results- in.html 39

Mobile Web Expenditure Mobile Email Expenditure Mobile Apps Expenditure Mobile Proximity Expenditure Mobile Recognition Expenditure Source: mLightenment

13 22 544 0 0

61 64 967 0 0

172 144 1,743 0 0

382 239 2,753 0 0

696 347 3,942 0 0

965 459 5,368 0 0

While clearly important, Mobile CRM is a difficult-to-measure expenditure category. First, the portion of CRM that includes marketers efforts to create owned media, i.e. marketing communications that bypass publishers and paid advertising altogether, requires the market researcher to dig deeply for some often unconventional data sources. This category includes marketers efforts to become visible online and create one-to-one connections with customers. It includes expenditures necessary for marketers to build an online presence, become visible and findable through search engines, create mobile sites, and other related expenses, many of which lack clear boundaries or completely transparent data sources. No less importantly, marketers owned marketing communications content can often be difficult to distinguish from their earned media, i.e. the marketing communications created and distributed by consumers, bloggers, etc., usually at little to no cost to marketers. Marketer-Owned, Opt-In Relationship SMS/MMS Here we estimate the total number of opt-in broadcast SMS message. We see two categories, the biggest of which is publishers branded content; the other accounts for marketer-specific content.41 Owned Mobile E-mail Two estimates of the size of the overall hosted e-mail marketing industry appear to be the most widely cited and reliable. Forrester Research estimated that the 2012 expenditure on hosted e- mail marketing would approach $1.7 billion, growing moderately to $2.2 billion by 2015.42 Somewhat more recently, Marketing Growth Strategies, LLC, forecast a total market size of $2.6 billion in 2013, with an annual growth rate of about 20%.43

41

For example, in A New Era for Messaging (2011), Juniper Research estimated that (operator) revenues worldwide from A2P messaging would reach $70 billion in 2016, with the US share representing a little more than 25%, or about $17 billion. 42 Niki Scevak with Shar VanBoskirk, Forrester Research Email Marketing Forecast, 2011 To 2016 (US). March 24, 2011. http://www.forrester.com/Forrester+Research+Email+Marketing+Forecast+2011+To+2016+US/fulltext/-/E- RES59101 43 Dan Freeman, Email Marketing: An Industry Overview, 2011, http://www.pinpointe.com/wp- content/uploads/2011-Email-Marketing-Guide-Pinpointe.pdf. 40

Mobiles share of hosted e-mail marketing. Proportional to the number of e-mails now being opened on smart devices, marketers appear to be lagging far behind consumers in their migration of e-mail to the mobile environment as of this writing.44 Chief Marketers 2012 mobile marketing report indicates that 36% of survey respondents measure mobile e-mail opens. Of these, 72% said theyre optimizing their messages for the mobile browser; however, mobile optimization appears to be a minimal undertaking to have preexisting content render properly on the most common device platforms.45 Conservatively assuming that none of the remainder are optimizing their e-mails for the mobile user, this translates into approximately one-quarter of marketers with owned e-mail communications putting incremental dollars into a minimal expenditure on mobile optimization.46 Owned Mobile Web Mobile SEO, mobile website build and optimization. The overall U.S. SEO market is probably on the order of $3 billion.47 We attribute a fraction of this to mobile based on the proportion of marketers with mobile optimized websites. For example, according to Chief Marketer, 31% of marketers said their brands main website has been optimized for viewing over most mobile devices; 17% report that they run a separate version of that site built for mobile visits. Of course, not even these marketers are optimizing for all mobile devices and platforms. Mobile- optimized websites can also mean that a brand has to create mobile-optimized pages across numerous content platforms, especially major social sites like Facebook. Mobile web content expenditure. The total size of the content market in the United States is estimated to be on the order of $2 billion in 2011.48 Mobile Apps Mobile Apps account for the largest expenditure of all the categories in mobile CRM.
Table 16: Expenditure on Marketing Apps iOS Marketing Apps Developed (est'd) Non-iOs Apps
44 45

2010 12,890 1.5

2011 13,626 2

2012 16,204 2.33

2013 17,554 2.71

2014 19,212 3.08

2015 20,869 3.46

As of this writing the share of e-mails opened on mobile devices was on the order of 36%. Chief Marketer Mobile Marketing Survey 2012, Op. cit. 46 Cf. the most recent 2013 StrongMail Survey. StrongMail, 2013 Marketing Trends Survey Email Marketing, Social Media and Mobile Continue to Attract Increased Investment; Data Integration Remains Top Email Marketing Challenge, http://www.strongmail.com/pdf/SM_Trends2013.pdf 47 Econsultancy, SEMPO State of Search Marketing Report 2012, September 2012, http://econsultancy.com/us/blog/7447-sempo-study-us-search-spending-nears-20-billion 48 TransparencyMarketResearch, Mobile Content Market - Global And U.S. Industry Analysis, Size, Share, Trends And Forecasts 2011 2017, http://www.transparencymarketresearch.com/mobile-content-market.html 41

Multiplier Total Mktg Apps 19,334 27,252 37,810 47,543 59,236 72,172 (Estd) Av Cost (Assumed) $ 25,000 31,000 40,000 50,000 57,500 65,900 Total ($ Millions) 483 845 1,512 2,377 3,406 4,756 Source: Author calculations derived in part from AppAnnie.com, Flurry.com, primary survey results, and marketer/provider interviews.

Published app-development costs range anywhere from $10,000 to $250,000, depending on functionality. The assumed annual development cost cited in the chart above is our best conservative estimate, based on examples of standard-functionality, marketing-relevant apps from the Apple App Store, which we benchmarked by inquiring with digital agencies we interviewed about what developing apps with comparable features would likely cost. We then lowered the average amount by one-third since there are probably many more low-end apps developed (i.e., we used an estimate of the median expenditure rather than the mean). To estimate marketer expenditure across all U.S. app markets, we used a small multiplier that trends upward over time to extend what we learned from the Apple App Store to the rest of app marketplace, based on both popularity of each app with marketers and with mobile consumers.49 Finally, we reduced the total by about 30% to account for marketing apps in the US app stores not actually developed for the US market.50

Expenditure on Mobile Marketing Services

All of the preceding data pertained to the variable costs associated with the media buy of mobile marketing communications, or the functional equivalent thereof. These expenditures do not exhaust all the dollars that businesses incur as result of mobile marketing. The remaining category comprises overhead or relatively fixed costs in marketing services or internal corporate support that are directly attributable to mobile marketing.

49

We began with Apple App Store data because it is the largest, and its historical data on developer activity is more available and comprehensive. But apps are distributed through Google Play, Tapjoy, the Microsoft Windows Store, the Blackberry Store, Facebook, and others. However, the gap between iOS and non-iOS apps appears significant. As an indicator, consider that according to AppAnnie.com, the revenue multiple Apple paid to its publishers recently was some four times greater than that paid by Android, suggesting the possibility that for each app developed in the Apple platform there is only 0.25 of an app on its next closest rival. 50 Our conclusion that most US marketing apps were originally intended primarily, if not exclusively, for the iOS Store is separately confirmed by marketer surveys. Early in 2012, 37% of respondents told Chief Marketer they offered at least one smartphone app or planned one for 2012, compared to about 25% who said the same in the 2011 survey. Of those, most said they are targeting apps for Apples iPhone (94% have one) and iPad (72%), although about three-quarters also indicated plans for the Android platform. See, for example, the Chief Marketer surveys for 2011 and 2012. 42

 Table 17: Breakout of Expenditure on Other Mobile Marketingrelated Services

BREAKOUT OF EXPENDITURE ON OTHER MOBILE MARKETING RELATED SERVICES Total Expenditure on Other Mobile Marketing Related Services Advertising Agencies Analytics / Audience Measurement Sellers Mobile Commerce & Payment Services Fees Mobile Couponing (Sales promotions) Public relations fees Mobile Payments Fees - NFC-based Non-NFC Mobile Banking Investments Mobile Ticketing Investments M Mktg Network Access Charges Cellular Data M Mktg Related Hardware Investment Handsets Peripherals 2010 1,130 455 96 309 32 2 9 26 171 68 97 36 60 173 50 123 2011 1,947 800 145 508 66 4 15 42 273 109 148 56 93 345 100 245 2012 3,401 1,405 241 974 136 8 32 79 514 205 224 84 140 558 162 396 2013 5,188 2,236 366 1,446 211 12 51 116 754 302 395 148 247 744 216 528 2014 7,188 3,249 520 1,916 290 18 63 153 995 398 567 213 354 936 272 664 2015 9,163 4,227 676 2,393 373 24 77 190 1,235 494 739 277 462 1,129 328 801 CAGR 52.0% 56.2% 47.7% 50.6% 63.5% 71.0% 52.5% 48.5% 48.5% 48.5% 50.2% 50.2% 50.2% 45.4% 45.4% 45.4%

Source: mLightenment

Among the most important segments in this category of expenditure are the following: Advertising Agency Services AdAge has conducted detailed surveys of the publicly reported ad agency revenues for many years, and recently, it began including mobile marketing activity. For the most recent year available, it reported total 2011 U.S. agency billings of $33,174,187,000.51 (Advertising agency revenues are also included under their own NAICS code within the standard map of the U.S. economy and as such, form part of the mLightenment model of marketing expenditure and impacts.) Mobile-related agency fees. AdAge reported mobile-marketing-related revenues of about $550 million in 2011 for the top 25 agencies working in this market. Believing that mobile-
51

Advertising Age DataCenter. Accessed December 29, 2012. 43

related agency work goes beyond the top 25 firms, we estimated a trend line for the top 25s share based of overall agency revenue. This allows us to estimate the mobile-marketing fees of the next largest 25 agencies in the market, for a total annual estimate of $800 million in mobile agency fees for the top 50. Our figure may be somewhat conservative, since there are hundreds of agencies in the AdAge database and since many more than 50 agencies in the US are most likely involved in mobile-related work (especially in the out-years of our projection). PR Agency Services As discussed in our introduction, earned media is brand, product, or brand-related content that is organically earned because it is deemed newsworthy by content producersnews outlets, bloggers, and consumers who post to social media sites. But as noted, such earned media is not always entirely free. Often there is a PR pitch or creative strategy behind it, for which the marketer (or more often, its corporate communications department) pays a fee. As digital and mobile represent a growing piece of the owned media that PR agencies help deliver, examining the sources of PR agency revenue can help ascertain how much of it can be attributable to mobile using conservative assumptions similar to those used to estimate advertising agency fees attributable to mobile marketing work performed. In 2012, the PR industry expected annual spending on traditional public relations services to increase at a compound annual growth rate of 8% to $5.4 billion. Annual spending on word-of- mouth (WOM) marketing services they expected to increase at a compound annual growth rate of 22.3% to $5.6 billion (up from $2 billion in 2010).52 Our estimate of PR-related mobile-marketing fees is based, therefore, on several breakouts: estimating the role for PR agencies in marketing activities in general, particularly word-of- mouth marketing; the share on digital within PR agency media activities; and finally, trends in the share for mobile within PRs digital marketing activities.
Table 18: Estimated Fees to PR Agencies from Mobile-Marketing Activities $ Millions Traditional PR Revenues WOM Revenues Overall Digital Percentage Mobile as % Digital Revenues Mobile as % Overall Revenues TOTAL MOBILE FEES ($ Million) Of Which: Traditional PR fees WOM fees 2011 5,000 4,590 13% 2% 0.3% 25 13 12 2012 5,400 5,600 15% 4% 0.6% 66 32.4 34 2013 5,800 6,610 17% 8% 1.4% 169 78.88 90 2014 6,200 7,620 19% 11% 2.1% 289 129.58 159 2015 6,600 8,630 21% 14% 2.9% 448 194.04 254

52

Public Relations Society of America, PR by the Numbers, Industry Size and Growth http://media.prsa.org/pr- by-the-number/ 44

Source: Author calculations based on PR industry data and PR agency interviews.

Mobile Analytics and Metrics Services Our survey and interviews suggest that in 2012 mobile marketers and mobile publisher were spending an amount in the vicinity of 5% of their mobile marketing budgets on marketing and media analytics or audience research services. We expect this number will likely expand to almost 10% over the next several years, as big data becomes increasingly important in mobile marketing. Mobile Coupons and Promotions Our figure for the U.S. in 2012 represents roughly 30% of the world market, declining to 23% by 2016. In late 2011, a report from Juniper Research found a worldwide $5.4 billion in redeemed value this year in mobile coupons (primarily via apps); they projected that the total redemption value of mobile coupons will exceed $43 billion globally by 2016, an eightfold increase.53 Network Access Charges Marketer expenditure on access charges are an external variable cost that correlates with the volume of CRM activity-owned SMS, etc., which may be separately incurred. We include a very conservative expenditure estimate for charges directly related to mobile marketing. Mobile Marketing-Related Hardware and Peripherals In-store or on-site mobile device integration equipment & installation (e.g., QR Code Scanners). This varies significantly by marketer vertical. Thus, digital-ticket seller Fandango recently indicated that about 13% of the US movie theaters it works with had installed QR-code readers to scan tickets displayed on smartphones. That percentage is expected to reach 25% by the start of 2013.54

Table 19: Retailer Expenditure on In-Store Mobile Programs 2011 2012 2013 Average Retailer Mobile Investment $55,000 $207,000 % Using e-receipts 0.1 0.22 0.45 % Using Mobile POS Options 0.12 0.26 0.57 % with Mobile-Optimized Websites 0.6 Source: Author calculations benchmarked against Forrester Research.

53

Mark Milian, QR Code Fatigue, Bloomberg Businessweek, June 28, 2012, http://www.businessweek.com/articles/2012-06-28/qr-code-fatigue 54 Milian, QR Code Fatigue. 45

Our estimates of the costs for such installations are based on trade press accounts of individual mobile integration programs undertaken in the recent past. One such analysis based on published accounts is given in the table immediately below, involving Home Depot:

Table 20: Sample Mobile In-Store Equipment Investment Total Program Cost Devices Installed Cost Per Device Stores Where Installed Devices Per Store Cost Per Store $64,000,000 30,000 $2,133 1,970 15.23 $32,487
55

Source: Published Reports on The Home Depot.

55

Adam Blair, "Home Depot's $64 Million Mobile Investment Rolls Out to 1,970 Stores," Retail Information Systems News, December 7, 2010, http://risnews.edgl.com/retail-news/Home-Depot-s-$64-Million-Mobile- Investment-Rolls-Out-to-1,970-Stores56966. 46

Summary: Mobile Advertising and Marketing Expenditure by Mobile Media

Table 21: Mobile Advertising and Marketing Expenditure by Mobile Media Mobile Advertising, DR, and CRM Mobile Voice Ad DR CRM SMS / MMS Ad DR CRM Email Ad DR CRM Mobile Web Ad DR CRM Mobile Apps Ad DR CRM Proximity (Bluetooth, NFC) Ad DR CRM Recognition (QR Codes, Audio, Video, etc.) Ad DR CRM Source: mLightenment 2010 2,405 49 20 5 25 920 235 41 644 69 6 41 22 683 629 41 13 644 101 - 544 19 - 19 - 21 - 21 - 2011 3,957 82 35 9 38 1,096 266 82 748 158 12 82 64 1,311 1,168 82 61 1,230 263 - 967 38 - 38 - 42 - 42 - 2012 6,693 139 61 18 59 1,308 298 164 846 331 23 164 144 2,428 2,092 164 172 2,328 585 - 1,743 75 - 75 - 84 - 84 - 2013 10,456 219 97 36 85 1,448 313 321 814 598 37 321 239 3,860 3,157 321 382 4,019 1,266 - 2,753 148 - 148 - 164 - 164 - 2014 15,162 320 142 60 118 1,665 326 533 806 933 54 533 347 6,064 4,836 533 696 5,663 1,721 - 3,942 245 - 245 - 272 - 272 - 2015 19,806 418 184 80 154 1,782 328 713 741 1,238 66 713 459 7,048 5,370 713 965 8,628 3,260 - 5,368 328 - 328 - 364 - 364 -

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Summary: Mobile Marketing Communications by Industry

Table 22: Total Mobile Marketing Expenditure by Industry $ Millions TOTAL Resources (Agriculture, Mining, Utilities, Construction) Manufacturing, Consumer Packaged Goods Manufacturing, Other Wholesale Trade Retail Trade, Consumer Packaged Goods Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional, Scientific, and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recreation Accommodation and Food Services Other Services Government Source: mLightenment 2010
2,405

2011
3,957

2012
6,693

2013
10,456

2014
15,162

2015
19,806

CAGR
52.5%

42 139 269 72 107 397 93 240 470 152 20 56 17 68 145 116

74 227 471 119 171 648 156 389 784 245 36 95 27 110 227 179

132 382 842 202 281 1,082 266 648 1,332 407 64 164 44 181 371 294

218 597 1,373 322 433 1,676 422 991 2,080 632 105 265 67 281 562 432

323 867 2,023 473 625 2,425 612 1,401 3,032 903 156 396 95 403 807 622

446 1,123 2,691 630 804 3,164 814 1,778 4,017 1,163 204 539 120 512 1,028 771

60.6% 51.8% 58.5% 54.3% 49.8% 51.4% 54.4% 49.2% 53.6% 50.1% 58.5% 57.4% 47.9% 49.8% 47.9% 45.9%

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Mobile Marketings Sales Impact on the U.S. Economy

Our headline finding from our econometric analysis is that mobile has a very substantial and positive sales impact on the output of U.S. economy, amounting to almost $140 billion in additional sales realized during the course of 2012. This figure is forecast to rise to just over $400 billion in 2015. 2015s amount represents a vigorous five-year compound annual growth rate of 52%, relative to the $48 billion in net sales that mobile added to the U.S. economy back in 2010.
Table 23: Total Net Sales Driven by U.S. Mobile Marketing
$ Millions Total Mobile Mktg Sales Impact Mobile Ad Sales Impact Mobile DR Sales Impact Mobile CRM Sales Impact 2010 2011 2012 2013 2014 2015 CAGR

48,627 25,530 2,705 20,392

85,300 46,814 5,694 32,792

139,003 73,811 10,280 54,912

216,931 115,010 18,866 83,056

311,566 163,052 30,059 118,455

400,971 204,345 36,682 159,943

52% 52% 68% 51%

Source: mLightenment

To appreciate just how significant mobile marketings contribution to the US economy already is, and will continue to be, some context may be helpful. As can be seen from the following table, already in 2012, mobile marketing contributed almost a half percentage point to total U.S. output, when measured against the base of $33 trillion dollars in total U.S. sales. (Total sales differ from GDP in that the latter measures only those sales that represent final demand; total sales include intermediate B-to-B sales as well.)
Table 24: Mobile Marketing Sales Impact Compared with Total U.S. Sales

2010 48,626.7 0.16%

2011 85,299.9 0.27%

2012 139,003.2 0.42%

2013 216,931.1 0.63%

2014 311,565.9 0.86%

2015 400,970.9 1.05%

Total US Sales Mobile MarCom Sales MMarCom as % Tot US Sales Source: mLightenment

30,169,415 32,108,753 33,366,991 34,621,501 36,218,068 38,102,218

Later in this section we will compare estimates of mobiles visible mCommerce [online] sales with the less visible total of offline sales to show that over 90% of mobiles boost to the economy occurs in physical, brick and mortar locations, sometimes without the purchaser even having her mobile phone in hand.
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But wherever they occur, these hundreds of billions of dollars in sales represent output that the U.S. economy would not enjoy, were it not for industry expenditure on mobile marketing communications. No less importantly, the increased sales output contributed by mobile marketing of goods and services benefit all 16 major industry groups of the US economy, with substantial increased sales accelerating economic growth throughout all regions of the country.

Behind the Numbers: Americas Love Affair with Mobile

To explain mobiles significant contribution to the U.S. economy, one must begin with the obvious: as ever more powerful and versatile smart devices have captured more and more of the populations time, attention, and even creativity, they have become more central as a conduit of our buying power, making mobile connectivity increasingly indispensable in marketing and commerce. Evolving Devices and Networks Fuel Growing Mobile Adoption and Use From all available statistics, it is clear that among end-customers, mobile adoption is now on an accelerated maturing phase. Since 2010, we have seen more mobile phones sold than laptops and PCs. And no less importantly, the tablet and its fraternal twin, the e-reader, have become popular sensations in their own right.
Table 25: US Wireless Devices - Units Sold by Customer Type

Source: IHS Global Insight

As seen in the chart above, 2010 showed a significant spike in mobile devices sold. This growth includes consumers as well as business users, as companies became significantly more invested in providing their employees with the latest devices that year. (It is important to note media

50

consumption patterns for corporate employees, given the very substantial role played by intermediate B-to-B sales within total US sales.56) Growing Device Functionality, Better Network Access Just as many mobile users celebrate added features and a richer mobile experience, marketers too can celebrate, because added functionality means a potentially richer marketing communication opportunity. It also seems to lead to greater adoption and more attention from users. Consider how different the mobile world looked a mere eight years ago, in 2005. Cellphone sales were still overwhelmingly dominated by the most basic, voice-only models. Smartphone primarily meant small-screen, email-ready devices like the Blackberry, and tablets as a category did not yet exist. But 2010, the year of the smartphone, changed that, and 2013 will almost certainly be seen in retrospect as the year of the tabletthe year it displaces the feature phone from its number-two market position, as seen in the chart below.57 These represent real milestones for mobile marketers, as mobile devices come into their own with consumers and business users alike.
Table 26 US Mobile Device Sales by Type

Source: IHS Global Insight

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In fact, intermediate sales normally make up almost two-thirds of total US sales, unlike in GDP, where final demand by consumers amounts to about 70% of the total. 57 Flurry reported 17.4 million new iOS and Android devices were activated on Christmas day, a 255% increase from 6.8 million on Christmas Day 2011. http://blog.flurry.com/bid/92719/Christmas-2012-Shatters-More-Smart- Device-and-App-Download-Records 51

But advances in device power would mean little if not accompanied by improved network speed and availability. Today, it is almost a given that wherever the mobile consumer roams from airports and gyms to homes and officesshe will find a good cellphone signal or a Wi-Fi access point, or hotspot.58 Growth of these access points for use with smartphones and tablets is a factor in determining how widely mobile device (especially tablets) can roam and how intensively they can be used to consume media.59 Not long ago, it was estimated that 70% of tablets werent linked to a cellular data plan, and so mostly used at home, leading some to question whether they werent perhaps more convenient laptops. But as 4G and LTE networks become available, more tablet owners are opting to connect their devices to mobile broadband subscriptions, in addition to Wi-Fi networks. Thus it is highly likely that the share of mobile broadband traffic seen over tablets will rapidly increase and may eventually reach levels consummate with mobile phones,60 implying the tablet will have become truly mobile. Mobiles Growing Share of Mind A related factor is mobiles efficiency in penetrating a target demographic. This might be called the media platforms share of mind within the population at large, or specific demographic groups. As a general rule of thumb, the more narrowly an audience concentrates its attention span on a given media, the more likely it is that their share of advertising-influenced purchases can be attributed to that media.61 In other words, as a medias share of mind grows, so may its share of wallet. Note below the increase in reach for mobile, as the equivalent for other media appears to be declining.
Table 27: Population Reach of US Media
Television Desktop PC Radio Share of U.S. Adult population reached* by different media, 2010 vs. 2012 2010 89.5% 62.5% 60.6% 2012 88.3% 58.1% 58.8% Chg -1% -4% -2%

58

CTIA reports cell tower saturation reached 285,561 in 2012, up from 210,360 in 2007. http://www.ctia.org/advocacy/research/index.cfm/aid/10323. Numerous alliances of cable operators and Internet service providers and wireless operators have begun adding tens of thousands of WiFi hotspots in major US cities. Cable Giants Open 50,000 Wi-Fi Hotspots. InformationWeek Mobility. May 21, 2012. http://www.informationweek.com/mobility/wifi-wimax/cable-giants-open-50000-wi-fi-hotspots/240000695 59 comScore, 2012 Mobile Future in Focus, Key Insights from 2011 and What They Mean for the Coming Year, February 2012, www.comscore.com. 60 comScore, ibid. 61 In a similar vein, marketers and other experts often compare the expected sales impact of media using a common denominator of time spent by end-customers. Mary Meeker, a much-followed media analyst on Wall Street, has suggested on this basis that there is a $20 billion dollar gap between the great amount of time consumers are spending with mobile, and the much smaller share of budgets marketers are allocating to it. 52

Newspapers Magazines Mobile Device

38.6% 28.6% 84.2%

36.1% 24.8% 89.0%

-3% -4% +5%

Author estimates compiled from Statista, Pew, comScore, Nielsen. Note that percentages are not strictly comparable as sources define media penetration or adult population differently.

Looking more narrowly at just digital device penetration, it seems fairly clear that a pattern is emerging in which nearly everyone will have an all-purpose go-everywhere device, the smartphone (still termed here the cellphone); while some people will augment it with another optional device: a lap-top for office workers, an eReader for the weekend leisure class, etc.
Table 28: US Device Ownership Trends
100% 90% 80% 73% 75% 70% 68% 65% 60% 50% 37% 40% 30% 30% 34% 20% 20% 10% 0%
85% 64% 47% 45% 41% 42% 19% 19% 10% 3% 5% 9% 4% 8% 88% 88% 89% 85% 85% 87% 87% 61% 58% 25% 18% 18% 42% 43% 29% 31% 26% 24%

82% 62% 52%

83% 84% 57%

Cell phone Desktop computer Laptop computer mp3 player Game console e-Book reader Tablet computer

57% 56% 55%

2%

Source: Pew Internet and American Life Project

Some studies show that mobile is in some instances directly cannibalizing audiences from traditionally important media platforms and devices first the landline, then print, now perhaps even the PC and the laptop.
Table 29 Rates at Which Smartphones and Tablets Are Replacing Other Devices and Media Clock/Alarm Organizer Music Player Landline Phone Newspaper Books PC Computer Smartphone 65% 55% 52% 35% 33% 14% 5% Tablet 22% 45% 34% 6% 62% 51% 20%

% of respondents indicating each product had been replaced by their smartphone or tablet 53

Source: IDG, 2012

Mobile Media Usage: Technology Folkways and Location Micro-Climates Beyond consideration of access to device type, speed, and the substitutions and complements with other media, one must look within the individual mobile media, to see how much of the population uses them, when, where, and how.
Table 30 Mobile Phone Content and Behavior Trends
80 70 60 50 40 30 20 10 January March May July September November January March May July September November January March May July September November 0
Used Downloaded Apps Accessed Social Networking Site or Blog Listened to Music on Mobile Phone Played Games Sent Text Message to Another Phone Used Browser

2010

2011

2012

Source: comScore Reports November 2012 U.S. Mobile Subscriber Market Share, 2012, www.comScore.com

Consumer access to marketing communications will also reflect the soft variables of consumers mindsets for using the different media available on their tablets or smartphones in different social contexts and locations at different times -- their folkways and the specific geographic mobile marketing micro-climates in which they find themselves. And naturally enough, these will differ among key demographics. What applies to mobile media and content applies also to engagement with mobile marketing, whether it be participation in a short code SMS campaign, or using marketer apps. Consider, for example, the difference in consumer folkways in tablet and smartphone usage. On the one hand, tablets appear to be more conducive to longer immersion with rich long-form media: consumers are streamingnay, gulpingvideo on their cable company appthe

54

famous "lean back" mode so beloved of television advertisers. And by accounts they seem more accepting of creative rich-media ads with their longer download times. Yet in terms of access to and engagement with mobile marketing is concerned, users ability to engage with rich media on tablets will also be affected by the quality of Internet access in their micro-climate: on a Wi-Fi-only tablet, mobile ads may not be visible to consumers reading their newspaper electronically on a commuter train, or if the cellular connection is slow, they are less likely to tolerate latency - the delay in loading in loading content caused by ad-serving.62 In contrast, marketing communications on a smartphone are more likely to be consistently accessible, thanks to the cellular connection that comes with the device. But when using their smartphone in a shopping mall, the consumer is more likely to be in a on-the-go, need-it-now, no time for distractions mindset: they are in lean forwardor rather, head-downmode. In this mode, a task-oriented app utility may be far more likely to attract eyeballs than a rich media ad placed in a video. And yet if the smartphone app utility depends on GPS to show the consumers current connection, it may not work properly inside a covered space where the satellite signal cant penetrate. The Buying Power Advantage of the Mobile Marketing Audience Mobile device ownership, (especially of the most advanced devices), media consumption, and marketing engagement have historically skewed towards younger, wealthier demographics. The resulting buying power premium among mobile subscribers, and especially among early adopters of smartphones and tablets, is another contributing factor to the high sales impact of all forms of mobile marketing observed in this study. However, this demographic premium will not last much longer. Adoption rate data suggests the profile of the smart-device owner will gradually regress to the mean of the general US population over the next few years, particularly as operators and manufacturers subsidize the cost of smartphones and tablet devices.
Table 31 Mobile Media Usage by Age and Income Group 2012 Demographics Mobile Internet All Age 18-29 30-49 50-64 65+ Income <$30,000 64% 94% 88% 74% 49% 54% 79% 83% 82% 67% 47% 85% 73% 92% 95% 87% 76% 32% Email Cell Phone Smartphone 89% 66% 55% 30% 17% 26% 46% 36% 44% 20% 18% 18% Tablets E-readers 31% 28% 32% 20% 19% 26%

62

The dramatic increase in free Wi-Fi hot-spots and the growing number of tablets with mobile broadband subscriptions will likely make this specific issue less important over time. 55

$30,000-$49,999

84%

76%

89% 97% 97%

46% 51% 64%

24% 30% 50%

23% 33% 37%

$50,000-$74,999 91% 86% $75,000+ 96% 92% Source: Pew Internet and American Life Project

Sales Impacts of Mobile Media Advertising

The story of the sales impact of mobile marketing communications really needs to be analyzed in its three separate components to appreciate its underlying dynamics:; in the next sub- section, mobiles transformative impact on non-mobile media; in our third sub-section, and most importantly, the unheralded power of app-driven mobile CRM. But first, the surprising impact of mobile advertising. We can begin to measure mobile advertisings surprising importance by looking at the contribution mobile advertising made to U.S. economic performance and comparing that to the contribution made by US advertising in general. As can be seen in the table below, advertising in all media contributed $2.2 trillion to the US economy last year, meaning it expanded total U.S. output by a hefty 6.5%. Of advertisings overall contribution of $2.2 trillion, mobile advertisings share was 3.4%, or $73.8 billion.
Table 32 Mobile Advertising Sales Impact vs. Total U.S. Sales and All Advertising Sales Impacts $ Millions TOTAL Ad Sales Impact Total Ad Sales As % Total US Sales Mobile Ad Sales Impact 2010 2,104,883 6.98% 25,530 2011 2,138,261 6.66% 46,814 2012 2,191,962 6.57% 73,811 3.37% 2013 2,204,700 6.37% 115,010 5.22% 2014 2,266,706 6.26% 163,052 7.19% 2015 2,320,707 6.09% 204,345 8.81%

Mobile Ad Sales as % of 1.21% 2.19% Ad Sales Source: mLightenment and IHS/Global Insight

Mobile Display Advertisings Lift from Comparative Brand Lift Studies Are mobile advertisings large net sales impacts on the U.S. economy consistent with what is being seen by researchers who look at advertisings effectiveness for firms and consumers? To answer that question, we looked at publicly available information from brand lift studies, which for decades has been the primary research tool of brand advertisers seeking to know whether their advertising works.

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In comparative brand lift studies across media, mobile advertising appears to perform better than other media. Insight Express, one of the leading research practitioners of brand lift studies, reported in 2011 that the deltas of mobile advertising exceeded those of advertising in print, online, and TV, by a wide marginby a multiple that ranged from two and a quarter times for print, to over four times for online.63
Table 33 Comparative Brand Lift By Advertising Media Print Online TV Mobile Unaided 0.9% 2.3% 0.5% 8.2% Awareness Aided 3.5% 2.8% 4.2% 8.4% Awareness Message 2.6% 3.3% 4.6% 15.0% Association Brand 8.8% 2.0% 5.5% 7.6% Favorability Purchase Intent 6.4% 2.2% 5.6% 11.3% AVERAGE* 4.4% 2.5% 4.1% 10.1% Mobile Multiple 2.27 4.08 2.47 Source: InsightExpress Cross Media Norms http://www.quirks.com/articles/2011/20110707.aspx?searchID=203320904&sort=5&pg=1

Very similar findings regarding mobiles superior performance in brand impact measures have been reported by Dynamic Logic, the subsidiary of leading brand performance research firm Millward Brown, which has reported that mobiles superior lift measures outperform those of online by well over three and a half times.64
Table 34: Comparative Brand Lift by Advertising Media: Online vs. Mobile Online Mobile MULTIPLE Aided Brand 2.10% 4.80% Awareness Ad Awareness 4.00% 17.30% Message Association 2.20% 10.00% Brand Favorability 1.30% 3.80% Purchase Intent 1.20% 4.30% AVERAGE* 2.16% 8.04% 372.2% Source: *Author Calculation. Source: Dynamic Logic

63

Joy Liuzzo, If You Arent Using Mobile to Advertise, Youre Wasting Money, September 1, 2011, http://blog.insightexpress.com/2011/09/aren%E2%80%99t-mobile-advertise-you%E2%80%99re-wasting-money/ 64 Millward Brown, Digital Media Planning: some evidence based guidelines, http://www.millwardbrown.com/Libraries/MB_Articles_Downloads/Millward_Brown_Media.sflb.ashx 57

What do researchers and agencies make of mobiles superior performance on advertising and brand lift metrics? Two principal hypotheses have been offered in support, and a completely different source of evidence is offered on the opposite side of the scales. First, the support. Mobiles More Hospitable Ad Environment. Not withstanding mobiles small screen size, lack of JavaScript, and its hurried, task-oriented viewership, the argument is made that todays smartphone and (especially) tablet offer a superior environment for display of advertising than does the PC Internet. What the screen lacks in size, it makes up for in proximity, so it fills the viewers field of vision to the same extent as would a typical TV when viewed from the proverbial living room sofa, and so offers a comparable intimacy and immersiveness. And, as with TV, the mobile viewing typically sees only one ad at time, unlike the PC Web, where content can be surrounded by a hodge-podge of competing and often discordantly colored and moving adsassuming they are even seen at all.65 The Power of "Hyper-local." Relevance can be thought of as what hits close to home. In the PC Internet, and broadcast TV and Radio, local cant be much more precisely targeted than the fixed geography of an entire city or countyaka, the DMA. But with mobile, the excitement is about the option to target at the hyper-local level (right down to the city block, thanks to GPS) and precisely customize the advertising to whatever is going on around the mobile user at that moment. The Weather Company, for example, offers the opportunity to target based on local weather conditions. Mobile lets local be defined as the location of the consumer at a given moment (a radius of X miles around the individual consumer). Similarly, mobile geo-fenced ad targeting via mobile allows traditional retail categories to deploy personal targeted point-of- purchase advertising (e.g., a city restaurant can offer a discount or coupon to anyone within 3 blocks) or to deploy in-store advertising. This makes mobile advertising more contextually relevant, and closer to bottom of the sales funnel point-of-purchase advertising, which is well known to be effective.66 In our view the brand lift evidence is certainly suggestive, but should treated cautiously. With far fewer surveys, and widely variable results across too few brand categories, it is unlikely the results are really as robust as they appear to beand even if they are valid now, they are unlikely to remain to positive for mobile once the mobile and non-mobile populations converge. Mobile Performance Advertising: The Unconverted. On the other side of the scales, marketers reluctant to jump into mobile often look no further than mobile advertising sold on a performance basis. Concerning the pricing and performance
65 66

Joy Liuzzo, ibid. There is some residual skepticism about how many mobile publishers and ad networks can actually deliver hyper-local mobile ads at the claimed level of granularity. Barriers to hyper-local targeting include caching, connectivity, latency, and lack of consumers allowing access to their current location. 58

of search ads, there are many published reports and blogs in which digital marketers wring their hands about mobiles very low eCPMs relative to those seen in the traditional PC Internet (to speak nothing of the actual CPMs seen in traditional real world advertising), fueled in part by mobiles apparently shockingly low conversion rates. If mobile search advertising were so effective, the argument goes, conversion rates and eCPMs would be higher; and yet, less effective though it may be, it is seemingly gaining ground on mobile display (CPM) advertising. If data in the following table is representativeand it may not bemarketers in 2012 were paying about four times more per weighted clicks in traditional PC search than they were for clicks in a smartphone search. Why is this? And does this apparent price disadvantage of mobile in the market place indicate that mobile advertising is in fact not as impactful as our data would suggest?
Table 35: Implied CPMs of Online vs. Mobile Search Advertising Total Mobile Subtotal PC Mobile Smartphone Tablet Budget Share* 87% 13% 7% 6% Click Share 82% 18% 10% 7% Clicks yielded per budget dollar (Derived) 0.95 1.33 1.48 1.16 Cost per click 0.77 0.56 0.50 0.63 cost per weighted click (Derived) 0.811 0.420 0.341 0.544 Click-thru-rate (CTR) 0.022 0.04 0.051 0.032 Implied Weighted eCPM (Derived) $371.80 $97.36 $66.90 $170.03 *Interpretation: 13% of Search advertising budgets went to mobile in total, with 7% of the total to Smartphone, etc. Source: author calculations based on Marin Software, US Online Advertising Report: Key Trends And Insights, Q1-Q3 2012

To explain pricing and performance patterns such as those shown here, several interpretations have been advanced. The Mobile False Spring. Its possible that a spirit of new-gadget enthusiasm and curiosity is leading some people click on the many new rich media ad formats to see what they do, not because of any genuine interest in the product. A similar phenomenon was seen over a decade ago on the PC Internet, where the first PC banner ads and pop-ups and roadblocks experienced extremely high click-through rates. The Scourge of the Fat Finger. There is some evidence that consumers fat thumbs have difficulty navigating the smartphones small screens, causing them to tap on some mobile ads by accident.67 This hypothesis may be partially confirmed by the introduction of newer ad units
67

Will Oremus Why Do People Click On Smartphone Ads? Because They Have Fat Fingers. Slate.com 59

by networks such as Google that are specifically designed to ensure that a tap on a mobile ad represents the users intent. Lack of Live Readers. Wi-Fi-only tablet users often download magazine or newspaper content when they are in a hotspot, but then read it later, when they arent. Without a live Internet connection, many things go wrong: rich media may not work; the consumer can't click on the ad to get more information, marketers cant receive social media engagement or feedback from their ads. Mobile Tracking and Targeting Issues. A critical component of the effectiveness of mobile marketing communications is the efficiency with which data can be used to identify and communicate with audiences most likely to buy the advertisers product. The mobile ecosystem denies marketers some of their favorite tools from desktop computing, with cookie- based behavioral targeting as Exhibit A. 68 In the traditional world of online PC-based advertising, third-party cookies placed in site-visitors browsers by ad networks has been the basis for aggregating interest-based profiles of online consumers for targeting purposes. But in the mobile space, third-party cookie-based approach isnt technically replicable, especially for the much sought-after iOS device users. Stand-ins for third-party cookies and related privacy controls are very experimental but are beginning to draw heightened interest. In our view, the greater factor keeping demand for mobile advertising low is likely that agencies and their clients have far more metrics and analytics for desktop than they do for mobile. Thus agencies and their clients are more comfortable with PC and the ROI data they have. Very few budgets outside of search or direct response are built upon clicks, relying more on CTRs, engagement/time spent and ROI. And though the trend relies on only a few quarters of data, it appears that mobile CPMs and eCPMs are beginning to move up steadily, as more marketers begin to bid for mobile inventory. In the end, it may be that brand lift and taps and tap-thru rates in performance can be combined to tell a more nuanced story. Yes, mobile advertising may indeed be quite impactful and generate positive brand perceptions and purchase intentbut where are those sales being transacted? The performance marketer sees that conversions arent happening on her website, at least not at the rate shed like. But that doesnt mean mobiles sales arent happening somewhere else, possibly even for someone else. For most experienced professionals in the digital universe, the clickor as it is known in the mobile world, the tapis recognized as a weak indicator of true ad performance, even when the performance campaign seems to be
Friday, Oct. 5, 2012 http://www.slate.com/blogs/future_tense/2012/10/05/mobile_advertising_smartphone_ad_clicks_due_to_small _buttons_fat_fingers.html 68 The question of the actual effectiveness of behavioral targeting is still contested and under-researched, at least as far as publicly available studies are concerned. The most famous study, by former FTC Commissioner Howard Beales, and sponsored by the Network Advertising Initiative (NAI) is The Value of Behavioral Targeting. Available at: http://www.networkadvertising.org/pdfs/Beales_NAI_Study.pdf 60

working well. And when it isnt working, it still might actually be working; in other words, a mobile user may have been in your competitors store when they saw your ad and decided to make a purchasejust not with you. So the conclusion is that more than for most traditional, static media, measuring mobiles sales impact may be an especially slippery moving target. The trick is to learn how to think about, observe, and measure mobile more broadly, so that its full returns are captured.

Mobile Direct Response / Enhanced-Media Impacts

A single ad in a single touch point, a single shopper in a single store. For marketers who arent mobile marketing natives, this phrase summarizes the half-conscious dis-integrated paradigm ruling the pre-mobile advertising world. In the mobile world, it no longer holds true. And in the rest of the non-mobile media the mobile consumer is beginning to sweep it away. Integrations With Non-Mobile Media Our expenditure research persuaded us that based on trial programs and new initiatives, mobile has the potential to be the most integrated medium marketing has ever seen. So our question on the sales impact side was, how integrated are consumers? And is there reason to believe that formal mobile enhancements yield more sales impact than merely mobile- accessing of non-mobile media does? (In our economic model, as previously explained, media sales impacts are primarily driven by consumers choice of media by which to access or engage with marketing communications of any kind. If a consumer were to type the URL she saw in a newspaper ad into her mobile browser and make a purchase, the sale would count as a mobile-accessed newspaper sales impact. If she had typed the same URL into her PC browser, it wouldnt. The advertisers intent to have the URL be read by one device over the other is, for our overall sales impact calculation, irrelevant.) The most important consumer trends for accessing non-mobile media thus far in both Proximity [Transmitted] and Recognition [Scanned] mobile enhanced non-mobile media are: NFC Technology. A 2011 report by Juniper Research forecasted that one in five smartphones worldwide would be equipped with NFC (Near Field Communications) contactless functionality by 2014, with potentially as many as 135 million of these in the U.S. market, a forecast that Juniper later revised downwards when some anticipated device launches by major wireless operators failed to materialize on schedule.69 Though Apples failure to incorporate NFC into the iPhone 5 may have slowed NFC, support for NFC on the Android platform remains
69

1 in 5 Smartphones NFC-enabled by 2014. Mobile Marketing Magazine. http://mobilemarketingmagazine.com/content/1-5-smartphones-nfc-enabled-2014 61

significant, with Samsung featuring its hip NFC-enabled Galaxy devices prominently in ads spoofing square buyers of the NFC-less iPhone 5. NFC was estimated to represent 10 to 15% of the U.S. marketplace in terms of aggregate interactions.70 Though there is apparently considerable uncertainty about what NFC actually is for advertising purposes even among Americans who have NFC devices, the seamlessness of NFC appears to compensate. For example, in a recent multi-location trial in the US Midwest, Kraft reported that consumer engagement using the NFC tap to engage with its marketing content exceeded that seen from the QR snap by a wide margin: 12 to one overall, including conversion levels and total engagement time.71 Smart [2D] and Standard [1D] Bar Code Recognition. Issues of seamlessness aside, all available evidence suggests that the most widely recognized, understood, and used mobile enhancement technology among US mobile consumers is now the smart [QR] barcode, whose digital checkerboard has become both more ubiquitous and more utilized than SMS response technologies are at present. In late 2011, about 20% of US mobile subscribers had scanned a QR code, according to comScore.72 A recent survey released by Pitney Bowes indicated that 19% of all US adults had now scanned a QR code.73 The same survey suggested that between three and four out of 10 Americans between 18 and 34 years old reported having scanned a QR code in each of posters, magazines, mail, and packaging, and between 10 and 20% of this same age group had scanned QR codes seen on websites, emails, or on TV.74 This picture of QR code enhancements to non-mobile media can be rounded out by looking at QR code scanning traffic. According to the ScanLife Trend Report, there were more than 16 million mobile barcode scans in the second quarter of 2012 with more than 5.3 million scans in the month of June.75 And, the ScanLife Trend Report covering the two-week shopping period on either side of Black Friday, 2012 showed a million-scan increase (or 71%) over the comparable period in 2011. ScanLife data can also help gauge which non-mobile media are being mobile enhanced.
70

Mikhail Damiani, CEO of mobile marketing agency Blue Bite, quoted in Alex Palmer, NFC on the Ascendant. Direct Marketing News. March 01, 2013 http://www.dmnews.com/nfc-on-the-ascendant/article/281517/# 71 Alex Palmer, NFC on the Ascendant. Direct Marketing News. March 01, 2013 http://www.dmnews.com/nfc-on- the-ascendant/article/281517/# 72 comScore 73 Pitney Bowes Survey: 27 Percent of Consumers Age 18-34 Say They Activate Quick Response Codes. January 15, 2013. http://news.pb.com/press-releases/pitney-bowes-survey-27-percent-consumers-say-they-activate-quick- response-codes.htm. The PB press release also cites Forrester Research data that placed QR code usage among US adults at 1% in 2011 and 5% in 2012. 74 Pitney Bowes, op. cit., cited in eMarketer, US Ahead of Western Europe in QR Code Usage. http://www.emarketer.com/Article/US-Ahead-of-Western-Europe-QR-Code- Usage/1009631#4FpB5ArA5v9GxpXp.99 75 Mediapost.com, "Mobile Barcode Scanning Explodes", 8/20/2012, http://www.mediapost.com/publications/article/181094/mobile-barcode-scanning-explodes.html 62

Table 36 Smart barcode Scanning: Source and Location QR Code source Scan Locations Home Retail location Out of doors At work Grocery Store Restaurant 39% 20% 13% 13% 11% 4% Printed magazine or newspaper 30% Product packaging 21% Website on PC 16% Poster or flyer or kiosk 16% Business Card or brochure 5% Storefront 5% TV 5% Source: ScanLife Trend Report, Q2, 2012

Table 37: 2D Code Source Among Non-Mobile Media Top 2D Media Placement 2012 2011 Packaging 1 1 Web 2 3 Direct Mail 3 5 Magazines 4 2 In Store 5 N/A Source: ScanLife Trend Report, Q2, 2012

Table 38: Rank of QR Code Scans By Marketing Industry Publisher Verticals 2012 2011 CPG 1 1 QSR 2 N/A Entertainment 3 3 Retail 4 2 Wireless 5 5 Source: ScanLife Trend Report, Q2, 2012

Mobile Voice. Elsewhere we spoke of the role of share of mind as an underlying factor in determining the impact of media. One of the most pronounced developments has been the demise of the landline phone, especially among younger demographics. According to the CTIA, the number of wireless-only households leapt from 10.5% in 2007 to 35.8% in mid 2012.76 The consequence for our sales impact calculation is that mobile phones inevitably account for a proportionately increased percentage of inbound sales calls to 800 numbers (here counting only responses to calls-to-action placed in non-mobile media).
76

CTIA, Wireless Quick Facts, Mid-Year Figures, http://www.ctia.org/advocacy/research/index.cfm/aid/10323 63

Co-consumption with Non-Mobile Media We next we consider the specific extent to which mobiles impact is erasing the idea of discrete, clearly defined traditional media touch-points, especially for broadcast and cable TV, and to a lesser degree, radio and Internet. Studies show that the phone and/ or tablet is the most often "used with other mediums" device. 86 percent of tablet owners and 88 percent of smartphone owners use their devices while watching TV.77 71 percent of smartphone users that see TV, press, or an online ad, do a mobile search for more information. 78 TV-style content and major programming moves to the tablet. Most TV publishers and advertisers have recently adjusted to a dual screen world and are synchronizing their TV content with their tablet app content.79 With smartphones and tablet in hand, mobile consumers are re-writing the rules for broadcasters and their advertisers. Though mobile might at first be considered a threat to audience attention, recent thinking has turned to integrating mobile into the viewing experience, primarily with secondary content meant to be downloaded or viewed on the device while the main content rolls on the big screen. Apps designed to complement TV viewing such as Zeebox and GetGlue reportedly have millions of downloads each.80 Perhaps more significant for the medium term, audio scanning is already having a significant economic impact via Shazam, which says that 20% of all iPhones in the U.S. used Shazam during December 2012. Shazam users are currently tagging 10m songs, shows and ads a day, many of whom also tap through to buy tagged content worth approximately $300m annually from digital content stores such as iTunes or Amazon MP3. American Idol, in a similar vein, is incorporating mobile-enabled vote-by-tweeting into its real time broadcasts, and the participation rate is almost certain to be very high. Combine these co- programming trends with the numbers of mobile users who now Shazam their favorite TV commercialsif only to purchase the catchy songand one sees the old Leave It to Beaver world slipping into the mists of the 50s.

Mobile CRM: Apps Unchained

The third and most important part of our story involves the media that is the not-so-hidden power behind mobile CRM. If the story about mobile CRMs economic impact was written in
77

Danyl Bosomworth, Mobile Marketing Statistics 2013, Smart Insights, January 8, 2013, http://www.smartinsights.com/mobile-marketing/mobile-marketing-analytics/mobile-marketing-statistics/ 78 Google/Ipsos (US consumer Mobile Movement survey April 2011) 79 Simon Khalaf, Mobile Apps: We Interrupt This Broadcast, Flurry.com, December, 5, 2012, http://blog.flurry.com/bid/92105/Mobile-Apps-We-Interrupt-This-Broadcast 80 Stuart Dredge, Shazam: 'TV advertising is going to become our primary revenue stream.' Guardian Apps Blog, posted February 27, 2013. http://www.guardian.co.uk/media/appsblog/2013/feb/27/shazam-tv-advertising-future 64

2010 it would be a tale about two mobile mediaSMS and apps. If it were written in 2015, it would be a tale of just one: apps, as apps would have far outpaced all other mobile media. What makes the app storyliterallyso impactful from an economic point of view? How so from the point of view of society and marketers? To understand why the conclusion to our story takes three sections to tell, we begin by looking at each of the mobile CRM media in context. As we do, we shall see several key themes come into focus: the power of addressable, one-to-one communications; the power of location; the power of shopping; and above all, the power of social. Top-Line Mobile CRM Impact
Table 39 Mobile CRM Sales Impact By Media
($ Millions) TOTAL Mobile Voice Mobile Web Mobile Email Mobile Apps 2010 20,392 408 213 367 8,881 Mobile Messaging 10,523 2011 32,792 656 13,056 1,069 1,124 16,886 2012 54,917 1,098 15,668 3,180 2,669 32,296 2013 83,056 1,661 15,827 7,419 4,642 53,506 2014 118,455 2,369 16,165 13,944 6,960 79,017 2015 CAGR '15-'10 159,943 3,199 15,425 20,079 9,541 111,700 51.0% 51.0% 7.9% 148.3% 91.8% 65.9%

Source: mLightenment

SMS But it is with messaging that the story of mobile as a CRM medium really comes into focus. SMS has blossomed into one of the most popular ways for members of social media to share comments on products, movies, music etc. Much of this is due to Twitter, far and away Americas most successful micro-blogging site, whose protocols were designed specifically to fit the form factor of SMS on mobile devices. Such is the popularity of Twitter that Super Bowl XLVII reportedly saw 30.6 million public Tweets and Facebook comments. Of these, 3.9 million were about the Super Bowls commercials, reportedly a 225% increase over tweeted commercials the prior year.81 Such earned consumer-generated CRM marketing via messaging are an important but often misunderstood cause of mobiles high sales impacts. Beyond this gratuitously social activity, there is a high level of marketer-sponsored owned engagement with consumers via ongoing SMS programs. We estimate the value of SMS CRM, owned, messaging by beginning with the total volume of texts sent last year in the US: 2.2 trillion. Of this total something on the order of 8.7 billion messages were marketing program emails sent to opted-in subscribers, mostly by
81

Of course, though not all these social comments were SMS, on mobile, it seems safe to infer that a substantial portion was. https://bluefinlabs.com/blog/2013/02/04/top-super-bowl-xlvii-commercial-in-social-tv-rams-farmer/ 65

brands and retailers. Such alerts contained everything from mobile coupons to links to mobile websites to prescription reminders to advance notices of sales and special promotions.
Table 40 Estimated U.S. Marketer SMS CRM Message Volume
Millions of Messages Estd Total A2P Msgs. Less: From Publishers Marketer CRM Msgs. Retail / Brand CRM Travel / Accom. CRM

2011
79,676 62,246 8,715 6225 2490

2012
101,881 74,509 13,686 9124 4562

2013
140,027 89,107 25,460 16367 9093

2014
177,732 101,562 38,085 25390 12695

2015
202,493 110,451 46,021 32215 13806

Source: mLightenment estimates based on various sources. Finally, our study also captures sales silently triggered by the less visible peer-to-peer but literally innumerable messages that happen every day as friends forward news of sales, links to restaurant reviews, and the like. Mobile Email A similar story can be told about mobile email. CRM email has been becoming more and more a mobile phenomenon, growing aggressively, by our estimate, from 17% of all commercial email opens in 2010 to almost a third of all CRM emails last year. Published reports indicated that during the course of 2012 alone there was a 73% increase in email views on iPads, 34% increase on mobile devices, 11% decrease on Web-based email programs, and 9.5% decrease on desktop email clients.82
Table 41 Commercial Email Open Trends Mobile vs. Web Mobile Opens PC Opens Desktop Webmail 2010 17% 83% 36% 49% 2011 23% 77% 33% 44% 2012 32% 68% 29% 39%
83

2013 39% 61% 25% 36%

84

2014 47% 54% 22% 32%

2015 54% 46% 19% 27%

Source: Author estimates based on adjusted Return Path and Strongmail data.

Mobile Web As one might expect given the substitution of smartphones and tablets for PC usage, the
82

Monetate "Intelligent Email Marketing that Drives Conversions" (2012), cited http://emailstatcenter.com/Usage.html 83 http://www.returnpath.com/wp-content/uploads/resource/mobile-webmail-desktops/Return-Path-Mobile- Messaging-WP-11_11.pdf 84 Strongmail website 66

Internet and the mobile Internet are increasingly the same thing. comScore has reported that the share of Internet traffic accounted for by mobile phones and tablets nearly doubled between 2011 and 2012, to a combined 13.3 percent of total Internet page views as of August 2012. Mobile phones drove 9 percent of page views during the month, while tablets accounted for nearly half of that at 4.3 percent share of page views, corresponding to PCs share of total consumption declining 6.4 points in the same timeframe.85 Our own estimates are that by the final year of the forecast period, 2015, about one quarter of U.S. Web traffic will be accounted for by mobile devices, with the tablet providing over half that amount, as shown in the table below.
Table 42 Mobile Browser data traffic share of total browser data traffic PC Mobile Devices 2011 2012 88% 12% 4% 8% 1% 36% 2013 83% 16% 7% 9% 1% 43% 2014 79% 20% 10% 10% 1% 50% 2015 75% 24% 14% 10% 1% 57% 92% 8% Tablet 3% Smartphone 5% Other 1% Tablet as % of Mobile Device Traffic 32% Source: Author estimates based on DataScan?

Although from a consumers perspective of time spent and usage, the PC and mobile Web are the same thing, we often hear marketers complain about the differencesmobile conversion rates are shockingly low. A rule of thumb holds them to be about half what marketers are used to seeing on the desktop Web. This leads us to clarify the distinction between the sales impact of the mobile web vs. the mobile optimized Web. The accelerating trend to pay per performance advertising in digital reflects marketers growing (and in our view, greatly exaggerated) belief that the power of mobile advertising is best understood in terms of what happens after the tap: the conversion, which is almost always assumed to be a conversion that takes place on the marketers mobile website.
Table 43 Post Click Campaign Action Mix Site Search Application Download social media mCommerce Enroll/Join/Subscribe 0.41 0.32 0.28 0.24 0.23

85

comScore Device Essentials Mobile Phones and Tablets Now Account for 1 in 8 U.S. Internet Page Views October 1, 2012 67

Store Locator / Map 0.19 Watch Video 0.14 Retail Promotion 0.13 Place Call 0.1 Source: Millennial Media Q3 2012

There has been much discussion lately to the effect that if the website or landing page is not mobile optimized, there may be a disconnect: the consumer may never reach the landing page, may not find what they are looking for, or find the registration process too cumbersome, or fail to convert for some other mobile-related reason. Thus there has been an anxious conversation about the best way for marketers to optimize their sites for mobile by decreasing load times, simplifying content design, using different frames, among many others. The point is however, that the conversion rate on a mobile website should NOT be the full measure of sales impact. For example, one survey we encountered in the course of our research noted the following behaviors among people who reacted to a mobile ad: 42 percent clicked on the mobile ad; 35 percent visited the advertisers site; 32 percent searched for more information on their phone; 49 percent made a purchase and 27 percent called the business.86 We cite these statistics not for the specific numbersthey dont enter into our impact estimatesbut rather to suggest the scope of specific ways in which sales impacts should not be limited to a sales conversion on the marketers website, important. Mobile Apps A growing body of academics and industry experts has noted the powerful confluence of mobile and consumer-centric relationship marketing. For AdAge, content marketing is the hot topic of the moment.87 In a recent article Emory University professor of marketing, Jag Sheth, observed that mobile was one of the leading edges of a reincarnation in relationship marketing. We concur, and think the mobile app is the real force behind this reincarnation, for it enables consumers to lead the conversation about the brand, even to co-create the brand in ways never imagined before the app. The statistics on apps download and usage are familiar, but still remarkable. According to the Apps Developers Alliance, App downloads reached 31 billion in 2012 and expected to grow to 56 billion by 2015.88
Table 44 Time Spent with Apps vs. Mobile Web, Smartphone Users Apps/Web Ratio In Minutes 2010 1.99 2011 2.72 2012 4.67 2013 6.25 2014 7.95 2015 9.65

86 87

Google/Ipsos (US consumer Mobile Movement survey April 2011) Jag Sheth "The Reincarnation of Relationship Marketing," Application Developers Alliance, September 27, 2012, 88 http://appdevelopersalliance.org/news/2012-09-27-GigaOMSurvey 68

Source: mLightenment calculations based on Flurry data. Flurry, one of the foremost sources on Apps statistics, revealed that between December 2011 and December 2012, the average time spent inside mobile apps by a U.S. consumer grew 35%, from 94 minutes to 127 minutes. By comparison, the average time spent on the Web declined 2.4%, from 72 minutes to 70 minutes; they spend 1.8 times more time in apps than on the Web. Perhaps most startling was the fact that time spent with apps had attained 76% of the total time spent on television.89 Where is this power coming from? Games, of course; but few of them qualify as relationship marketing; but more important are the following. The Power of Local One of the important innovations to content by mobile devices is the ability of apps to automatically provide geographically specific information relevant to the users current location automatically, thanks to many apps ability to leverage the smart devices GPS function. The biggest commercial impact of this appears to be in search, where one half of all local searches are now performed on mobile devices, and increasingly, that means apps.90 Moreover, as powerful as apps are for local-search, a large part of the power is also supplied by the inherently social aspect of location, as when Yelp users provide local restaurant and hardware store reviews, or GoogleMaps users overlay maps of local landmarks with pictures taken on their mobile phones. In addition, already in 2011, 12 percent of smartphone owners had reportedly checked in via location-based services.91 Mobile / Social New screen mentality is pervasive in the industry. Apparently, many industry people believe that social media are simply the new form of television. It isn't, nor is it ever likely to be. Social media is and was developed to assist individual users in communicating with other users, not to listen to marketers. The impact of social is not just in consumer consumption but also in consumer creation and distribution of marketing-relevant communications, an activity for which the smart mobile device is exceptionally well suited. First, let us consider mobile consumers consumption of social media. According to recent Pew data, 68% of smartphone owners in 2012 reported having ever used social media and fully 50% of these reported they did so on a typical day. Twitter for example, has reportedly been used by 16% of smartphone owners, and 10% use it every day.92 However, among all social sites,
89

Simon Khalaf, Mobile Apps: We Interrupt This Broadcast, Flurry.com, December, 5, 2012, http://blog.flurry.com/bid/92105/Mobile-Apps-We-Interrupt-This-Broadcast 90 http://www.smartinsights.com/mobile-marketing/mobile-marketing-analytics/mobile-marketing-statistics/ 91 Foursquare 92 http://pewinternet.org/Reports/2012/Best-Worst-Mobile/Part-V/Activities.aspx 69

Facebook is the number one connected media destination on mobile, with consumers spending many hours on it per week, and with mobile now representing the lions share of Facebooks overall audience. How consumers contribute. Consumers routinely engage in mobile activities that are the foundation of consumer-drive marketing communications. One of the most important is photo uploads to social sharing sites, which 58% smartphone owners report having done at least once, and which 15% do on a typical day, according to Pew research.93 Vast numbers also report commenting on others posts, liking things on Facebook, and following - which while seemingly only a consumption metric actually has marketing value, since the numbers of followers a person or product has can be seen socially. Consumers generated more than 500 billion impressions about products and services through social media in 2011.94 Furthermore, social customers have been found to tell an average of 42 people about a good customer experience, and tell an average of 53 people about a bad customer experience.95 53 percent of people on Twitter acknowledge having recommended companies and/or products in their Tweets.96 Most customer feedback comes from purchasers in the 35 to 65 age range. . However, in-store buyers aged 19 to 24 are more likely to go online to give their feedback for the products they purchase. In fact, the older the in-store shopper, the less likely he or she is to leave product feedback online. 97 Overall impact is that consumers who research across online, offline, and mobile channels spend 18-36 percent more than those who dont.98 60 percent of people who use 3 or more digital means of researching products learned about a Retailer through a FB or Twitter post. 99 As one might expect, there are important generational differences. When making brand decisions, Millennials are 247 percent more likely to be influenced by blogs or social networking sites,100 84 percent of Millennials say user-generated content has at least some influence on what they buy (compared to 70 percent of Boomers).101
93 94

Ibid. Competitive Strategy In The Age Of The Customer. Forrester Research Inc., June 6, 2011. http://www.forrester.com/Competitive+Strategy+In+The+Age+Of+The+Customer/fulltext/-/E- RES59159?objectid=RES59159 95 2012 American Express Global Customer Service Barometer 96 ROI Research for Performance, June 2010, op. cit. 97 "The Conversation Index Vol. 3," Bazaarvoice, March 2012 98 "Social Trends Report 2012", Bazaarvoice, June 2012 99 Nielsen, Social Media Report, Q3 2011 100 Times Trends research, "Millennial Shoppers: Tapping into the Next Growth Segment." June 28, 2012 101 "Talking to Strangers: Millennials Trust People over Brands" Bazaarvoice, January 2012 70

 mShopping 40 percent of U.S. smartphone owners compare prices on their mobile device while in-store shopping for an item 102 During the 2012 holiday season, 46 percent of cellphone owners called a friend while they were in a store for advice about a product they were considering purchasing; 28% of cellphone owners used their phone to look up reviews of a product online while they were in a store and 27% of adult cell owners used their phones to look up the price of a product online while they were in a store, to see if they could get a better price somewhere else. 103 Pews April 2012 survey found that some 30% of all cellphone owners and 86% of smartphone owners used their phones in the previous 30 days to decide whether to visit a business, such as a restaurant.104 62 percent of all online shoppers read product-related comments from friends on Facebook, with 75% of these shoppers clicking through to the retailers site. 105 33 percent of consumers use their mobile phones to check for sales and specials and 32% of consumers have checked ratings and reviews of products on their phones.106 But for that very reason, no innovation in the area of content more clearly exploits mobiles attributes as the quintessential personal, with-me-all-the-time relationship marketing tool than social media. Mobile empowered social is shifting the power of marketing from the producer to the consumer, especially thanks to the impact of mobile enabled user generated marketing communications Social media has created mobile brand communities, in effect mobile-enabled brand virtual meet ups. Empowered by their smartphones and tablets, consumers are now co-creating brand identity on the go. User-generated marketing, such as co-creating new products or commercials, or socially repurposing an old product, results in releasing untapped value and resources and leads to greater emotive bonds, when consumers can say I did that. In other words, the impact arises not only from co-creation and viral sharing with other consumers, but from fly-on-the-wall marketer listening opportunities. Mobile CRM in social
102 103

(Comscore, January 2011) In-Store Mobile Commerce During the 2012 Holiday Shopping Season http://pewinternet.org/Reports/2013/in-store-mobile-commerce.aspx 104 Just-in-time Information through Mobile Connections http://pewinternet.org/Reports/2012/Just-in-time.aspx 105 Sociable Labs Social Impact Consumer Study 106 The 2011 Social Shopping Study Brief I: Consumer Research Dynamics, Mobile and User-Generated Content e-Tailing Group. http://www.powerreviews.com/assets/download/Social_Shopping_2011_Brief1.pdf 71

media empowers this value by permitting collecting, analyzing and interpreting customers conversations, whether about the brand, or their ultimate needs, problems, or personal objectives. These conversations are making visible sentiments that were formerly invisible to all but the consumers themselves. Mobile - social CRM is as much an inbound data collection channel as it is an outbound marketing channel. Data captured via mobile marketing can be incorporated into existing databases to better understand and manage consumer preferences and to develop targeted offers that appeal to each consumers shopping preferences.

Most of Mobiles Sales Impact Is Offline

In this section we briefly explore where sales generated by mobile marketing are being realized: either online under the broad category of mCommerce, or offline via the broad category of brick and mortar sales we call mShopping.
Table 45 MM Sales Impact by Channel
Total Mobile Mktg Sales Impact mCommerce (All Remote)* mShopping (All Physical Location) mShopping as % Total

$ Millions

2010
48,627 4,088 44,538 91.6%

2011
85,300 14,147 71,153 83.4%

2012
139,003 21,370 117,634 84.6%

2013
216,931 30,483 186,448 85.9%

2014
311,566 39,123 272,443 87.4%

2015
400,971 47,764 353,207 88.1%

*Author estimates of mCommerce sales are calculated from estimates of eCommerce and mCommerce sales from sources such as the Commerce Department, Forrester Research, comScore, and others. mCommerce sales in this table are cited only for purposes of comparison and are NOT necessarily attributable to mobile marketing communications using our methodology. See report below.

By comparing mobiles total sales impacts reported here (which do not distinguish between online and offline sales) to third-party reports of mCommerce,107 it is clear that the great majority of mobiles sales impact -- at least 85% -- occurs in brick and mortar environments, whether a supermarket, a department store, a car dealership, a movie theatre or a ballpark. Heres why we say this. We fully expect that somepossibly mostmCommerce transactions are realized through remote sales channels caused by mobile marketing communications. But since the data supporting our model doesnt allow us to make a specific attribution of sales to specific channels, we use third party mCommerce numbers as the basis for thought estimation. In this hypothetical calculation, reported mCommerce numbers set a baseline of the minimum amountevidently about $21 billion -- of total mobile marketing sales occurring inside direct electronic channels. When these are deducted from our channel-neutral total, the balance represents the hypothetical offline component of our total, i.e. the minimum amount that can be said to flow into the brick and mortar accounts of apparel merchants, restaurants,
107

mTransactions or mPayments are not to be confused with mobile banking, which is for us the management of financial accounts and services via mobile devices. 72

supermarkets, and car dealerships across the country, even though none of them will ever have a mobile conversion to which these mShopping sales could ever be traced. In fact the portion of brick and mortar offline sales within mobiles total sales impact is almost certainly greater even than this. Not every mCommerce sale is, in our strict sense here, actually attributable to mobile marketing.108 Of course at least some percentage of every mCommerce sale can be at minimum attributed to the mCommerce marketers investment in creating a mobile commerce app, website, etc., and promoting it to the consciousness of potential customers. Yet for many product sales, the primary trigger of the purchase may have been a marketing communication the consumer encountered in a different media altogether. What follows is our own tentative assessment of the break out of mobile-driven sales between online and offline. Mobile Commerce (mCommerce) In this study, mobile commerce encompasses any final purchase (the transfer of ownership) is conducted via the purchasers mobile device. It can be accomplished through a click on an SMS message that downloads a ringtone; it can be a book order placed on mobile commerce website, or a hotel room booked through a hotel aggregators mobile applications. It also includes a mobile ticket (if that ticket is ordered through a mobile device), through a variety of means including mobile coupons, mobile ticketing, in-app purchases and virtual goods and currency.109 Digital Content. This refers to any media that is downloaded upon purchase onto the purchasers mobile device for use. One of the most important categories, as one might expect, is app-based digital content. Other researchers have suggested that already in 2012, U.S. consumers would be likely to have spent $6.7 billion on mobile apps in 2012, about 20% of the total that U.S. consumers will spend on all forms of mobile media in 2012. 110 Paid apps, and in-app purchases, whether they be virtual goods like weapons upgrades and extra lives in mobile games or actual goods, such as food for home delivery; videos that are bought or rented; mobile subscriptions to the digital
108

It seem plausible that some mCommerce categories such as digital content downloaded onto mobile devices are mostly mobile driven, even if this hypothesis cant be confirmed within the scope of data available to our model. But with other important components of mCommerce, such as mticketing of airline boarding passes or movie tickets, many of the actual purchases take place via the PC internet, and therefore only a portion of the mticket sale can be seen as mobile driven. 109 A key growth driver of mCommerce is that more and more goods and services are now being delivered or managed digitally. The first product categories to be revolutionized by this trend were music, then video, then magazines, newspapers, and most recently, books. Over the next few years, we anticipate that education and even health will see increased digital delivery of their services, creating significant growth prospects for sales impacts in these verticals. 110 http://247wallst.com/2012/04/23/mobile-market-spending-to-reach-150-billion-in-2012-t-vz-vod-znga-p-aapl- goog-mm/ 73

editions of newspapers or periodicals; eBooks; software; remote e-learning courses; or paid games. Mobile-Ordered Non-Digital Goods and Services. In this category mCommerce mobile consumers use their devices to purchase goods or services that are not consumed directly on the device itself. This includes hard-copy content, such as print books, DVDs and BluRay discs, and physical goods for shipment, as with Fresh Direct. This category of mCommerce includes a considerable portion of sales realized via call centers, as when the mobile consumer orders from a catalog via a mobile call to an 800 number. Mobile Banking. Though technically (in our model, at least) part of the previous category of mobile-ordered non-digital goods and services, we thought it worthwhile to treat it separately, given the scale of its impact. In the U.S., 15 percent of online adults were active mobile bankers in 2011, up from five percent in 2008.111 U.S. consumers who opened financial products reported that they opened 37 percent of these products online, two percent by mobile and 36 percent in a branch.112 Furthermore, studies have been published suggesting that up to one third of all product reviews in social are about financial products.

Mobile Shopping (Offline, Physical Location Sales Impact) In this category we find all offline sales influenced by mobile marketing communications of any kind. What does the at least 85% of mobiles impact is offline mean for brick and mortar vendors of whatever stripe? Showrooming. The answer comes down to the issue of so-called showrooming, the heavily documented habit that Americans now have of browsing in physical locations, mobile apps in hand, to comparison shop, and often place an order with a remote retailer. To us, the implication seems obvious: there are literally billions of dollars up for grabs between the mShopping and mCommerce sales outlets. The proprietors with the right mix of sales assistance, socially enhanced product and experience information, location sensitive delivery options, and of course, price, all within the most convenient and clever app, has much to win. Retailers, hoteliers, and others are eager to capture as much of this offline activity as they can via apps that protect the customer in the brick and mortar environment, protecting them from being conquested by the showrooming sales temptation. Much of their strategy focuses pre- purchase mobile shopping activity; for example app utilities like shopping lists, or
111

Forrester Research cited in Chantal Tode, Banks Pour One Third of Digital Investments Into Mobile Forrester, June 21, 2012. Mobile Commerce Daily, http://www.mobilecommercedaily.com/banks-pour-one-third- of-digital-investments-into-mobile-report 112 Chantal Tode, ibid. 74

recommendations reviewed in social media via mobile can drives sales by making up minds, finding stores and products quicker, while consumer still want to purchase, and by making purchase suggestions and helping ensure they drive to a location where the product is in stock. Some of this consumer-initiated pre-purchase mobile shopping activity happens off-site, some of it happens on-site in a physical location car dealer, retail outlet, shopping mall, etc. The expectation of mobile marketing expenditure is therefore in facilitating such activity in a way that conversion to sales, whether online or off, is as smooth as possible. For example, a mobile shopping list created on a generic note-taking app is one thing; but a dedicated shopping list app created by a big box retailer and used by a large portion of its customers could be monitored in real time by the merchandisers to ensure that items appearing in these lists were in stock, so that sales would not be lost. Promotions: mCoupons, Sweepstakes, Loyalty and Wallets. Millions of dedicated coupon users in the US appear to be now hooked on the utility of mobile media for finding, storing, and redeeming promotions and marketing incentive services, with location-aware mobile passports now able to trigger coupon reminders automatically whenever he passes within the perimeter of a participating retail outlet. In our view, loyalty includes mobile pre-paid credit. These are pre-paid loyalty cards, where funds are debited into loyalty accounts and controlled through native applications on the device. The adoption and usage among consumers can be benchmarked by noting the 2 million highly-caffeinated patrons who use the Starbucks payment app with its Square functionality.113 Mobile Payments Not every purchase in which the mobile device is the payment mechanism has been driven by that mobile device. (At least not wholly so. If that were the case, then we would say that money itself were the cause of the purchases made using it.) Instead, we only count the value of mobile payments to the extent they are attributable to mobile marketing communications -- i.e. transaction that could have taken place using good old fashioned cash or plastic credit. The table below is our estimate of mobile payments using both NFC and non-NFC methods, based on third-party sources. It is an category of activity that overlaps both mobile-driven offline sales, and off-line sales that are not attributable to mobile. It is estimated and included here only for possible future reference.

113

Chantal Tode, Starbucks caffeinates mobile payments with over 2M mobile transactions per week. Mobile Commerce Daily, November 5, 2012. http://www.mobilecommercedaily.com/starbucks-caffeinates- mobile-payments-with-over-2m-mobile-transactions-per-week 75

 Table 46 Mobile Payments Estimates

TOTAL NFC Non-NFC

2011 7,020 300 6,720

2012 18,000 1,200 16,800

2013 28,980 2,100 26,880

2014 41,660 4,700 36,960

2015 56,340 9,300 47,040

Source: mLightenment estimates from various sources

The Performance of Mobile: The Value of Dollars Spent and Beyond

The Marketing Impact Ratio (MIR)simply total sales divided by expenditureis expected to decline slightly over the forecast period, falling to $20.25 in 2015 from a high of $20.77 in 2012. However, not all marketing categories will have falling MIR. Mobile CRM is projected to grow at an annual rate of 4%, growing from $18.53 in 2012 to $20.81 by 2015. Where is this growth coming from? The answer should be clear: mobile empowers consumers as marketers.
Figure 3: Mobiles Marketing Impact Ratio
$30 $25 $20 $15 $10 $5 $0 2010 2011 2012 2013 2014 Mobile Media Adv Mobile CRM 2015 Total Mobile Marke}ng Mobile DR Enhanced Trad'l Adv

Source: mLightenment The confluence of mobile local and social makes measurement of performance difficult, especially for individual marketers who are under pressure to nail down very precise dollar-for- dollar measures of sales. We are aware individual marketers struggle with ROI proxies like the number of Twitter followers, retweets, or likes on their Facebook page. Especially with
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mCommerce transactions such a tempting source of data, it is hard to avoid asking is our mobile social media marketing driving conversions? Yet with the incredible mobile enabled sharing of pictures, comments and ideas on social networks, Twitter, Facebook, Pinterest, etc., exploding as they are this may be the wrong question. The right question may be: is our mobile social media marketing listening to the conversation? Indeed, the value of mobile-enabled relationship marketing goes well beyond top-line financial results, not only for the company but mobile marketers customers and the wider society of which they are a part. We believe the apps economy will lead marketers to think beyond features and benefits, and think about consumers goals and social goods. Yes, many consumers are motivated by price or habit; but a growing number of consumers want to feel that their product preference, brand loyalties, buying decisions and content consumption is meaningfully related to their higher social and personal agendas. In other words, marketers need to realize mobile consumers are relating their brand relationships to purposes that go beyond consumption. This will lead to more enriching and empowering products and brands, and betteror at least broaderways of measuring mobiles performance, as we describe in the next section.

Marketing Impact Ratio by Industry: No Diminishing Returns?

We would have expected to see strong evidence of diminishing returns when comparing figures for mobile marketing spending by industry and the corresponding marketing impact ratios (see Tables 43 and 44 below). Surprisingly, however, the MIR for the top and bottom four mobile marketing spenders by industry does not seem to reflect diminishing returns. On the contrary: the highest spending quartile of industries sees the highest MIR, while the lowest quartile sees the lowest MIR. While by no means conclusive, this observation is sufficiently counter-intuitive as to deserve further exploration. If further investigation confirms this pattern, the question would then be: why might mobile be exempt from the law of diminishing returns? The strongest hypothesis is that mobile marketing does not function alone but serves as a catalyst for all other marketing platforms. There are several points that explain this role of catalyst. Among them is mobile marketings near ubiquity, with mobile devices accompanying most people throughout the day, together with mobile device penetration currently equal to that of television. And hand in hand with this ubiquity is the viral power of mobile. The ease with which users can tweet, retweet, post on Facebook, and share YouTube clips is all the more valuable since users do this at little to no cost to marketers.

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We find further support for a catalyst effect in mobile marketings versatility. Unlike most other media that offer specific and limited uses, mobile can be used for search, shopping, surfing, learning, locating, and other activities that complement various marketing platforms and strategies. In particular, mobile shows high effectiveness for branding as seen in the MIR figures and brand lift scores. It could also be said that the highly personal nature of mobile presents potential for better targeting and personal relevance. And, finally, mobile represents the final yard of marketing: mobile devices often accompany consumers throughout the purchase consideration cycle, including every point of sale, whether online or off. Crucially, then, mobile gives marketers the ability to influence purchases right up to the moment consumers reach even the brick and mortar cash register.
Table 47: Total Mobile Marketing Spending ($ Millions)
Industry Group Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr. Accommodation and Food Services Other Services Government Total 2010 42 139 269 72 107 397 93 240 470 152 20 56 17 68 145 116 2,405 2011 74 227 471 119 171 648 156 389 784 245 36 95 27 110 227 179 3,957 2012 132 382 842 202 281 1,082 266 648 1,332 407 64 164 44 181 371 294 6,693 2013 218 597 1,373 322 433 1,676 422 991 2,080 632 105 265 67 281 562 432 10,456 2014 323 867 2,023 473 625 2,425 612 1,401 3,032 903 156 396 95 403 807 622 15,162 2015 446 1,123 2,691 630 804 3,164 814 1,778 4,017 1,163 204 539 120 512 1,028 771 19,806 CAGR 2010-2015 61% 52% 59% 54% 50% 51% 54% 49% 54% 50% 59% 57% 48% 50% 48% 46% 52%

Source: mLightenment

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Table 48 Marketing Impact Ratio for Mobile by Industry

Industry Groups Resources (Agriculture, Mining, Utilities, Construction) Manufacturing, Consumer Packaged Goods Manufacturing, Other Wholesale Trade Retail Trade, Consumer Packaged Goods Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional, Scientific, and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recreation Accommodation and Food Services Other Services Government TOTAL MIR 2010 10.03 9.47 29.07 15.75 11.28 23.54 20.63 19.91 24.94 18.87 36.37 17.43 14.24 11.22 13.58 4.70 20.71 2011 9.84 10.10 30.45 16.66 12.18 25.46 22.40 20.96 26.26 19.94 35.32 17.98 15.18 12.07 14.59 5.00 22.06 2012 8.72 10.08 28.13 15.86 12.62 25.30 20.77 19.88 24.49 19.86 32.99 16.95 15.16 12.23 14.79 5.12 21.20 2013 8.15 10.29 27.25 15.63 13.15 25.72 20.66 19.83 23.99 20.21 32.55 16.61 15.47 12.54 15.24 5.26 21.14 2014 7.78 10.53 26.49 15.33 13.70 25.85 20.14 19.69 23.14 20.46 31.83 16.42 15.78 12.84 15.66 5.44 20.92 2015 7.24 11.12 25.14 15.06 14.77 26.30 19.01 19.13 21.78 20.34 34.22 15.98 16.19 13.46 16.51 5.79 20.56

Source: mLightenment

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Employment Impact
Our research shows that every worker directly employed in mobile marketing supports 23.6 other workers in non-mobile occupations. Below, we explain what we have included in our estimate of mobile marketings employment impact, and how we arrived at this estimate. In the following pages, we also provide more detailed employment figures with breakdowns by state and industry. To calculate the volume of mobile-marketingdriven employment, we begin with the value of sales by industry caused by mobile marketing expenditure established in Step 2 (see Methodology), which is broken out by our 16 major industry groups. Using national employment statistics, we calculate ratios of output per employee by industry that represent coefficients predicting the number of additional employees that an increase in sales in a given industry will require at prevailing wage and benefit costs, taking other supply factors into consideration. Seller employment represents those personnel in non-mobile marketing occupations employed in major industries needed to produce transport, handle, or supervise increased sales resulting from the successful use of mobile marketing to raise demand among end-customers for that industrys products or services. Advertiser employment represents employees directly involved in creating, executing, or supervising mobile marketing communications. Direct mobile marketing employment may be found among either mobile marketing providers or buyers. This figure is based upon the wage and benefit costs incurred as part of mobile marketing communications expenditure, and on related mobile marketing services. In other words, advertiser employment includes in-house mobile marketers employed within the 16 major industry categories, as well as mobile- marketingrelevant staff employed by publishers, ad networks, advertising and PR agencies, audience analytics and metrics providers, network access providers, handset and peripherals manufacturers, consultants, and other service providers whom industries may involve in developing their mobile marketing communications. Together, these two types of employment represent total mobile marketing employment. Crucially, these employees represent employment that would not exist but for the expenditure on, and increased demand arising from, mobile marketing communications, since the wages and benefits of both categories ultimately depend on the prospect of accelerated industry revenues in other words, mobile marketings net sales impact.
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Finally, we use the same statistical procedures to estimate the share of each of these categories of mobile marketing employment found within each of our mobile media channels, marketing categories, and in our 51 geographies (50 states, plus Washington, DC).

Total Employment
Advertiser Employment Mobile advertiser jobs are the most direct form of employment generation employing a number of people in activities such as ad designing, programming, analytics, marketing, administrative staff, etc. In 2012, mobile advertisers directly employed over 21,000 persons, and the industry is projected to employ 64,000 people by 2015, growing at an average rate of 44% per year. The mobile direct-response (DR) category is expected to grow the fastest, employing over 9,000 people by 2015.
Table 49: Mobile Marketing Advertiser Employment
2010 Total Advertiser Employment Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM 7,983 3,265 549 4,169 2011 12,672 5,540 1,073 6,059 CAGR 2010-2015 52% 55% 76% 43%

2012 21,275 9,655 2,123 9,497

2013 33,453 15,465 4,190 13,798

2014 48,744 22,568 6,978 19,197

2015 64,053 29,512 9,402 25,139

Source: mLightenment The number of mobile advertiser jobs by industry is proportional to the amount of investment in advertising. Thus, finance, retail, and manufacturing industries are also the largest markets for advertiser jobs. About 3.3 jobs were created in 2010 for every million dollars spent on mobile advertisement. This was 3.18 in 2012 and is projected to stay close to 3.2 during the forecast years. As mobile marketers continue to use more advanced database marketing strategies involving predictive analytics and automation, labor deployment rates will likely remain low.

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Table 50: Mobile Marketing Advertiser Employment by Industry ($ Millions) CAGR 2010- 2015 60% 51% 58% 53% 49% 51% 54% 49% 52% 50% 58% 57% 47% 49% 47% 46% 52%

Industry Group Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr. Accommodation and Food Services Other Services Government Total

2010 141 449 878 223 359 1,342 316 780 1,522 520 71 192 58 236 501 397 7,983

2011 241 704 1,476 354 556 2,113 511 1,220 2,449 809 122 315 90 367 756 590 12,672

2012 428 1,176 2,617 598 909 3,502 868 2,016 4,128 1,336 214 543 146 603 1,228 964 21,275

2013 711 1,852 4,296 955 1,412 5,465 1,386 3,109 6,463 2,093 353 884 223 942 1,875 1,432 33,453

2014 1,058 2,697 6,365 1,408 2,047 7,957 2,023 4,429 9,436 3,010 526 1,328 316 1,361 2,707 2,075 48,744

2015 1,473 3,512 8,522 1,880 2,655 10,459 2,712 5,667 12,522 3,912 693 1,822 406 1,747 3,478 2,594 64,053

Source: mLightenment Seller Employment The incremental product sales resulting from successful deployment of mobile advertising will require hiring additional workers by the product sellers, manufacturers, or the service providers in order to scale up the production. In 2012, the seller employment attributed to mobile advertising is 502,562 persons. This is projected to grow at a rate of 40%, employing about 1.38 million persons by 2015. While the advertising spending is highest in the mobile media category, the seller employment impact is highest in the mobile CRM category.
Table 51: Mobile Marketing Seller Employment
CAGR 2010- 2015 49% 47% 63% 49%

2010 Mobile Marketing Investment Mobile Media Adv Mobile DR Enhanced Trad'l Adv Mobile CRM 188,913 84,055 11,557 93,301

2011 312,914 145,013 23,010 144,891

2012 502,562 222,885 40,438 239,239

2013 773,685 340,840 72,766 360,079

2014 1,091,017 468,767 113,173 509,077

2015 1,379,587 570,239 134,068 675,280

Source: mLightenment
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Mobile marketing seller employment by industry is driven by incremental sales demand generated in each industry as a result of successful mobile marketing strategies. In 2012, 75 seller jobs were created for every million dollar of mobile advertising spending. However, this is projected to fall by 2% annually, reaching 70 jobs per million dollar of advertising spending. Industry wise seller employment impact show that retail (other), finance, and professional services are the largest job creators. Seller employment in retail trade (CPG) will grow the fastest, followed by professional services industry.

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Consumer Data Best Practices and Privacy114

With millions of dollars to spend and tens of millions in sales at stake, mobile marketerslike all marketersare under tremendous pressure to make their communications work. In its simplest terms, marketers look for efficiency, attempting to identify prospective customers who are most likely to buy and then persuade them to purchase. Doing so successfully requires collecting and using information while ensuring that consumer privacy standards are respected. In the following pages we hope to provide the reader with an overview of the broad set of policies, best practices, and technologies that shape mobile marketers use of consumer data. It is meant to be a kind of policy snapshot, taken during the time of our economic impact analysis, and a look at how privacy can affect both the return on investment for mobile marketers as well as associated employment. We assume this snapshot wont change muchif at allduring the forecast period, even if we recognize that political pressures could lead to changes from legislators, regulators, or private sector bodies.

Balancing Customer Knowledge and Privacy Concerns in Mobile

No matter which medium one considers, the imperative to collect and use consumer data begins with a simple fact of life: every marketers prospectslikely buyers of her product are tiny needles of gold scattered within giant media haystacks containing heaps of non- prospects who will likely never spend money with her. For a marketer seeking to find her gold, every media haystack offers its own opportunities and challenges as a place to look. Knowledge about the mix of prospect and non-prospects in any media audience, and how to reach as many prospects as possible with persuasive marketing messages while avoiding wasting messages and money on reaching non-prospects is the heart of the marketers profession. While the know thy customer challenge is not unique to marketing via mobile media, mobile media present marketers and consumers alike with unique opportunities and risks. In particular, the always-on, always-present personal character of the mobile device calls for particular attention to privacy concerns. Types of Data and Methods of Collection & Use Involved Relevant conditions for data collection practices include the conditions under which data is collected, what type of data is collected, who it is made available to, and how it is used. The
114

Disclaimer: Some of the material contained herein describes legal and regulatory issues. We cannot stress enough: we are not lawyers, and nothing herein is intended as legal advice, nor should be construed as such. 84

types of data that can cause the greatest concerns are sensitive data (e.g., financial account information, medical, or as we shall see, geolocation information). Mobiles Special Concern: Hyper-local Geolocation Data Mobile location data offers marketers a powerful new set of data tools for tracking and targeting individuals with geographic precision. Consumers generally can control the use of location through settings provided by platforms and must expressly agree to provide information to apps that they download. Some apps provide the location information they receive to ad networks who can then tailor the ads they deliver based on geography. Other Mobile-Specific Sensitive Information. Native mobile apps can also access other kinds of information stored on the mobile device including contacts, calendar appointments, photos and music, etc. The Android platforms displays to consumers the relevant permissions requested by an app for consumer approval. The iOS platform requires that users approve individually a number of the permissions sought by apps, including location, contacts, photos and others.

Costs and Benefits of Privacy Regulation

Consumer trust in marketers and media depend on many things aside from privacy alone, including issues ranging from quality of service to fraud. For a marketing medium as dependent on data as mobile clearly is, trust in the integrity of the ecosystem is vital to many consumers willingness to use the media. Violations of that trust by even a single bad actor can often impose a considerable cost to the entire industry, and indeed, the economy as a whole, by discouraging consumers from engaging in mutually beneficial commercial transactions with other more reputable parties. Marketing and media trade associations, along with other business organizations, recognize the need for trust-affirming practices so that consumers continue to participate in the media and digital marketing companies can continue to thrive.

Current State of U.S. Consumer Privacy: A Hybrid Approach

In the United States consumers are protected by a combination of sectoral legislation and industry-self regulation. The Federal Trade Commission has played a lead role in providing guidance to industry as to its views about mobile best practices.115 The Attorney General of California has published guidance on mobile app best practices, as have business and advocacy groups.
115

Interested readers can probably do no better than to visit the Federal Trade Commissions website to immerse themselves more thoroughly in this topic. The best and most current document with which to start is the FTC Staff Report of February 2013 entitled, Mobile Privacy Disclosures: Building Trust Through Transparency. Available at http://www.ftc.gov/os/2013/02/130201mobileprivacyreport.pdf 85

Industry Self-regulation through Trade Associations Within the framework of public policy on privacy, trade associations play a particularly important role in transforming the broad sweep of privacy protection legal and regulatory provisions into more detailed and nuanced best practices documents directly applicable to the specifics of each individual industry. These describe acceptable privacy behavior for firms sharing that industrys business models and technologies. Industry self-regulation promotes a level playing field among competitors in the same industry. Best practices and guidelines typically protect consumers in a variety of ways. First, they directly provide clear direction and education to industry practitioners as to what they should or should not do with their marketing. Second, associations often enforce these regulations among their members through staff investigations that may lead to loss of membership and sometimes public shaming. Promoting privacy through technology, platforms, and education Platforms providers, such as mobile operating systems, browsers, and social media platforms, can and do play an important role in ensuring consumer trust about privacy, insofar as they set the technical ground rules by which third parties can obtain access to consumer information using these platforms. Platforms also require third parties to agree to privacy requirements as part of the Terms of Service they must agree to operate on the platform. However, the primary responsibility for privacy compliance rests on the actions of companies that consumers interact with directly, including app developers, websites and other third parties.

Privacy Issues Specific to Consumer Mobile Data

Mobile Voice It is against the law in the U.S. to place unsolicited commercial calls to a mobile phone when the call is made by using an automated random-digit dialing generator or if the caller uses a pre-recorded message.116 SMS / MMS Legislation / Regulation It is illegal for commercial parties to send unsolicited texts to cell owners who have placed their mobile device on the National Do Not Call registry. In addition, governmental regulations forbid the sending of text messages from Internet domain names, even to those not listed on the FTC
116

See FTC Report Truth about Wireless Phones and the National Do-Not-Call List, http://www.fcc.gov/guides/truth-about-wireless-phones-and-national-do-not-call-list 86

registry. Further regulations prohibit the sending of texts to contacts generated through an automatic dialing system.117 Industry self-regulation SMS marketing is characterized by extensive industry self-regulatory efforts, including tight best practices for marketing campaigns that are reviewed in advance (advance provisioning) by carrier-controlled or carrier affiliated industry groups, especially the Mobile Marketing Association and the Common Short Code Administration (CSCA), which are industry gate- keepers of short codes.118 Marketers who violate these principles or the terms of their provisioning agreements with the carriers can have their marketing program cancelled, or their short code taken away, either by CSCA, or by the owner of their shared short code (usually a platform provider or mobile aggregator). The intent of such policies has been to make SMS/MMS as much a completely opt-in marketing medium as possible. For marketers, this means texting is primarily used to enhance non-mobile marketing response or CRM campaigns, as reflected in our expenditure data, above. We do not detect any significant pressure from consumer groups or public officials for changes to this policy framework during the forecast period. Industry policy appears to have largely prevented any extensive proliferation of SMS-spam, contributing to relatively high consumer satisfaction with the overall quality of their texting services, and a positive sentiment regarding SMS marketing for those consumers prepared to give their opt-in consent. If anything, pressure for policy changes are more likely to come from mobile marketers who find the advance provisioning processes time consuming and economically burdensome. However, as carriers have too much at stake, we expect the industry status quo will continue. Mobile Email In matters of privacy, mobile email is subject to the same standards as other email. At the Federal level the CAN-SPAM Act119 establishes rules and requirements for commercial e-mail and gives individuals the right to opt out of commercial mailings with individual businesses.
117

See FCC Report Spam: Unwanted Text Messages and Email available at http://www.fcc.gov/guides/spam- unwanted-text-messages-and-email 118 The essential criterion for provisioning is that the consumer opts in to the campaign. The mobile operators demand a double opt-in from the consumer and the ability for the consumer to opt out of the service at any time by sending the word STOP via SMS. These guidelines are established in the MMA Consumer Best Practices Guidelines, which are required of all short-code based mobile marketers in the United States. See MMA, Best Practices: http://www.mmaglobal.com/bestpractice 119 Bureau of Consumer Protection, CAN-SPAM Act: A Compliance Guide for Businesses, September 2009, http://www.business.ftc.gov/documents/bus61-can-spam-act-compliance-guide-business 87

Among other things, the act disallows false or misleading header information or subject lines, and requires marketers to identify commercial messages as an ad. Messages must also provide the senders location and an option to opt-out of future mailings. Furthermore, the act holds businesses responsible for promptly honoring opt-out requests and makes them responsible for the actions of others acting on their behalf, such as marketing agencies or other vendors. Mobile Web Ad Targeting Due to the challenges of separate web and app ad inventory that is not linked, the cookie targeting limits of the Apple Safari browser and other challenges, data use for ad targeting is still in the early stages of development. Nonetheless, many companies are succeeding as they leverage the opportunities that are available to use data to provide reporting, attribution and targeting. It will be important that these companies continue to develop their business models and technology with privacy standards in mind, as regulators will continue to scrutinize practices in this area. As we noted, in February 2012, the FTC issued general recommendations that digital marketers increase transparency and tighten privacy policies, and provide consumers the opportunity to opt out of ad network tracking on smartphones.120 In addition, it also issued a Privacy Report in May 2012 on best consumer privacy practices for businesses, which included guidance on marketing through mobile devices.121 Finally, in February of 2013, the FTC released its most detailed and mobile-specific set of recommendations thus far, its Mobile Privacy Disclosures report. In response to calls for industry to advance mobile privacy practices, the Digital Advertising Alliance (DAA) will soon release guidance on how its Self-Regulatory Code will apply to mobile companies. Mobile Apps A principal source of industry self-regulation for apps comes from app platform providers. Apple, Google, Microsoft, RIM, Facebook and other platforms all require app developers to meet baseline privacy standards before these digital products may be offered for sale through their app stores.

120

Danny Yardon, FTC Suggests Privacy Controls for Mobile Devices. February 2, 2012. http://online.wsj.com/article/SB10001424127887324610504578280061546792322.html?mod=googlenews_wsj 121 FTC Report: In Short: Advertising & Privacy Disclosures in a Digital World. FTC Workshop May 30, 2012. http://www.ftc.gov/bcp/workshops/inshort/index.shtml 88

Notice and Choice The principles of notice and choice established in other marketing channels are gradually making their way into mobile, as shown by recent milestones. In February 2012, the California Attorney General announced an agreement with the six leading mobile app platforms requiring that those platforms enable apps to easily post privacy links for consumers in the app stores.122 In June 2012, the U.S. Department of Commerce announced a privacy multi-stakeholder process to address mobile app transparency, so that stakeholders would develop voluntary, enforceable codes of conduct.123 In August 2012, the FTC published guidelines that mobile app developers should observe and comply with truth-in-advertising and privacy principles.124 Part of the challenge of implementing notice and choice in mobile is the confined space (and sometimes time) available in the mobile form factor to convey the appropriate level of disclosure. Apps and Children With evidence accumulating that children and teens are the fastest growing group of smartphone users, the role of app collection and sharing of childrens data has moved to the forefront of policy concern. In February 2012, the FTC issued a report, Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing, which expressed that little or no information was available to parents about the privacy practices and interactive features of the mobile apps surveyed prior to download. A follow-up report in December 2012125 tested apps practices and compared them to the disclosures made. Specifically, the new survey examined whether the apps included interactive features or shared kids information with third parties without disclosing these facts to parents. The FTC staff concluded that parents were not given adequate information about the privacy practices and interactive features of mobile apps aimed at kids, particularly with regard to the amount and types of information collected about their children.
122

Attorney General Kamala D. Harris Secures Global Agreement to Strengthen Privacy Protections for Users of Mobile Applications (Feb. 22, 2012). Press Release, State of California Department of Justice. http://oag.ca.gov/news/press-releases/attorney-general-kamalad-harris-secures-global-agreement-strengthen- privacy 123 Press Release, National Telecommunications & Information Administration, Department of Commerce, First Privacy Multistakeholder Meeting: July 12, 2012 (June 15, 2012) http://www.ntia.doc.gov/otherpublication/2012/first-privacy-multistakeholder-meeting-july-12-2012. 124 FTC Report, Marketing Your Mobile App: Get It Right From the Start, August 2012, http://business.ftc.gov/documents/bus81-marketing-your-mobile-app. 125 FTC Report, Mobile Apps for Kids: Disclosures Still Not Making the Grade, December 2012, http://www.ftc.gov/os/2012/12/121210mobilekidsappreport.pdf 89

The FTC called on all members of the kids app ecosystem to provide greater transparency about the data practices and interactive features of childrens apps and proposed modifications to the Commissions Childrens Online Privacy Protection Rule (COPPA), in part to clarify the consumer protections that should apply when children use mobile devices.126 The new COPPA rule restricts collection of location from children without parental permission, and restricts behavioral advertising to children, among other new requirements. Medical, Health, Wellness and Therapeutic Apps This type of app has the potential to dramatically improve our health and lower costs but could presents privacy risks, due to the use of some sensitive personal or medical information. To encourage their development while promoting privacy, the Department of Health and Human Services (HHS) recently launched an initiative to identify privacy and security best practices for using mobile devices in health care settings.127 Apps Commerce As the market for mobile payments developments, companies will need to be cognizant of sector specific banking and credit laws. General Digital and Marketing Privacy Issues Relevant to Mobile Data Enhancement and Data Brokers This is when a company appends data obtained from third-party sources such as data brokers (see above) to the information it collects directly from consumers. Because data brokers are relatively inaccessible and invisible to consumers, the FTC has gone on record supporting legislation that would provide consumers with transparency into the enhancing information that data brokers hold about them. The FTC has also encouraged brokers of marketing data to consider a centralized website where data brokers could identify themselves to consumers and explain how they collect and use consumer data as well as explain consumers access rights and other choices regarding data they hold. The FTC has suggested that this approach should apply to both online and offline data.

126

Press Release, FTC, FTC Seeks Comments on Additional Proposed Revisions to Childrens Online Privacy Protection Rule, August 1, 2012, http://www.ftc.gov/opa/2012/08/coppa.shtm. 127 HSS Report, Mobile Devices Roundtable: Safeguarding Health Information, http://healthit.hhs.gov/portal/server.pt/community/healthit_hhs_gov__mobile_devices_roundtable/3815 90

Conclusion: Assumptions for Current Market and Forecast Period

For the current and forecast period, we assume that subscriber-level consumer tracking and targeting will continue to be significantly less pervasive among marketers than device or demographic targeting or content contextualization. Nonetheless, throughout our forecast period we expect that publishers of mobile social sites, organically location-based applications, search engines, and ad networks will continue to experiment with technologies by which to offer relevant audience targeting incrementally more attractive to marketers without alienating their growing audience base. We assume that industry self-regulation will continue to evolve in the direction of further standardization across self-regulatory groups, and the progressive incorporation of established self-regulatory principles into their self-regulation of emergent media or practices. Ultimately, we assume existing policies and incremental improvements will further communicate trust and value to customers in a manner that sustains the massive shift underway to consumer media consumption and commercial activity via smartphones and tablets. That said, our report does not factor in any major or minor economic external shocks arising from material changes to the public regulatory environment, including those herein flagged as potentially being on the regulatory horizon, whether from Federal agencies or legislators or elsewhere.128 While the economic impact of alternative policy scenarios can be calculated using our model, such calculations lie outside the scope of work for this report.

Sources of Industry Self-Regulation Reviewed for the Economic Impact Model

The following are the principal sources of marketing self-regulation reviewed by our researchers and whose policies as of December 2012 were assumed for the mobile marketing economic impact model. Mobile Marketing Association (MMA) The Mobile Marketing Association is the premier global non-profit trade association representing all players in the mobile marketing value chain. With more than 700 member companies, the MMA is an action-oriented organization with global focus, regional actions and local relevance. The MMA's primary focus is to establish mobile as an indispensable part of the marketing mix. The MMA works to promote, educate, measure, guide and protect the mobile marketing industry worldwide. Its best practices and guidelines documents may be found here: http://www.mmaglobal.com/bestpractice
128

Such as might result from privacy policies similar to Europes sweeping data regulations. See Avi Goldfarb and Catherine E. Tucker, Privacy Regulation and Online Advertising (2010) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1600259. 91

CITA The Wireless Association. Founded in 1984, an international nonprofit membership organization primarily comprising U.S. wireless communications access providers (mobile operators) and related services providers, suppliers, and equipment manufacturers. Among numerous other public policy and self-regulatory issues of concern, CTIA co-ordinates the wireless access industrys self-regulatory efforts that do the following with regard to mobile marketing / privacy: Provide consumers with a variety of choices and information regarding their wireless products and services. Develops voluntary industry guidelines. CTIA Best Practices and Guidelines for Location Based Services, available at http://www.ctia.org/consumer_info/service/index.cfm/AID/11300. GSMA. The GSMA represents the interests of mobile operators worldwide. Spanning more than 220 countries, the GSMA unites nearly 800 of the worlds mobile operators with more than 230 companies in the broader mobile ecosystem, including handset makers, software companies, equipment providers and Internet companies, as well as organizations in industry sectors such as financial services, healthcare, media, transport and utilities. Common Short Code Association (CSCA). An extension of CTIA, the CSCA is the sole administrator of common short codes (CSC) for the entire wireless industry, thus making them a coordinating gatekeeper for SMS- or MMS-based marketing programs. The CSCA oversees the technical and operational aspects of Short Code functions and maintains a single database of available, reserved, and registered Short Codes. All service providers who wish to register Short Codes for use in mobile marketing campaigns or publishing or selling mobile content via SMS must register and obtain their Short Code via the CSCA. Direct Marketing Association, (DMA) The Direct Marketing Association (www.the-dma.org) is the worlds largest trade association dedicated to advancing and protecting responsible data- driven marketing. Founded in 1917, DMA represents thousands of companies and nonprofit organizations that use and support data-driven marketing practices and techniques. The IAB (Interactive Advertising Bureau) The Interactive Advertising Bureau (IAB) is comprised of more than 500 leading media and technology companies that are responsible for selling 86% of online advertising in the United States. On behalf of its members, the IAB is dedicated to the growth of the interactive advertising marketplace, of interactives share of total marketing spend, and of its members share of total marketing spend. The IAB educates marketers, agencies, media companies and the wider business community about the value of interactive advertising. Working with its member companies, the IAB evaluates and recommends standards and practices and fields critical research on interactive advertising. Founded in 1996, the IAB is headquartered in New York City with a Public Policy office in Washington, D.C. Digital Advertising Alliance, The Digital Advertising Alliance (DAA) is a consortium of the leading national advertising and marketing trade groups who together deliver effective, self- regulatory solutions to online consumer issues.
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 AAAA. The 4A's is the national trade association of the advertising agency business. It represents more than 1,100 member agency offices in the U.S. that employ over 65,000 people, offer a wide range of marketing communications services, and place 80 percent of all national advertising. The management-oriented association helps its members build their businesses, and acts as the industry's spokesman with government, media, and the public sector. AAF. The American Advertising Federation, headquartered in Washington, D.C., acts as the "Unifying Voice for Advertising." The AAF is the oldest national advertising trade association, representing 40,000 professionals in the advertising industry. The AAF has a national network of 200 ad clubs located in ad communities across the country. Through its 226 college chapters, the AAF provides 8,000 advertising students with real-world case studies and recruitment connections to corporate America. The AAF also has nearly 100 blue-chip corporate members that are advertisers, agencies and media companies, comprising the nation's leading brands and corporations. ANA. The Association of National Advertisers leads the marketing community by providing its members insights, collaboration and advocacy. ANA's membership includes 400 companies with 9,000 brands that collectively spend over $100 billion in marketing communications and advertising. The ANA strives to communicate marketing best practices, lead industry initiatives, influence industry practices, manage industry affairs and advance, promote and protect all advertisers and marketers. NAI. The NAI (Network Advertising Initiative) is a coalition of more than 70 leading online marketing companies committed to building consumer awareness and reinforcing responsible business and data management practices and standards, and which includes the fifteen largest online advertising networks in the United States. As increasingly sophisticated online advertising technologies evolve, the NAI works to enhance consumer confidence through effective self-regulatory practices and user choice. The Software & Information Industry Association is the principal trade association for the software and digital content industry. SIIA provides global services in government relations, business development, corporate education and intellectual property protection to the leading companies that are setting the pace for the digital age. Association for Competitive Technology ACT ACT is an international grassroots advocacy and education organization representing more than 5,000 small and mid-size app developers and information technology firms. It is the only organization focused on the needs of small business innovators from around the world. ACT advocates for an environment that inspires and rewards innovation while providing resources to help its members leverage their intellectual assets to raise capital, create jobs, and continue innovating. In addition to its small business membership, ACT has several Sponsor Members including eBay, Microsoft, Oracle, Intel and VeriSign.

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W3C Group. The World Wide Web Consortium (W3C) is an international community where Member organizations, a full-time staff, and the public work together to develop Web standards. Led by Web inventor Tim Berners-Lee and CEO Jeffrey Jaffe, W3C's mission is to lead the Web to its full potential. Application Developers Alliance. The Alliance works to provide developers the resources they need to continue to innovate and build the software economy. The Alliance is the voice of the development industry. It educates legislators and regulators, speaks on behalf of the industry, and represents the millions of coders and thousands of companies working and innovating today.

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Social Benefits from Mobile Marketing

The impact of mobile marketing extends well beyond headline sales and employment impacts. The mobile device and its commercial possibilities are an electronic magic wand, presenting previously unimagined tools for solving social problems, reallocating social resources more efficiently (resources that society often did not realize it had, or were under-utilized) and generally delighting smartphone users with the opportunity to reinvent or at least reimagine many aspects of their daily lives. Through the fusion of location data and social media, mobile has already created revolutionary opportunities for on-the-spot, real-time information sharing and value creation. It has already created a wide variety of new tools, including sharing of user-generated content and photos, sensing of weather conditions, local restaurant recommendations complete with photos of diners actual meals, or locating gas stations for almost-on-empty travelers. Now, location- based apps are helping mobilize what one might call user-owned goods and services such as private apartments or private cars, new last-minute, low-cost bed-and-breakfast opportunities, or informal taxi services in big cities where regular cabs can be hard to find. Mobile phones sensors and networks can also help city traffic departments manage traffic through congestion- monitoring traffic lights, and they can speed traffic flows through seamless mobile ticketing and toll-taking in public and private transit. Smart device apps are increasingly being baked in to non-mobile products as a product benefit and added functionality. The latest car models offer their owners smartphone apps with which they can locate nearby electric recharging stations (if a hybrid or all-electric vehicle, for example), or remotely lock and unlock the cars doors. There are even apps to help find the car itself in a large parking lot. Likewise, the builders of tomorrows smart homes are drafting apps that will be digital house-keys intrinsic to the central nerve system that controls security, climate control, energy efficiency and entertainment, from wherever the homeowner may be. In the following paragraphs we look at just a few examples and try to quantify some of the possible hidden social benefits that the mobile marketing revolution is making possible. Mobiles Digital Paper Route for Branded News Publishers Mobile advertising plays a significant role in helping to maintain widespread access to information. Today, most publishers of branded content make their digital editions available free of charge because PC-based readers simply wouldnt pay for online content, thinking they could find as good, or better, on another free website. It was hard to sell fickle PC eyeballs to skeptical advertisers. With the smartphone, tablets, and tailored publisher apps, all that has begun to change. The publisher app creates a digital paper-route turning anonymous consumers into loyal daily (or weekly or monthly) readers. And though the tablet app hasnt yet solved the industrys problems or stopped some publishers from charging for access to their
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digital content (i.e., building paywalls), recent developments do give us insight into what the growing tide of tablet and app-based mobile content consumptionand eventually mobile advertisingmay be worth to consumers themselves. Among the most notable major publishers to have recently erected a digital paywall is the New York Times, which permits visitors a certain number of articles per month, after which they must purchase a subscription for further access.129 To begin to ballpark the value of mobile advertisings subsidy, we note that the Times advertising revenue for 2012 was $898.1 million, and ad revenue makes up slightly less than half of the Times total revenue, on the basis of which the paper does slightly better than break-even.130 Newspaper industry data suggests that on average, roughly 14% of industry ad revenue is digital.131 If that conservative figure applies to the Times, that would put its digital revenue for 2012 conservatively at $125.7 million, of which about $16.3 million, or 13%, is likely due to mobile ad sales, based on conservative industry assumptions. To calculate the implications of this figure for digital readers, we note that access to the NYTimes.com paywall costs $15 per month.132 Thus, for this one publication, mobile advertising expenditure is conservatively equivalent to the Times being able to give away at least some of its content to a minimum of 90,808 readers each monthpotentially over a million readers per yearwho might otherwise have to purchase a subscription. Thought of another way, a publisher who lost even existing mobile ad revenue would need to make up the loss by raising its paywall even higher, or cut visitors off after only a few pages of content. This would represent a solution that would not only reduce the number of paying digital subscribers by thousands, or reduce free site visitors by the tens of thousands, but also in all likelihood, it would leave the Times with even less money to cover the costs of its expensive print editions, ultimately putting some number of print subscribers in jeopardy. The digital paper route that is the mobile app may not save the newspaper industry but it may help reincarnate the news business. Mobile advertisings benefit to the consumers and publishers of other content formats could be even higher. Consider the magazine industry, where some well-known publications have recently secured much higher shares of digital advertising in overall ad revenue, thanks in no small measure to smartphones and tablets. Wired magazine, for example, recently broke through the 50/50 barrier between print and
129

We recognize that The New York Times is not representative of the entire newspaper industry. However, it has an enormous readership, and for this reason we suspect it is not hugely different from other nationally recognized titles such as the Wall Street Journal, the Chicago Tribune or USAToday in the newspaper industry, or the Atlantic, Sports Illustrated, or Vanity Fair in the magazine industry. More importantly, data about the Times example is relatively accessible. 130 Christine Haughney, Asset Sales Help Lift Profit at New York Times Company, but Ad Revenue Declines, February 8, 2013, http://www.nytimes.com/2013/02/08/business/asset-sales-help-quarterly-profit-at-times- company.html, 131 Newspaper Association of America, March 2012, http://stateofthemedia.org/2012/newspapers-building-digital- revenues-proves-painfully-slow/newspapers-by-the-numbers/ 132 The benefit in access to readers rather than subscribers is likely even higher, since the terms of the digital subscription entitles the subscriber to share access with one other person. www.NYTimes.com 96

digital ad revenues, and other titles, such as The Atlantic, reportedly do even better.133 If the Atlantics storied tradition of literate and informative essays survives into another century, the tablet may be the reason. Mobilizing City Traffic The benefit of mobile marketing is most obvious in providing access to digital content. But in a whole host of ways, smart mobile devices are enabling Americans to achieve levels of convenience and efficiency never before possible. Consider the problem of limited parking and traffic congestion in major urban centers such as San Francisco.

According to published reports, the number of available spaces for on-street parking in San Francisco is about 320,000.134 The average number of vehicles in San Francisco during the week is 505,733,135 and San Francisco drivers spend approximately 2030 minutes looking for parking.136 Thus, a half hour spent looking for an open parking spot at an assumed city driving speed of 20 mph could result in 10 miles of wasted travel. Assuming gas consumption at 29 miles per gallon137 for 10 miles of driving results in 0.35 gallons used, or about $1.40 worth of gas wasted while looking for parking at 2012 gas prices.138 Generalized to 505,733 vehicles in San Francisco, that could mean up to $720,000 worth of gas spent needlessly on one of lifes more annoying tasks. Fortunately, city officials and mobile app developers have begun to step into this breach, using location-based mobile technologies to help drivers locate open spots faster. Assume the time spent looking for a space in San Francisco with a parking finder app is cut in half, totaling 15 minutes. Assuming nothing else changes, the savings in gas alone would be 70 cents, which if applied to all 505,733 vehicles cruising the streets of San Francisco each day, would save about $360,000 worth of gas.

133

Nat Ives, Digital Cracks 50% of Ad Revenue at Wired Magazine, First for the Title Is an Encouraging Sign for Industry, January 03, 2013, http://adage.com/article/media/digital-cracks-50-ad-revenue-wired- magazine/238986/. 134 David LaBua, Parking Quiz Answer: SF cars vs. Parking Spaces. Who Wins?, February 4, 2011, http://www.7x7.com/travel-active/parking-quiz-answer-sf-cars-vs-parking-spaces-who-wins. 135 Ibid. 136 Matt Ritchtel, Now, to Find a Parking Spot, Drivers Look on Their Phones, May 7, 2011, http://www.nytimes.com/2011/05/08/technology/08parking.html?pagewanted=all. 137 Bill Vlasic, U.S. Sets Higher Fuel Efficiency Standards, August 28, 2012, http://www.nytimes.com/2012/08/29/business/energy-environment/obama-unveils-tighter-fuel-efficiency- standards.html 138 http://www.sanfrangasprices.com/Prices_Nationally.aspx 97

Again, looking only at San Francisco, city officials estimate that drivers cruising for parking spots generate 30 percent of all downtown congestion.139 This congestion substantially increases the volume of airborne pollutants spewed by all traffic into the Bay Area atmosphere. The time savings to Bay Area drivers could potentially reach over 125,000 person-hours per day. In practice, the daily savings across these dimensions will likely be lower than those we have just hypothesized: not all drivers would have a parking locator app, and even for those that did, studies have yet to be done that reveal whether they would save 30 minutes or only 3 minutes. Yet our postulated savings in time, gas, congestion, and environmental damage applies only to drivers in a single US city for a single day. Whatever the results of mobile initiatives like San Franciscos turn out to be, they still point to eventual savings in the range of hundreds of millions of dollars when considered for the entire nation over an entire yearand just from an app that lets a driver see an open parking spot down a side street that she might otherwise have driven right by. The 24/7 Pharmacy in Your Pocket Medication errorsparticularly missed doses of prescribed medication or prescriptions that go unfilled or unrefilledare a frequent cause of what the medical profession calls adverse drug events or ADEs. An ADE may cause the sufferer a sufficiently severe complication as to require an emergency room visit, a hospital stay, further health set-backs, even death. Published studies suggest that roughly 30% of ADEs may be attributable to missed does of prescription medications, leading to 700,000 avoidable emergency room trips each year, and well over 100,000 avoidable hospitalizations.140 Needless to say, such events cost the patient, the hospitals, insurers, and taxpayers enormous sums: almost $300 billion by one NEHI estimate.141 Thus if something could be done to address the fact that 50% of the 3.2 billion prescriptions dispensed annually in the U.S. are not taken as prescribed, the tangible and intangible improvements to peoples lives and pocketbooks could be truly meaningful.142 That something may involve smartphone technology. A recent report by Juniper Research estimates that there will have been 44 million downloads of health-related apps to mobile devices in 2012. The report predicts that the number of mobile health app downloads will reach

139

Matt Ritchtel, Now, to Find a Parking Spot, Drivers Look on Their Phones, May 7, 2011, http://www.nytimes.com/2011/05/08/technology/08parking.html?pagewanted=all. 140 Center for Disease Control and Prevention, http://www.cdc.gov/MedicationSafety/basics.html and U.S. Agency for Healthcare Research and Quality, http://www.ahrq.gov/qual/aderia/figure2.htm 141 NEHI press release, NEHI Research Shows Patient Medication Nonadherence Costs Health Care System $290 Billion Annually, August 11, 2009, http://www.nehi.net/news/press_releases/110/nehi_research_shows_patient_medication_nonadherence_costs_ health_care_system_290_billion_annually 142 Hayden B. Bosworth, Ph.D., and the National Consumers League, Medication Adherence: Making the Case for Increased Awareness, http://scriptyourfuture.org/wp- content/themes/cons/m/Script_Your_Future_Briefing_Paper.pdf 98

142 million by 2016;143 many of these are prescription-related. Our own search for prescriptions in the Apple apps store produced several hundred apps, many of which were published free of charge by leading pharmacy chains. On inspection, it turned out that quite a number of these apps had very high average ratings across thousands of users (very close to the maximum score of 5 starsat least one popular pharmacy app we looked at had higher ratings than Angry Birds, the worlds most popular mobile game.) These prescription reminder apps are not only being downloaded, they are being relied upon. Walgreens, for example, has apps whose prescription adherence resources are the most popular features, including allowing the consumer to refill prescriptions for pickup or delivery, simply by using the mobile phone to scan the label of the prescription bottle. Walgreens claims that such features helped increase use of its mobile pharmacy apps by nearly 500 percent last year.144 What could such free mobile apps mean for individual categories of mobile subscribers with different diseases? One report summarized research findings suggesting that an additional dollar spent helping patients adhere to their prescribed medication would reduce medical costs by $7.00 for people with diabetes; $5.10 for people with high cholesterol; and $3.98 for people with high blood pressure.145 If we assume conservatively that less than 1% of Americans with each of these diseases has downloaded and is using these enormously popular apps, (the percentages of the American adult population taking medication for each of these diseases is in the mid to high double-digits), the return in health savings for just these three conditions is likely already in the tens of millions of dollars annually.

143

DK New Media, Mobile Technology in Healthcare, http://healthx.wpengine.com/wp- content/uploads/2013/01/Mobile_Infographic.pdf 144 Brian Dolan, Walgreens app adds pill reminders, Rx transfer, March 12, 2012, http://mobihealthnews.com/16594/walgreens-app-adds-pill-reminders-rx-transfer/ 145 Hayden B. Bosworth, Ph.D., and the National Consumers League, Medication Adherence: Making the Case for Increased Awareness, http://scriptyourfuture.org/wp- content/themes/cons/m/Script_Your_Future_Briefing_Paper.pdf 99

Conclusion: From Mobile-Enhanced Media to a Mobile-Enhanced Economy

For all the large and quantifiable impacts on expenditure, sales, and employment directly arising from mobile marketing shown in this report, another impact cannot be quantified: it is the one occurring silently and invisibly in the heads of marketers, product designers and even end customers, as they start to envision a mobile-enhanced economy. As one of the marketing experts with whom we consulted put it, The adoption rates and power of a device that combines communication capabilities, content creation, content consumption, search, endless apps, navigation and commerce on one platform are exciting and daunting. Daunting though the challenge may seem to some, mobile is inspiring the most creative marketers to rethink their discipline for a world that is no longer static; they must reimagine it for a world where marketing communications can occur, anywhere, anytime, via anything that can be enhanced by being connectable to a smart mobile device. In this new mobile-enhanced economy, the world will no longer be sharply divided between production, distribution and marketing communications. Marshall McLuhan said that the medium is the message. In the mobile-enhanced economy we see coming into focus, mobile transforms every object into a medium and every place into an opportunity for a message. The challenge with mobile is the same challenge that the Internet faced in the early days (and to some degree still faces). We believe it was Alan Schulman who said, "the plumbing [is] ahead of the poetry." By mobiles poetry, we mean the mental equipment marketers need to envision marketing objectives that do justice to the most versatile, popular, and ubiquitous communications platform the world has ever seen. We hope now to write an opening line or two of the poetry needed for tomorrows mobile marketing enhanced world. Today though, the gap between the is of mobile marketing prose and the ought of mobile marketing poetry seems enormous. Are many US marketers overlooking mobile? Yes. Are others under-utilizing or misusing mobile? Yes. Is that because both groups of marketers are overlooking mobiles individuality and personality? YES. Can we change this? We certainly hope and believe so. Fortunately, for all those who are daunted by the challenge, many are equally as excited. And these are the marketers who are already trying to imagine and define a mobile-marketing enhanced future. And they are looking here at home as well as beyond our borders for inspiration from likeminded marketers who
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have already demonstrated mobiles power in South Korea, Japan, Singapore, and elsewhere. Advanced as we in some ways, we still can play catch-up in others. Bringing about real change will take a more evolved view of marketing than is found in many CMO suites today. The dominant roadmaps we have about how brands are built were drafted when the old, analog channels of marketing communication were the only games in town. To change that will require marketers to upload a new picture of what the mobile device is for marketing: delete screen and replace it with camera. The mobile device jostles along with every step in the journey the consumer takes in daily life, from the moment they wake until they retire at night. Mobile inputs like the camera, microphone, and content creation apps mean consumers possess powerful tools with which they can co-create and co-distribute product value and messaging. Marketers must learn how to tap this resource, to be invited to participate in this tremendous opportunity, not stifle it. Mobile is challenging marketers to build new mental models of what a medium is and what it can do, and why it does it. The ones who realize how mobile is erasing the old boundaries of what a medium is, will be the ones who use mobile to reinvent marketing communications and help usher in the coming mobile-enhanced consumer world. They will not just continue down the screen-based highway that has been the reflexive marketing model for the past several generations. On the bright side, many already know that "enabling the mobile camera is the wave of the future. We see young, innovative companies and designers borrowing creative models from gaming and social connections to figure out the new ways that mobile will achieve its potential for all constituentsthe consumer, the marketer, the retailer, and media publishers and distributors. Such visionaries understand that they will have the best of both worlds if they let the consumer use mobile as it ought. They will have create deep, imaginative value adding communications and data enhancements to products and services that are so personalized, so local, so interactive, and so engaging that consumers will find collaboration irresistible. And they will use these mobile-enhanced goods and services to build a long-term relationship with consumers over time, thus building brand-devotion. Marketers may object that our claim that mobile is different and a far more challenging phenomenon than even the traditional Internet (to speak nothing of traditional offline media) is either wrong, or sets the bar too high. We know there are those who question whether mobile really is a "medium" unto itself, and debate whether mobile is the first, second or third screen for advertising seem to us to be all too common. Yes, the tablet does seem to be seducing some marketers wishing to replicate the lean back on the sofa attributes of television advertising, and ignore the smartphone as too different culturally and technologically. Yes, purchasing platforms for placing marketing onto "mobile" are still very nascent and evolving. Yes, mobile ad formats arent as standardized as buying agencies would like.

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And yet, please forgive us, this seems like an excuse for dumb marketing. The very term "mobile" in the singular muddies the waters, because it obscures appreciation of the democratic and creative riches offered by mobiles different media, connections, sensing, and input capabilities. Without seeing what these combine to offer marketers and consumers alike in terms of versatility, power and personality, marketers arent likely to re-allocate and rethink investments and resources for this coming popular marketplace revolution. Smart Marketing and the Social Contract of the Mobile-Enhanced Economy With commercial TV, we tolerate advertising as part of the price of free entertainment on a device commonly known as the boob tube. With the Internet, we wised up a bit, and acquiesced to advertising that subsidized the cost of information. What social contract can be devised for the new smart devices? Will we tolerate advertising on mobile for faster sports scores? More amusing cat videos at our fingertips? Recently, it was observed that mobile has changed the communications landscape because of its ability to create a fluid means of marketing to the changing situations and contexts as the consumer moves through their daily life.146 We would agree completely if the author had written marketing IN rather than marketing to. Prepositions can be so important: Mobile cannot be simply an opportunity to chase the consumer from touch-point to touch-point and pester them with come-ons and offers. We think the mobile enhanced consumer wants more than that. The mobile smart consumer will look for reimagined products and services that help them lead mobile-enhanced lives. Marketers need to appreciate the smart mobile device is an extension of our person, its behind the human shift to a new always-on, always-connected, I can enhance-this-moment HERE and NOW set of expectations. The mental revolution in mobile means brands must expect to discover value for themselves and consumers in spaces that previously didnt exist as communication opportunities. We believe that means the product or service itself, and the contexts in which they will be used. The old world of marketing separated mass broadcasting from mass manufacturing. That paradigm completely overlooks what mobiles unique value proposition of mobility, portability, individuality and personality means today, and its untapped capacity to integrate with tomorrows custom-built 3-D printer world of home-built products, services, and experiences. The most exciting opportunity is to empower individuals and brand communities to create value for themselves for by starting with the distinctive nature of the various mobile platforms and open them up to create a valued relationship between the persons, the brand and the acquisition, usage and sharing (and even disposing) of the product or service. Go from thinking from studio to screen to thinking from mobile camera to design app to 3D printer bake
146

Think BR: Why mobile is the next big super power. Justin Gibbons, brandrepublic.com, January 11, 2013. http://www.brandrepublic.com/bulletin/brandrepublicnewsbulletin/article/1166273/think-br-why-mobile-next- big-super-power/?DCMP=EM 102

mobile in all its diversity and versatility into the product or service. Marketers will learn to say to themselves and their colleagues how can we give consumers an app with that? (or a QR code or an NFC tap-and-go connection, or a mobile social community, or..) We believe that as mobile drives marketers towards smart marketing they will begin with and borrow from cutting edge mCRM already seen today. The trend to mCRM is being created by the confluence of big data, smart apps, and the networked smart device. In the best of these relationships the marketer doesnt own the media, much less own the customer. Instead they own the communications relationship, in the sense of taking responsibility for whatever attention and interest the customer is prepared to pay to the brand and its mobile marketing communications. The challenge, in a sense, will be for marketers to envision mobile marketing as true conversations among equals building a relationship that, more than ever, is two-way and truly peer-to-peer. Such relationship practices and mindsets will need to be engineered into products and services from the outset, not added in after the product horse has already raced out the barn door. This marriage of mobile marketing communications within product design and service delivery will need to involve developing a new level of trust, a new brand promise that the marketer wont waste their scarce attention, creativity and passion: in other words, a social contract in which the marketer must agree to take direction from the mobile street about how their customers expect products to enhance their lives, and respond to that. Mobile is Madison Avenues Tahrir Square moment. This new responsibility will require reclaiming the customer relationship from the publisher, retailer, the agency, the engineers, the statisticians, the brand managers -- to let the smart consumer participate, even lead. Co-creating engaging, interactive, socially enabled, folkway-sensitive and mobile micro-climate respectful consumer-centric brand communications with the next generation of smart products and services via the mobile device will involve a curatorial, service orientation for which marketing doesnt yet have a proper language. Or does it? Mobiles true value as a marketing communications platform may in the end be achieved when all of mobile access to and engagement with marketing is thought of as earned moment by moment from smart consumers, including bought media of advertising and the owned media of 1:1. After all, in tomorrows mobile-enhanced economy, what will separate a consumers upload of a photo of a smart new use for your product that becomes a viral sensation, and the same consumer deleting your dumbly-designed product app from their desktop? Nothing, except a tap or two on a touchscreen.

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Methodology: Measuring and Modeling US Mobile Marketing Communications

MLightenments method for determining mobile marketings economic impact on the US economy involves its proprietary approach to modeling expenditure and policy drivers of marketing communications, together with IHS Global Insights econometric model of overall US economic output.147 The steps involved boil down to measuring the cause-and-effect relationship among several basic quantities, as follows: 1. Expenditure on mobile marketing communications (in dollars). 2. Mobile Marketing Communications Sales Impact. This is the share of total US Sales (measured in dollars) that our econometric analysis reveals to be statistically attributable to (1). 3. Mobile Marketing Employment. This is the share of total US employees whose salaries and benefits are either directly supported by expenditure on mobile marketing (1), called advertiser employees, together with the number of employees necessary to fulfill the increased orders caused by mobile marketing sales (2), called seller employees. 4. Marketing Impact Ratio (MIR). This compares the relative efficiency of mobile marketing per dollar of expenditure within each category of mobile marketing activity by industry. In simple terms, the calculation is:

$ Total Net Sales by Industry $ Total Expenditure by Industry Step 1: Measuring Mobile Marketing Expenditure The analysis begins with a compilation of primary data to determine the dollars spent on mobile marketing throughout the economy over multiple years, broken out by 16 major industry groups. In gathering data for this stage of our model, we look for expenditures by marketers in order to distribute, exchange or receive marketing communications with prospects and end-customers via their mobile devices: in other words, the variable costs of the media buy. However, owing to
147

The principal author has worked with Global Insight to design and conduct economic impact analyses of various aspects of the US marketing industry since 2002. These economic impact analyses provided the basis of his testimony to the US Congress, an amicus brief to the US Supreme Court, presentations to state legislators and governors, and appearances on expert panels with members of Federal regulatory bodies such as the Federal Trade Commission. 104

the different natures of the marketing activities and media potentially involved in mobile marketing, we recognized that some mobile media costs would include creative costs (especially if it is intrinsic to the media buy); some production costs, like printing, that are directly attributable to a mobile enhancement such as a QR code; and certain technical costs, such as licensing of SMS platforms, the costs of mobile website programming, content management, etc. We do NOT include costs like management time, cost of sales, cost of goods sold, billing and payment costs, shipping and handling costs, hardware, etc. as part of marketing communications cost. To estimate the expenditure on mobile marketing, we began with Global Insights baseline historical data and forecasts of total advertising expenditure across all media in the US economy, including Internet, of which mobile was originally a part. We then used first- and third-party primary research to disaggregate and adjust the baseline Internet expenditure into its component mobile mediaprimarily mobile web and mobile emailand distribute each of these among advertising and CRM activities. Primary research was also used to collect data on expenditure in those mobile media not included in mobile Internet: mobile voice, SMS/MMS, and mobile apps. For our remaining two mobile media categories, proximity and recognition media, we used first- and third-party research to estimate shares of expenditure in Global Insights reported expenditures on advertising in non-mobile media that were mobile enhanced. (For example, to estimate the share of mobile-enhanced magazine advertising within overall magazine advertising expenditure, we developed conservative procedures for attributing the costs of enhancing ads with a QR code by estimating the incidence of QR codes per 100 magazines; the incidence within magazines per 100 advertisements; the ratio of QR code size to overall ad size; the average square inch cost of magazine ads, etc., then repeated the exercise for SMS calls to action, etc.) Step 2: Modeling Mobile Marketings Net Sales Impact on the US Economy Calculating the amount of national sales caused by mobile marketing essentially involves using Global Insights underlying econometric model of US economic growth and refining it to statistically correlate variations in US and industry output with variations in marketing communications expenditure over time and across sectors of the economy. National Economy Analysis. Mobiles overall US economic impact is calculated using the same procedure Global Insight uses for estimating the economic contribution of all categories of industry investment to the growth of industry output as they flow through all sectors of the US economy. To begin its economy-wide analysis, Global Insight compiles data from US and state government and industry sources, which it transforms into a model that represents a highly detailed flow of expenditures and sales through the economy, from raw materials and energy inputs to plant and equipment, to factory employment, product transportation & warehousing; office overhead and administration; until finally the flow of goods and services reaches the retail level and other forms of final consumption by business or consumers. These inter-
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industry sales and purchases flows produce a final demand matrix whose variation over time, geography, industry and end-customer segment is analyzed statistically to specify correlation coefficients that connect categories of intermediate or final expenditure with output across and within all categories of sales activity. Advertising Industry Analysis. Once sales data have been obtained for both the national and industry levels, and the linkages between them have been established, the next step is to statistically estimate the top-level sales impact of US advertising. This is done by treating all other sales in the model as the dependent variable against which variation in all demand factors, including advertising expenditure, will then be compared. Using this approach, the direct contribution to US output from non-advertising factors of production can be identified and subtracted from the total; the balance necessarily represents the output statistically attributable exclusively to advertising in those media. In other words, these are sales that would not exist but for advertising expenditure. These advertising sales impacts naturally vary for each industry and state, based on correlations of the relative weight of investment in various categories of media and advertising, relative to all other possible inputs; however, the overall model is designed to ensure the sum of these industry and state-level sales totals equal the national sales impact total exactly, thus ensuring that the resulting sales impact neither over-counts nor under-counts. Internet vs. Traditional Advertising Media Analysis. The third level involves establishing principles for re-allocating overall advertising sales impact to individual digital and non-digital media, and performing a similar allocation for direct response (DR), and customer relationship management (CRM) sales impacts, in order to determine the mobile component of each. Similar sales impact estimates were made for the sales impact of direct marketing and CRM from earlier work done by IHS Global Insight. These weights were adjusted by mLightenment as necessary to eliminate extreme values or non-conservative results. Mobile Device Level Analysis. The next level involved ascertaining the portion of the net sales impacts attributable to marketing communications within individual digital and non-digital media to the overall mobile media platform. The chief task was to collect data that would allow us to apportion a share of pre-existing digital and non-digital sales impacts to the principal mobile device platforms (basic phones, feature phones, smartphones, and tablets/e-readers) to the extent supported on each class of device, and that devices adoption rate among end- customers (both consumers and employees). (The DR and CRM adjustments were made using Global Insights baseline sales impact totals estimates of direct response marketing (including CRM) in non-mobile media.) In doing so, we looked at current trends in underlying drivers of marketing media impacts across all media, such as shifting expenditure on media access (rising sales of mobile devices vs. declining expenditure on such important drivers of media impacts as share of expenditure on media, differences in the weighting of disposable income among key media segments, and related factors. We made small adjustments for factors such as share of operating system (e.g., iOS vs. Android vs. Windows, etc.) as well as the portion of devices with different network access types and speed (tablets with cellular broadband vs. Wi-Fi only; smartphones on 3G networks vs. 4G/LTE; estimate of NFC enabled smartphones, etc., and
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several other variables.) The historical data for mobile device adoption and expenditure among end customers was primarily sourced from Global Insight. Individual Mobile Media Level Analysis. The final level of analysis involved estimating the share of overall sales impact from the mobile devices level to the seven component types of mobile media and connectivity technologies (mobile voice, mobile SMS/MMS, mobile email, mobile web, apps, recognition technologies, and proximity media). Here again, we necessarily began with data describing the extent to which each media type was supported by in-market devices, and augmented it with what was publicly available from third-party sources about consumer usage of those various media (app downloading activity, data traffic from mobile web vs. traditional PC web, share of mobile consumers using shopping apps, etc.) It is important to note, however, that this sequence of modeling steps applies only to the three categories of marketing communications that represent variable (media buy) costs: advertising, direct response, and CRM; we do not model sales impacts for our fourth category of mobile marketing expenditure, namely supplemental services associated with mobile marketing communications, since they are regarded as fixed (overhead) costs within our model. Nonetheless, as explained below, marketer expenditure on supplementary internal and external services expenditure is included in our model for estimating total direct employment in mobile marketing. Step 3: Calculating Mobile Marketings Employment Impacts To calculate the volume of incremental employment caused by mobile marketing, (the second area in which we describe mobile marketings economic impact) we begin by noting that there are two categories of employees whose numbers we seek to estimate: employees directly involved with creating and executing and supervising mobile marketing communications, whom we call advertiser employees, and employees in non-mobile marketing occupations who are employed exclusively as a result of the successful use of mobile marketing to generate increase sales of goods or services within their industries. On the basis of national employment statistics, it is possible to determine ratios of output per employee by industry for both categories of workers within the Global Insight model. First, the number of employees directly involved in creating, producing, delivering, analyzing, and managing mobile marketing communications is calculated by estimating the share of mobile marketing expenditure devoted to salaries and wages at prevailing compensation rates, after overhead, profits, taxes, and so forth, are accounted for. This figure represents mobile marketing advertiser employment, and includes both in-house mobile marketers employed by buy-side client firms within the 16 industry categories themselves, as well as mobile marketing staff employed on the provider side, such as by publishers, digital ad networks, marketing agencies and other suppliers to whom industries may contract their mobile marketing programs.

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Second, to calculate directly supported non-mobile occupation employment, the model begins with the net sales impact by industry arising from mobile marketing as calculated in step 2, above. Then, using average output-to-wage-rate ratios specific to each major industry group, the model calculates the number of employees required within each industry in order to meet the demand for goods and services in that industry represented by its mobile marketing sales impact. These employees represent a weighted distribution of incremental employees in non- mobile marketing occupations across all activities necessary to meet the incremental demand for that industrys products arising from its successful use of mobile marketing, and includes occupational categories such as those involved in direct production (as in a factory) supervision and management, or other production support positions, such as personnel in delivery, accounting, etc.

Combined, the sum of expenditure based (advertising employment) and incremental sales- based (seller) employees comprise total mobile marketing employment. All such employees represent total incremental employment that would not exist but for expenditure on mobile marketing and its resulting increase to sales output within each industry.

Primary Data Sources Each of the steps above involves both some primary data (whether obtained from government statistics, industry associations, publicly available corporate information, the trade press, private sector third-party research firms, or proprietary first-party survey work) and modeled data (economic data derived from calculations performed on primary data). Step 1 relies most heavily on primary data, while the other two steps are primarily modeled. The following are the principal data sources used in the models: U.S. Bureau of the Census, Census of Manufacturing, Wholesale and Retail Trade, Transportation Industries, Service Industries U.S. Bureau of the Census, Annual Survey of Services U.S. Bureau of the Census, County Business and ZIP Business Patterns U.S. Bureau of Labor Statistics, Industry Output, Costs, and Profitability U.S. Bureau of Labor Statistics, Industry and Occupation Employment U.S. Bureau of the Census, Population Census U.S. Bureau of the Census, Current Population Survey U.S. Bureau of Economic Analysis, Inter-industry Transactions U.S. Bureau of Economic Analysis, Capital Stocks and Flows IHS Global Insight, Inc., U.S. Economic Service, Industry Analysis Service, and Regional Economic Service IHS Global Insight, Business Market Insights and IT/Telecom Market Data and Forecasts

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Interpretation Expenditure. This is the first time that the economic impacts of the mobile marketing industry have been estimated. The reader should be aware that owing to the newness of the industry, the data presented here are subject to larger than usual statistical variability. This arises from several factors, including scarcity of reliable third-party data for some segments of the industry; short historical time frame for all data sets; rapidly changing technologies and business models; and finally, rapidly evolving consumer media consumption habits. Sales Impacts. Interpreting the significance of the sales impact depends on knowing the size of the original base from which it is derived. In the Global Insight model used here, the base is total US sales (also known as total nominal US output.) Total US sales differs from the other principal measure of national economic activity, GDP, in that it includes all intermediate (B-to- B) sales, whereas GDP is much smaller because only those final sales representing final demand are included. (At roughly $33.3 trillion in 2012, total US sales, is somewhat more than twice as high as 2012 US GDP of $15.7 trillion.) Note that some sales impact within each media arises from marketing communications or marketing relevant information that is generated organically within that media, i.e., without expenditure by marketers. Such sales are sometimes attributed to earned or word of mouth media (in contrast to the bought media of advertising and the owned media of 1:1 CRM). Such marketing communications are created more or less free of charge by consumers themselves (e.g., information created and shared virally using mobile peer-to-peer (P2P) media or mobile social networks) or by bloggers or journalists in the normal course of reporting, etc. Employment Impacts. Our reliance on mobile marketing expenditure to calculate the number of mobile marketing advertiser employment means that our report likely understates the actual amount of employment in this segment of the industry. As many firms are startups, employees salaries are often paid for by VC funding, which our report does not measure. Another likely source of funding for employment is hidden subsidies from established firms developing new lines of business within the mobile ecosystem. An example of this would be a branded offline publisher who opens a new division focused on creating mobile content. In this example, marketing communications expenditure received via the publishers traditional media (which we do not measure) implicitly underwrite employment in the new mobile divisions until such time as sufficient revenues arrive to make it self-supporting, or the firm discontinues it. MIR: When interpreting mobile marketings MIR, it is important not to make direct comparisons to ROI metrics of individual firms. In our report, expenditures and sales impacts (and hence MIR, which is simply the latter divided by the former) are measured for entire industry groups, and across the entire economy, rather than at the level of the individual product, brand, or firm. This difference in level of measurement means that the MIR figures

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shown in our report will normally be significantly higher than those seen by marketers who calculate them for their particular organizations.148 To see why difference in measurement perspective produces difference in MIR numbers, it is important to remember that, all other things being equal, marketing communications undertaken by a given firm or brand will have both concentrated product sales lift effects and broader category or generic sales lift effects. Such generic or category effects boost sales of competitors products in the category, even when those products are not advertised. In addition, marketing communications can also be expected to boost sales in complementary product categories whether in the same or different industries again, even benefiting products that do no advertising. 149 Because our model is designed to measure the sales impact of the media as a whole, measuring industry and economy-wide, our methodology automatically includes all external or spillover category sales in our measure of total sales driven by mobile marketing. This is not the case for the sales and ROI metrics of an individual firm, which are designed to measure only sales accruing to themselves from their marketing, not those generated for competitors, much less unrelated industries.
148

Economists Boland, Crespi, Silva, and Tian used IRI panel data representing over 80% of all prune sales in the US to study the ROI of TV advertising by Sunsweet on behalf of its new brand of One prunes. This was done from 2008 to 2010, a period when Del Montes competitors did no TV advertising of their own prune brands. The authors principal finding was that the benefits [to Sunsweet] of the advertising on average exceeded the costs on the order of $1.26 to $4.35 for every dollar expended advertising the new product. [By way of comparison, the mLightenment-Global Insight model indicates that the average MIR for all advertising for 2010 for the entire Resources category (which includes agricultural products) was $3.34 remarkably enough, squarely within Crespi et als range estimate.] The authors go on to note that,

firms selling homogeneous products under either perfect competition or under oligopoly forgo most advertising because of the free-rider effect noted by Alston et al. (2007). Firms in oligopolies with differentiated products, on the other hand, create large barriers to entry when those few firms all advertise (e.g., Coke and Pepsi in the carbonated beverage industry). p. 148-149. [Emphasis added.] In other words: the need to overcome the category free-rider problem in advertising explains why firms in certain industries with weakly differentiated products like agricultural and dairy products typically band together to support generic advertising, e.g., Got Milk? See Michael A. Boland, John M. Crespi, Jena Silva, and Tian Xia Measuring the Benefits to Advertising under Monopolistic Competition. Journal of Agricultural and Resource Economics 37(1):144155. 149 This is a very brief summary of a heavily-researched and theoretically rich field of academic inquiry. For a fuller discussion and further literature, see Ulrich Doraszelski and Sarit Markovich, Advertising Dynamics And Competitive Advantage. RAND Journal of Economics Vol. 38, No. 3, 2007 pp. 557592; Rutz, Oliver J. and Bucklin, Randolph E., From Generic to Branded: A Model of Spillover Dynamics in Paid Search Advertising. (May 8, 2008). Social Science Research Network: http://ssrn.com/abstract=1024766; P. B. Seetharaman, Siddhartha Chib, Andrew Ainslie, Peter Boatwright, Tat Chan, Sachin Gupta, Nitin Mehta, Vithala Rao, and Andrei Strijnev, Models of Multi- Category Choice Behavior. Marketing Letters. December 2005, Volume 16, Issue 3-4, pp 239-254; An Empirical Investigation of the Spillover Effects of Advertising and Sales Promotions in Umbrella Branding. Tlin Erdem and Baohong Sun. Journal of Marketing Research, Vol. 39, No. 4 (Nov., 2002), pp. 408-420: http://www.jstor.org/stable/1558554; Subramanian Balachander and Sanjoy Ghose, Reciprocal Spillover Effects: A Strategic Benefit of Brand Extensions. Journal of Marketing Vol. 67, No. 1 (Jan., 2003), pp. 4-13: http://www.jstor.org/stable/30040507; among many others. 110

To illustrate: suppose Manufacturer A advertises its mattress brand A. Such advertising will lift sales for its own mattress, but will also lift sales for mattress brands B, C, D, and E, even if those brands do not undertake any advertising; later in the year perhaps, advertising on behalf of brands B, C, D, and E, will lift sales for Brand A also. These spillover category benefits are largely invisible to the individual firms, but are observable in our model. In addition, mattress advertising will also lift sales in complementary product categories such as bed linens (since some people who have bought a new mattress may purchase fresh sheets to go with it) or in adjacent industries (such as retailing, as when Brand As advertising induces some consumers to visit department stores with the intent to buy some kind of mattress, but who purchase childrens clothing or a nightstand instead.) In addition, many marketers construct their ROI metrics using different rules than ours. One important difference involves the definition of return. As noted above, our model defines return as total sales (top-line industry revenue) attributable to mobile marketing communications. Many private-sector marketers construct ROI using narrower, profit-based definitions of revenue, such as gross profit (top-line revenue minus cost of goods sold), or net profit (gross profit minus marketing expenses and overhead.) These narrower definitions of return also contribute to lower ROI results than those reported in our study, and by definition are non-comparable measures, despite the apparently similar names. Another important difference involves the time period covered by ROI: while our model reports data on an annual basis, some ROI constructs used by marketers expect the return from advertising to accrue during a much shorter time window often a quarter or two, or even the few weeks of a particular campaign. Such approaches necessarily exclude any sales with a high latency. Finally, of course, many marketers have not yet adapted their measures to include organic sales arising from unearned user-generated communications in each media, as discussed above on the interpretation of sales impacts. Direct vs. Indirect Impacts (Sales and Employment). While the impacts of mobile marketing reported using this methodology are very substantial, our approach is inherently conservative. Our first reason for saying this has to do with the narrow focus of our modeling approach. We purposefully chose to quantify only the directly attributable, industry-wide demand-generating effects that are the business logic of any type of marketing communications. Unlike many other economic impact studies, our approach excludes most of the wider mobile media ecosystems expenditure and revenues, including most of the multi-billion dollar cellular provider industry and its related employers. We also exclude mobile marketing indirect or cascade economic impacts, whether measured as sales or employment. Such omitted indirect impacts would comprise additional billions of dollars spent on non-mobile related inputs, household consumption items bought by mobile marketing employees, etc. So while such traditional secondary impacts are real, measurable, and very much a part of mobile marketings contribution to national economic activity, we do not think that such secondary impacts would paint a clear or accurate picture of mobile marketings fundamental value to the US economy as the industry itself best understands it.

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APPENDIX I: Summary Tables for Expenditures, Sales, and Employment Impact by Industry
Table 52: Total Mobile Marketing Spending ($ Millions)
Industry Group Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr. Accommodation and Food Services Other Services Government Total Source: mLightentment 2010 42 139 269 72 107 397 93 240 470 152 20 56 17 68 145 116 2,405 2011 74 227 471 119 171 648 156 389 784 245 36 95 27 110 227 179 3,957 2012 132 382 842 202 281 1,082 266 648 1,332 407 64 164 44 181 371 294 6,693 2013 218 597 1,373 322 433 1,676 422 991 2,080 632 105 265 67 281 562 432 10,456 2014 323 867 2,023 473 625 2,425 612 1,401 3,032 903 156 396 95 403 807 622 15,162 2015 446 1,123 2,691 630 804 3,164 814 1,778 4,017 1,163 204 539 120 512 1,028 771 19,806 CAGR 2010-2015 61% 52% 59% 54% 50% 51% 54% 49% 54% 50% 59% 57% 48% 50% 48% 46% 52%

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Table 53: Total Mobile Marketing Sales Impact ($ Millions)

Industry Group 2010 2011 2012 2013 2014 2015 CAGR 2010- 2015 50% 57% 54% 53% 58% 55% 52% 48% 49% 52% 57% 55% 52% 55% 54% 49% 52%

Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr. Accommodation and Food Services Other Services Government Total Source: mLightentment

419 1,563 7,819 1,134 1,203 9,352 1,916 4,783 11,735 2,877 743 973 242 762 1,975 1,129 48,627

729 2,735 14,331 1,980 2,083 16,501 3,489 8,161 20,580 4,887 1,285 1,706 410 1,322 3,315 1,788 85,300

1,151 4,670 23,680 3,208 3,548 27,362 5,528 12,883 32,634 8,082 2,125 2,784 671 2,214 5,493 2,971 139,003

1,777 7,488 37,405 5,029 5,701 43,092 8,710 19,653 49,893 12,778 3,431 4,407 1,041 3,519 8,572 4,437 216,931

2,511 11,124 53,587 7,256 8,559 62,690 12,323 27,590 70,181 18,472 4,975 6,508 1,492 5,168 12,633 6,497 311,566

3,230 15,120 67,650 9,494 11,885 83,214 15,470 34,021 87,492 23,657 6,995 8,621 1,949 6,897 16,964 8,314 400,971

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Table 54 Mobile Marketing Advertiser Employment by Industry

Industry Group Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr. Accommodation and Food Services Other Services Government Total Source: mLightentment 2010 141 449 878 223 359 1,342 316 780 1,522 520 71 192 58 236 501 397 7,983 2011 241 704 1,476 354 556 2,113 511 1,220 2,449 809 122 315 90 367 756 590 12,672 2012 428 1,176 2,617 598 909 3,502 868 2,016 4,128 1,336 214 543 146 603 1,228 964 21,275 2013 711 1,852 4,296 955 1,412 5,465 1,386 3,109 6,463 2,093 353 884 223 942 1,875 1,432 33,453 2014 1,058 2,697 6,365 1,408 2,047 7,957 2,023 4,429 9,436 3,010 526 1,328 316 1,361 2,707 2,075 48,744 2015 1,473 3,512 8,522 1,880 2,655 10,459 2,712 5,667 12,522 3,912 693 1,822 406 1,747 3,478 2,594 64,053 CAGR 2010-2015 60% 51% 58% 53% 49% 51% 54% 49% 52% 50% 58% 57% 47% 49% 47% 46% 52%

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Table 55 Mobile Marketing Seller Employment by Industry

Industry Group 2010 2011 2012 2013 2014 2015 CAGR 2010- 2015 46% 53% 49% 46% 55% 51% 47% 45% 42% 54% 47% 49% 47% 51% 48% 49% 49%

Resources Manufacturing, CPG Manufacturing, Other Wholesale Trade Retail Trade, CPG Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recr Accommodation and Food Services Other Services Government Total Source: mLightentment

1,913 3,101 18,581 1,497 5,280 33,630 11,053 10,696 24,675 18,482 9,461 9,007 2,037 12,454 19,396 7,649 188,913

3,185 5,143 30,488 2,333 8,796 55,863 18,644 17,116 41,895 31,274 15,888 15,167 3,315 20,385 31,378 12,045 312,914

4,913 8,546 49,274 3,701 14,872 90,182 29,018 26,532 63,826 53,237 25,346 24,249 5,304 33,277 50,237 20,049 502,562

7,259 13,730 78,655 5,695 23,607 141,563 45,060 39,632 92,826 85,235 38,395 37,360 7,859 51,640 75,408 29,761 773,685

9,817 20,003 110,428 7,970 35,103 202,120 62,754 55,294 121,680 124,648 51,301 52,722 10,960 74,828 107,822 43,568 1,091,017

12,531 26,160 135,741 10,054 47,074 262,042 76,690 68,656 143,321 159,493 66,057 66,171 13,787 97,492 139,066 55,253 1,379,587

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Table 56 Marketing Impact Ratio for Mobile by Industry

Industry Groups Resources (Agriculture, Mining, Utilities, Construction) Manufacturing, Consumer Packaged Goods Manufacturing, Other Wholesale Trade Retail Trade, Consumer Packaged Goods Retail Trade, Other Transportation and Warehousing Information Finance, Insurance, Real Estate Professional, Scientific, and Business Services Educational Services Health Care and Social Assistance Arts, Museums, Sports, and Recreation Accommodation and Food Services Other Services Government TOTAL MIR Source: mLightentment 2010 10.03 9.47 29.07 15.75 11.28 23.54 20.63 19.91 24.94 18.87 36.37 17.43 14.24 11.22 13.58 4.70 20.71 2011 9.84 10.10 30.45 16.66 12.18 25.46 22.40 20.96 26.26 19.94 35.32 17.98 15.18 12.07 14.59 5.00 22.06 2012 8.72 10.08 28.13 15.86 12.62 25.30 20.77 19.88 24.49 19.86 32.99 16.95 15.16 12.23 14.79 5.12 21.20 2013 8.15 10.29 27.25 15.63 13.15 25.72 20.66 19.83 23.99 20.21 32.55 16.61 15.47 12.54 15.24 5.26 21.14 2014 7.78 10.53 26.49 15.33 13.70 25.85 20.14 19.69 23.14 20.46 31.83 16.42 15.78 12.84 15.66 5.44 20.92 2015 7.24 11.12 25.14 15.06 14.77 26.30 19.01 19.13 21.78 20.34 34.22 15.98 16.19 13.46 16.51 5.79 20.56

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APPENDIX II: Definitions of Major Industry Groups

For more detailed information, please see the Industry Groups workbook in the accompanying spreadsheets.
Industry Code i11t23 Industry Title Resources (Ag., Mining, Util., Constr.) NAICS Codes 11, 21, 22, and 23 311, 3254, 3256, 31211, and 31212 Industry Description Includes establishments engaged in agriculture, mining, utilities services, and construction Includes establishments engaged in manufacturing of consumer packaged goods (CPG)

i3cpg

Manufacturing, CPG

i3oth

Manufacturing, Other Products

3 excl. CPG Includes all manufacturing manufacturing establishments other than consumer packaged goods 42 Includes establishments engaged in wholesale trade

i42 i44cpg

Wholesale Trade Retail, CPG

4451, 44529, Includes establishments engaged in 44611, 44612, retail trade of consumer packaged 44619, and goods (CPG) 4542 44, 45 excl. CPG retail 48 and 49 Includes all establishments engaged in retail trade other than consumer packaged goods Includes establishments providing transportation of passengers and cargo, warehousing and storage for goods, pipeline transportation, and support activities related to modes of transportation Includes publishing industries (including software publishing), motion picture and sound recording industries, telecommunication industries, web search portals, data processing industries, and information processing industries

i44oth

Retail, Other Products and Services

i48a49

Transportation and Warehousing

i51

Information

51

117

i52a53

Finance, Insurance, Real Estate

52 and 53

Includes establishments engaged in banking and other financial services, insurance, and real estate rental and leasing

i54t56

Prof, Scientific, Business Services

54, 55, and 56 Includes establishments engaged in professional, scientific, and technical services; management of companies; administrative and waste management services 61 Includes establishments engaged in instruction and training and includes schools, colleges, universities, and training centers Includes establishments providing health care and social assistance for individuals; includes offices of physicians and dentists, hospitals, diagnostic centers, child day care services etc. Includes establishment that operate facilities or provide services to meet varied cultural, entertainment, and recreational interests of their patrons; includes theater companies, dance companies, sports clubs, agents and managers of artists, museums, zoos, parks, casinos etc. Includes establishments providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption Includes establishments providing services not classified elsewhere such as equipment and machinery repair, personal care, death care, pet care, photofinishing etc. Includes federal, state, and local government establishments

i61

Educational Services

i62

Healthcare and Social Assistance

62

i71

Arts, Entertainment, and Recreation

71

i72

Accommodation and Food Services

72

i81

Other Services

81

i92

Government

90

118