It is difficult for anyone working in digital content publishing to go a full day without hearing, discussing, or reading about the business / revenue challenges associated with the growth in mobile. Recently, key findings outlined by Mary Meeker in her annual “Internet Trends” presentation at the D10 conference further highlighted these challenges.

1. Mobile traffic continues its remarkable growth — now 10 percent of all Internet traffic versus 4 percent in December 2010.

2. Mobile usage is ~10 percent of total media consumption, but mobile only accounts for 1% of advertising spending. (The same time spent vs. ad spend ratio for TV is ~43 percent — meaning spend matches usage.)

3. Mobile’s effective CPMs are 5 times lower than the desktop ($3.50 versus $0.75).

Not surprisingly, at this early stage, there is a material gap between mobile ad revenue and mobile usage. Of course, such a gap between time spent and advertising share, while closing, has existed since the dawn of the commercial Internet. At one point, as with the Internet and most prior “new” media platforms, we expect this gap to begin to close. Unfortunately for many, including many digital content publishers, this will take time.

While traffic grows fastest in the tough to monetize mobile space, the cost side of any content business isn’t reduced because more consumption is happening on mobile. Publishers still need to hire and pay talented content creators, build great user interfaces and grow audience. If anything, the cost side of a digital content business can (certainly initially) grow as publishers rush to develop mobile web and native app experiences for mobile phones and tablets on multiple platforms (iOS, Android, etc.) in an effort to find the silver bullet.

So what will mobile monetization for digital content publishers eventually look like? Below are four potential, and certainly not mutually exclusive, paths that content publishers will take to address the challenge. As with any discussion around the future of digital content, we believe any approach will be materially impacted by the content vertical in question (e.g. the use and consumption of content about sports is different than finance which is different than more commerce oriented verticals such as travel and shopping).

Path 1: Going Custom

Going custom means experimenting with different types of mobile units or blending the advertiser message in with content itself in sponsored content scenarios. We may see publishers try and blend desktop and mobile inventory into “hybrid” sponsorships, where custom programs happen on the desktop and more standard mobile ad units full out campaigns. Going custom requires a lot of creativity and appetite for testing (and the potential failure that comes with testing). While relevant for all content verticals, it is likely content focused on more news, information, and analysis (sports, finance, entertainment) will focus on more custom sponsorship programs.

Path 2: Going Geo

The notion of geo-targeting certainly is not new or unique in the mobile environment. Publishers’ desktop efforts often tailor the display of content to a user’s location. Certainly ad programs, both search and display, are geo-targeted in the desktop environment. However, the “on the go” nature of the mobile simply amplifies the importance of “geo” for content publishers and their monetization efforts. If a reader is in Texas reading content publisher X on a mobile device, she should get ads for local Texas businesses or for products that relate to her location and related details. It’s likely that there will be some advances here, but they won’t always map to the content a publisher creates — so commoditization is a real danger. If I consume entertainment news in Kansas City, am I best served ad-wise in a Kansas City context or an entrainment context? That said, we will see lots of publishers and ad networks experiment here.

Path 3. Going Transactional

High intent-driven content verticals may be interesting mobile test beds because their content’s context is transactional in nature — so mobile can present revenue opportunities separate from traditional display media sales. Content about local, travel, real estate, autos, and fashion, for example, can have transactions attached in the form of booking travel, contacting a car dealer/agent or making a purchase. Additionally, the mobile experience itself can be tailored specifically for these types of transactions with a dose of geo and a tighter funnel to transaction than the desktop (with its demand for ad impression volume) can usually support. As we are seeing many native apps focused almost exclusively on driving transactions gaining enormous traction, we can expect to see traditional content publishers in these high purchase intent categories tie their content more aggressively to driving transactions.

Path 4: Changing Costs

Changing cost means altering the structure of your content business to better map to mobile revenue. It’s possible that some digital publishers will simply struggle to monetize mobile. If behavioral shifts continue and mobile inventory grows at the expense of desktop, it’s possible we will see some digital publishers simply reset the cost side of the business to match and produce less or different content in an effort to make the business work.

Of course, many digital publishers will wait and see if the market changes with time, or if another party develops a technology or design solution that creates better mobile monetization. One obvious “elephant in the room” is the data ecosystem. As re-targeting based on browser cookie data is central to the display advertising ecosystem (for better or for worse), the same level of re-targeting is not close in mobile as of yet. Waiting is not inherently bad, and it’s possible that the mere passage of time does have an impact on effective CPMs in mobile.

The truth is we’ll see lots of different flavors of experimentation in the paths above, as everyone works on the best way to map their content business to this new reality. Meeker herself believes the mobile monetization challenge will not be permanent and that mobile’s monetization could surpass the desktop in one to three years.

Is it better to wait, or experiment? What strategy is your company going to take — and which path do you think will work best?

[Image Courtesy brokinhrt2]