Why Mobile ROI is Still Hard (One Year Later)

Almost exactly a year ago, I wrote a post titled “Why Mobile ROI is Hard.” A year later, it’s still hard. The evidence is in the two charts below.

We continue to see a tremendous increase in the amount of Internet time that consumers spend on mobile devices. Just in the last year, overall time that US consumers spent on the Internet grew by +24%, and all of that growth was attributable to mobile. Desktop usage of the Internet held steady, but mobile app usage exploded by +53%, and mobile web by +17%. People are spending more time on mobile.

Source: Comscore

However, despite the fact that % of time spent on mobile is rapidly increasing, ad dollars are not keeping pace with the growth. According to data published earlier this year by Mary Meeker of Kleiner Perkins, consumers now spend 20% of their media time on mobile (up from 12% last year). However, ad spend on mobile continues to lag, with only 4% of ad budgets going to mobile. According to Ms. Meeker, this represents a $30B market opportunity in the US alone.

Source: KPCB

As I had observed in my post last year, the lag between mobile usage and ad spend comes down to one word: ROI. It is still difficult for advertisers to understand the value of advertising on mobile devices. And if they can’t determine ROI, they are not going to move their ad budgets.

So what makes mobile ROI so hard? New data provides some insights into the challenges behind measuring the ROI from mobile ads.

Despite traffic gains, mobile conversion rates and order sizes remain low

Consumers are spending a lot more Internet time on mobile. And as you would expect, the percentage of traffic to retail websites from mobile devices is increasing. According to Monetate, in the last year, retail web traffic from mobile devices grew from 20% of total traffic to 28%.

Source: Monetate EQ1 2014 Report

The increase in mobile web traffic has not produced commensurate gains in mobile commerce, however. This is because conversion rates on mobile remain low, and average order size is also low.

Source: Monetate EQ1 2014 Report
Source: Monetate EQ1 2014 Report

Notice that tablet performance is much better than smartphone, and closer to desktop performance for both conversion rate and average order size. Conversion rate on smartphone is -64% lower than on desktop, and average order value is -42% less.

Why is tablet performance better than smartphone?

According to industry experts from a recent eMarketer study:

“The tablet mirrors desktop behavior, so the tablet has substantially higher cart value, and users are willing to purchase larger carts.” — Adam Foroughi, co-founder and CEO, AppLovin
“On a tablet, they’re leaning back and browsing, so their basket size will be larger” — Chris Mason, co-founder and CEO, Branding Brand.

As a result of the low conversion rates and average order values, today 89% of total digital commerce still occurs on the desktop.

Source: Comscore

What’s interesting to note is that the percentage of mobile commerce varies by category, from a high of 26% for digital content to a low of 7% for computer hardware.

The key question is: why are we seeing such low conversion rates on mobile, and particularly on smartphone? The answer is: consumer usage patterns.

There are three consumer usage patterns that contribute to the low conversion rates on smartphone:

  • Quick bursts throughout the day
  • Multi-screening
  • Smartphone form factor

Consumer usage patterns: quick bursts throughout the day

Consumers typically use their smartphones in quick bursts during “found time” during the day, when they are out and about. Because consumers have their smartphones on them at all times, and they are always connected to the Internet, it’s easy to reach for their phone throughout the day to check email, check in on social, or maybe play a quick game. During their commute, when they’re waiting in line, in between activities — these are all times when consumers are quickly checking the Internet on their smartphones. The average consumer unlocks their phone 110 times/day, according to research published by Locket. With the rise of app notifications as a way to re-engage consumers, this number is poised to increase in the future.

When it comes to Retail Internet usage, the data from XAd/Telemetrics/Nielsen is even more telling. (“Retail Internet” means accessing retailer mobile websites and apps.)

Source: xAd/Telemetrics/Nielsen
Source: xAd/Telemetrics/Nielsen

On smartphones, consumers are overwhelmingly using the Retail Internet when they are out of home, 60% of the time. Interestingly, only 6% of Retail Internet usage on smartphone happens within a retail store. This confirms the observation that consumers use their smartphone to access the Internet in quick bursts throughout the day, when they are out and about. The observation holds true for the Retail Internet as well.

The opposite is true for tablets, where consumers overwhelmingly access the Retail Internet from home, 83% of the time.

What are the implications for mobile commerce and conversion rates of consumers accessing the Internet on their smartphone in quick bursts throughout the day, when they are out and about?

The biggest implication is that smartphone Internet usage is not as conducive to digital commerce as desktop or even tablet. When you’re accessing the Internet in quick bursts throughout the day and when you’re on-the-go, you don’t have time to browse catalogs, do comparison shopping, or purchase products. As a result, you’re unlikely to visit retailer websites/apps, do product research, and most importantly make the digital purchase on your smartphone. However, as we’ll see later in this post, the touch points you have with marketers on your smartphone do influence downstream shopping decisions.

Consumer usage patterns: multi-screening

The bursty Internet usage behavior on smartphone leads to another interesting pattern in consumer behavior: multi-screening.

According to research published by Google, 90% of consumers report using multiple screens sequentially to accomplish a task (emailing, researching, shopping) over time. The overwhelming majority of those tasks (98%) are completed within a single day.

Given the bursty Internet behavior on smartphones, it turns out that smartphones are the most common starting place for these multi-device sequential activities.

Source: Google

So 65% of consumers reported starting their multi-device shopping task on smartphone. Of those 65%, 61% continued the task on a PC and 4% continued on a tablet.

This has huge implications for mobile commerce. It means that people do use smartphones during their shopping experience, but typically as a starting point as part of a multi-device journey. If they ultimately convert digitally, it will typically be on PC.

Consumer usage patterns: smartphone form factor

In addition to bursty Internet usage behavior on smartphone and multi-screening, the smartphone form factor also limits digital commerce on the smartphone. I wrote about this in last year’s post on Why Mobile ROI is Hard, and it hasn’t changed much since last year, but I will replicate the data here below.

Source: Google

Users find that the smartphone’s small screen size (40%) makes it difficult to type (25%), compare prices (22%), and see product info (27%). In addition, wireless connectivity issues and poor mobile-optimized websites mean that loading a mobile web page can be challenging (21%). There are some things that the industry can do here (and is already doing — more on this later), but it will probably take some time before these barriers to purchase completely disappear.

Implications of consumer usage patterns: offline and cross-screen conversions

By this point, you’re probably seeing a few patterns emerging from the data on consumer behavior:

  • Smartphone internet usage is not conducive to digital shopping because consumers are accessing the Internet in quick bursts on the go. They don’t have time for lengthy browsing sessions or comparison shopping.
  • Consumers are using the smartphone for digital shopping, but typically as a starting point as part of a multi-device experience.
  • The smartphone form factor limits the ability for consumers to browse, comparison shop and purchase digitally on the device itself.

The implications of these consumer usage patterns are the following:

  • Consumers typically use smartphones at the beginning of their product research process, and not as frequently at the end.
  • Most downstream purchases from smartphone Internet usage happen offline.
  • Of the downstream purchases that happen digitally, the vast majority of those are on a different device (mostly PC).
  • Tablet shoppers look more similar to desktop PC shoppers, with more conversions happening online. However, even with tablets, only a fraction of digital conversions happen on the same device.

Check out the data from various studies that support the implications above.

Source: xAd/Telemetrics/Nielsen

The data from the xAd/Telemetrics/Nielsen study indicates that smartphones were used at the start of the retail research process 53% of the time, and at the end only 11% of the time. Encouragingly, the smartphone was used throughout the retail research process 21% of the time.

So if smartphones are not used very often at the end of the retail research process, it’s unlikely that we will see many conversions happening on smartphone. What’s actually happening is that smartphone users convert offline, while tablet users convert online.

Source: xAd/Telemetrics/Nielsen

With the propensity of smartphone being used out of home, it’s no surprise that a whopping 77% of purchases following retail Internet visits on a smartphone occurred in-person (offline). Only 20% of purchases following a retail Internet visit on smartphone were completed online.

Tablets fared substantially better with respect to digital commerce. 55% of purchases following retail Internet visits on a tablet were completed online, the majority. No surprise here. Tablet users are likely to access the retail Internet from home, in a “lean-back” mode, when they have time for lengthy browsing and comparison shopping sessions.

What’s more interesting is where the digital conversions are occurring downstream from the retail Internet visit on mobile.

Source: xAd/Telemetrics/Nielsen

The results are stark: After a retail Internet visit on smartphone, 93% of digital conversions happen on a different device. That means that only 7% of digital conversions (which is already only 20% of the total downstream purchases from smartphone) occur on the same device. This is consistent with the Google study about multi-device behavior, which reported that of consumers who reported engaging in multi-screen shopping activities, 65% of those started on smartphone, and the overwhelming majority completed the task on desktop PC.

One would think that tablets would perform better, and they do. However, even for tablets, 76% of digital conversions after a retail Internet visit happen on a different device.

Although the final transaction may not always happen there, mobile devices contribute towards downstream retail sales

So let’s recap what the data has told us so far. Consumer use their smartphone at the start of their retail research process 53% of the time. Only 20% of purchases following a retail Internet visit on smartphone were completed digitally. And of those, 93% of digital conversions happen on a different device and only 7% happen on the smartphone itself.

So this explains why Mobile ROI is hard. If you can’t show how advertising on a smartphone will lead to a downstream conversion on the same device, it’s difficult to show a marketer what the ROI is of advertising on mobile.

But it’s not all bad news. Earlier this year, Deloitte Consulting published a study called “The New Digital Divide: Retailers, Shoppers, and the Digital Influence Factor.” What they found was that mobile significantly influenced in-store sales of products, and that its influence is growing.

Source: Deloitte Consulting

What Deloitte’s research found was that:

“Digital is increasingly influencing the way consumers are making shopping and purchase decisions. Digital across all platforms – desktop and laptop computers, tablets, and smartphones – is influencing 36 percent of the over $3 trillion dollars being spent across all categories of in-store retail sales. That is 36 cents of every dollar spent in-store. Smartphone devices alone influence $593 billion, or 19 percent of all in-store retail sales. The rate of smartphone influence has increased significantly since 2012, when it represented just 5 percent or $159 billion of in-store sales.

In addition, Deloitte found that the usage of digital during the shopping process increased in-store conversion rates.

Source: Deloitte Consulting

Consumers that used digital or mobile before they began their in-store shopping demonstrated a 20% conversion lift to consumers that did not. The influence of digital/mobile increased for shoppers that used mobile during the in-store visit: +27% conversion lift for consumers who used mobile during the in-store visit, and +40% lift for consumers who used digital/mobile before and during the visit.

It makes sense that consumers who actually perform research on their smartphone prior to or during an in-store visit would convert at higher rates, since they are likely higher-intent users.

So one opportunity for mobile advertising companies is to encourage users to engage in the shopping process on their smartphone (even if they don’t buy), and then connect the advertising to in-store sales. Instead of always driving to a “click-to-buy” purchase event, mobile advertising companies could drive to “click-to-research” or even “click-to-engage” — and then show how these actions resulted in downsteam, in-store purchases. More on this later.

What’s needed to make mobile ROI less hard

We have until this point looked a lot of data about why mobile ROI is hard, including consumer usage patterns such as:

  • Quick bursts throughout the day
  • Multi-screening
  • Smartphone form factor

As a result of these consumer usage patterns, few downstream purchases from mobile Internet activity happen online (only 20%), and the majority of those purchases are happening cross-screen (93%), primarily on desktop.

However, we’ve also seen that mobile significantly influences in-store purchase behavior, to the tune of 19% of in-store sales (and growing).

I think that there’s significant reason for us to be bullish about Mobile ROI getting better in the coming years. In my view, here are three things that are needed in the future to make Mobile ROI less hard:

  • Make it easier to purchase on smartphones
  • Online-to-offline attribution
  • Cross-screen attribution

Make it easier to purchase on smartphones

As we saw earlier, the smartphone form factor (and small screen size) makes it difficult to see product information, do comparison shopping, and type information. The mobile industry has to make it easier to actually purchase products on smartphones. There’s good news here.

There has been a trend towards phones with larger screen sizes. 42% of consumers say that screen size is a key part of selecting a new phone (according to Kantar). According to Accenture, nearly half (48 percent) prefer to buy a phablet rather than a conventional smartphone.

And the market is responding. Apple just announced that the iPhone 6 plus will have a 5.5” screen size, and Samsung announced that it will be launching the Galaxy Note 4 with 5.7” screen size (see comparisons here). Larger screen sizes will make it easier for consumers to do product research on their phone.

In addition, the industry needs to make it easier to pay. Apple also just announced Apple Pay, a system that will enable consumers to use their smartphone to pay for product offline, online, and in-app. This move will undoubtedly spur a new era of innovation and rapid advancement in mobile payments, which should make it easier for consumers to actually buy products from smartphone.

Online-to-offline attribution

But making it easier to buy products is not enough. What’s also needed is the ability to measure and report how mobile advertising drives offline (in-store) sales, since 77% of downstream sales from smartphone happen in person. That’s the only that we can show marketers how mobile influences 19% of in-store sales.

There have been some advances here as well. Both Facebook and Twitter (my employer) have been working with partners such as Datalogix to measure the offline in-store impact of online advertising. There is significant opportunity for innovation here as well.

Cross-screen attribution

And what about the 93% of online purchases made after a smartphone retail Internet visit that happen on a different device, primarily desktop? Well, this percentage will hopefully decrease over time, as the industry makes it easier to purchase on the smartphone itself. However, it will likely never go away. And for some verticals with higher-consideration products that require more extensive research (e.g. financial services or auto), cross-screen activity will likely continue to contribute to a large fraction of downstream conversions.

To address this need, the industry will need to start getting better at measuring (or at least estimating) cross-screen conversions. Google introduced Estimated Total Conversions; Facebook introduced cross-device reporting; and Twitter’s (my employer’s) conversion tracking pixel also tracks cross-device conversions. The mobile advertising industry will need to continue to develop better tools for measuring and reporting cross-device conversions in order to show mobile ROI.

What’s in Store for the Future

So the issues that we’ve discussed so far—changes in consumer behavior, leading to low conversion rates on mobile (especially smartphone)—are making it hard to show mobile ROI. We have discussed that even though the final conversion event doesn’t often happen on the smartphone, mobile influences 19% of in-store retail sales. And we’ve discussed three things that would make mobile ROI less hard: making it easier to buy on the smartphone, online-to-offline attribution, and cross-device attribution. The good news is that the industry is already moving in the right direction to address these mobile ROI needs.

What’s going to happen even farther out? My prediction is that the challenges with mobile ROI will continue to grow with the rise of wearable Internet devices. Apple just announced Apple Watch, which will usher in a new set of devices that will contribute to cross-screen consumer behavior, and will need to be measured for mobile ROI effectiveness. Instead of 3 primary devices (desktop, smartphone, tablet), we may move to a world where every consumer has even more devices (smart watch, connected TV, and even Internet-enabled cars in the future). So here’s a call-to-action for the mobile advertising industry — if we want to continue to grow mobile ad budgets, let’s knock out the existing challenges affecting us today with smartphones and tablets. Because it’s going to get a lot more complex in the upcoming years!