China is the world’s largest smartphone user market and, according to Techweb, by December 2012 the percentage of users in China accessing the internet from mobile platforms reached 74.9%. At 420 million users this is a huge opportunity for advertisers to access their customers constantly and more directly than ever before via mobile advertising. But it’s not so simple. Adapting traditional advertising methods and messages, and leveraging the benefits of location-based software, present huge challenges to advertisers scurrying to keep up with e-commerce trends.

Anindya Ghose, Associate Professor of Information, Operations, and Management Sciences, the Robert L. & Dale Atkins Rosen Faculty Fellow and Director of the NYU Stern Center for Business Analytics at New York University’s Leonard N. Stern School of Business, has his finger on the pulse of all things mobile. In this interview with CKGSB Knowledge’s Liz Mahoney, Ghose discusses the future of mobile advertising and why China and Chinese consumers are leading the charge.

Q. A large majority of Chinese internet users are accessing the internet primarily from mobile platforms. What impact does this have on online advertising?

A. In 2012, 20% of the world’s mobile internet traffic came from mobile devices, but by 2014, and that’s early next year, more than 50% of users will access the internet from mobile devices. Recently I was reading an interview with Apple CEO Tim Cook, and he said that we live in a post-PC world now. He said that because 76% of Apple’s revenues in 2012 came from post-PC devices such as iPods, iPads and iPhones.

This is fundamentally changing the way firms, brands and marketers are trying to reach consumers, in a number of different ways. One is that, through mobile devices, they are able to better target consumers at the right place, at the right time. Mobile has a number of different channels: you can reach the consumer using SMS, or through a mobile app, or by using the mobile web. Brands now have these three routes through which to reach their consumers. You’ll see different advertisers trying to exploit synergies between these three channels, and reach people at the right time, at the right place. The same ad that works on SMS obviously doesn’t work on mobile apps (in the same way), which doesn’t work on the mobile web. You will end up seeing the same brand having multiple versions of an ad, some rich in media, some will be simply textual, and some of them will be based in audio podcast and so on. Even the format of ads is going to be different and often be customized for each user.

One of the other things that is going to happen is that the mobile app usage for brands will exceed the mobile web usage. In the last few years we saw the shift from PC internet to mobile internet, now we are seeing a shift from mobile internet to mobile apps. What that means for brands and marketers is that apps (will) become the key resource for them to reach consumers. One of the nice things about apps is that apps can be customized. When you open up your app, what you’ll see inside your app—the prices, the offers, the product portfolio—should be completely different from what your friend is going to be seeing (within the same app), the entire store is going to be personalized for you. So that, I would say, will be one big change.

Q. Traditional online advertising has been extremely successful on PCs but is limited by the inherently smaller screen sizes of mobile devices. What is the key differentiator between mobile apps and mobile advertising (based on traditional online advertising) and how does this allow advertisers to more effectively reach customers within the confines of a smaller device?

A. Mobile advertising on the web is primarily display advertising, whereas within an app you have multiple versions so it’s not just display, it could be an in-game advertising format, where there are banner ads floating as you play a game in an app. The other version that’s becoming increasingly more common is pop-up messages coming up within an app, based on where you are. So if you’re walking past a Nike store and you have the Nike app open on your smartphone, the Nike store will have the technology to actually sense that they’ve got a prospective customer 10 feet away from where they are, and they will then send you a targeted pop-up message saying that if you walk into our store you get a 20% discount on running shoes.

That’s not something you can do on the mobile web. The mobile web is the same version of the web that you are seeing, that I am seeing, and all my friends are seeing at any given point in time. So it’s far more difficult, if not impossible, for advertisers to customize an ad on the mobile web. Within a mobile app, because they can individually identify who the customer is and where they are, they can send you one-to-one targeted messages in real time. That’s the big difference in how advertising works on the mobile web and the mobile app.

Q. What are the major differences between Chinese mobile internet users and Western mobile internet users and how do those differences impact mobile-commerce trends in the two markets?

A. The average Chinese consumer is far ahead in terms of mobile device adoption and usage. They’re also ahead in terms of, not just downloading of apps, but also retention. One of the fundamental problems (of retention rates for apps in Europe and in the US) is that there are a lot of apps out there that get downloaded, only a fraction of them actually get used consistently. Whereas, in the Asia-Pacific region (South Korea, China, Japan, etc.) the average consumer is significantly ahead not just in the adoption of the mobile, but also in the adoption of apps and continued usage. Mobile has always been in these three places and even in parts of India—they’ve been like a crystal ball in terms of mobile technology. People are far more comfortable transacting on the mobile web, or using mobile apps in China and this is just the culture.

Privacy laws are different, in Europe, for example, it’s extremely stringent, and that makes it hard for brands to even reach consumers on mobile devices, because they’re bound by all these impositions and restrictions that the government enforces. If the brand can’t reach you on the mobile device, they can’t create incentives for users to adopt those devices. The user will only flock to a device if they know that brands are also giving them targeted incentives. Unlike Europe, in China laws are much more relaxed. Firms are happy to reach consumers on their devices, consumers know that they can get personalized offers on these devices; it’s a win-win.

Q. It’s not just laws that inhibit firms from reaching people in a too targeted manner. People in the West often view ads that are so targeted with suspicion and mistrust as they are concerned about privacy. Does that concern not exist as much in Asian markets?

A. I just think that people are more realistic, personally I believe privacy is an illusion. Get over it. I think we worry too much about these things. No one’s twisting my arm to buy a product, if the brand is trying to reach me with a targeted price and product, that’s customized to my preferences, more power to them. At the end of the day the average consumer is smart and intelligent enough to figure out if an offer that’s presented to them is good or not. I would say that the average consumer in Asia is just smarter and more realistic.

I hope that the average consumer in the US changes overtime. I think the next generation is growing up more in tune with all of these realities. When they become adults, they’re not going to have these illusions about privacy because they’re used to it, they know what the trade-offs are and they’re smart enough to figure it out. That’s why I think that the average user in the US is about five years behind the average mobile user in China.

Q. What important lessons can Chinese mobile advertisers learn from the West and vice-versa? Is there anything that China can learn from the US?

A. One of the most interesting phenomenon which is happening in the mobile world is the multi-screen effect and companies in the US are spending a lot of time thinking about what we call the attribution problem. The average user is being exposed to multiple (advertising) touch points for a product, before he or she engages in the purchase and typically marketers give credit to the last touch point that the consumer was exposed to before purchasing the product. For instance, if I saw the ad first on television, then on my smartphone, then on my tablet, then a Facebook ad, and I bought the product after I looked at the ad on Facebook, Facebook gets all the credit. Obviously that’s wrong because in many ways the purchase was triggered by seeing the ad on television, by seeing the ad on the smartphone or seeing it on a search engine. So the ideal solution for that is to allocate credit appropriately for each touch point based on their role.

I haven’t yet seen much discussion of the digital attribution issue in China. I imagine that internally a lot of companies are talking about it but there aren’t a lot of public discussions on it, so Chinese companies could be thinking more carefully about this digital attribution issue, given that US companies are already making big strides in this space. At the end of the day though, China is ahead. They are ahead in reaching consumers, ahead of us (the US) in advertising, price-setting, etc.

Q. Do you see any potentially disruptive e-commerce technologies emerging from China?

A. In a prior project I conducted with Taobao, one of the technologies I saw (which can be related to the digital attribution issue) addresses brands need to be able to track the same user across multiple devices. Taobao is making great progress because what they do is they track users by requiring them to login to the Taobao site before engaging in any search, transaction, click-through, whatever. But that’s not enough because, it’s possible that you log in on your laptop, but you don’t log out, inadvertently you’re still there, then as you commute home this evening, you open your smartphone, go back to Taobao and your saved wish-list, and start engaging in a transaction from there.

What Taobao is also trying to do is to track users through the mobile phone’s unique hardware addresses and they are thinking quite actively about how to tackle this problem by engaging and building this single identity for the user. IP addresses were great for web analytics, (but) in mobile analytics you can’t rely on IP addresses because the IP addresses for mobile devices are actually the IP addresses of the network gateway provider of the mobile company. That’s why you need to think about mobile-specific identity such as combining your IMEI (International Mobile Station Equipment Identity) number with your IMSI (International Mobile Subscriber Identity) number on the hardware side (which provides specific information about the user through a combination of traceable handset and SIM card identifiers), and combining that with something like a software-specific login. I think because Taobao and companies like Taobao have been so far ahead in the game of e-commerce, they’ve been ahead in making this single-user identity. I haven’t seen that happening in the US yet, certainly not in Europe. I would say, if and when that breakthrough technology of tracking users across multiple devices, multiple platforms comes, it’s going to come from China.