Mobile advertising prepares for takeoff

Spending on mobile search and display advertising will skyrocket in the coming years in the U.S., finally making cell phones a viable vehicle for this type of online marketing, according to research firm The Kelsey Group.

Spending is expected to total $33.2 million this year and grow at a compound annual rate of 112 percent through 2012, when it will hit $1.4 billion, Kelsey Group analyst Matt Booth said.

This means that major players in online advertising, such as Google, Microsoft, and Yahoo, as well as the major mobile carriers, will battle it out in a market that is uncharted territory. “Between now and 2012, the opportunity [in this market] is wide open,” Booth said.

As the market morphs from tiny into sizable, Internet companies and carriers are learning as they go, figuring out how to compete and partner with each other, win over advertisers, and better serve mobile subscribers, he said.

The boost in spending follows technology advances, such as the increasing availability of mobile broadband services, the expansion of GPS capabilities, and improvements in device usability at the hardware and software levels, he said.

For Google, the broadening of the mobile channel for search advertising comes at a good time because it currently has ad inventory backed up awaiting increased traffic, Booth said.

It’s no secret that mobile is the next big frontier for Internet services and advertising, although the market’s explosion has been prematurely predicted in the past.

Kelsey Group expects mobile Internet users to grow at a 20 percent compound annual clip in the U.S. through 2012, when there will be almost 92 million people going online via their cell phones.

Previous unfulfilled expectations haven’t discouraged Google, Yahoo, Microsoft and other big Internet companies from adapting in recent years their PC-based online services like e-mail, instant messaging, photo managers, and search engines for mobile devices.

Yahoo, for example, has a suite of mobile services and applications called Yahoo Go for Mobile 2.0, while Google offers mobile versions of several services, including Gmail, Maps, YouTube, Picasa, Blogger, and search. Meanwhile, Microsoft’s mobile offerings include Windows Live Hotmail, search, Spaces, and Messenger.

Beyond adapting services to mobile devices, Google has also expressed interest in bidding in an upcoming U.S. Federal Communications Commission auction of 700MHz wireless spectrum set for January. There have also been rampant rumors that Google is developing a cell phone, but the company hasn’t officially acknowledged those plans.