The big beneficiary of this ebook reading increase appears to be tablets, which have overtaken e-reader ownership for the first time in Pew’s surveys. While ownership of e-readers has grown to 19 percent from 10 percent a year ago, tablet ownership is now up to 25 percent, up from 10 percent a year ago. Overall, one-third (33 percent) of Americans now own an e-reading device, either e-reader or tablet, compared to 18 percent of Americans a year ago.

The Pew Survey, which polled 2,252 Americans in October and November, doesn’t break down exactly how much reading is actually taking place on tablets versus e-readers so it’s possible that e-readers are still more popular for actual reading of ebooks. But the report falls in line with other reports that suggest that the e-reader is set to decline in the face of more versatile tablets.

IHS Suppli said earlier this month that ebook readers peaked in 2011 and were expected to decline by 36 percent in 2012 to 14.9 million units, down from 23.2 million in 2011. IHS forecast that e-readers shipments will drop to 7.1 million by 2016. Meanwhile, tablets are expected to grow to 203 million shipments by 2013, up from 70 million last year.

The rise in ebook reading comes as traditional paper book reading declines. Pew found that 67 percent of Americans 16 and up read a printed book in the last year, compared to 72 percent a year ago. It’s not surprising that ebook reading is up. It’s just more convenient for many readers. And with tablets only accelerating in sales thanks to smaller units like the iPad Mini, there’s less need to rely on a dedicated reader.

Advertisers are expected to chase the eyeballs to mobile, though to what extent and how quickly is unclear. Mobile presents particular challenges for advertisers because they don’t have the same retargeting tools (like cookies) that they have online, the screens are smaller, and ads have the potential to be more intrusive than on the desktop. For now, marketers are spending more on ads for smartphones than for tablets, because more people own the former than the latter. But some of the metrics suggest that tablets may have better monetization potential. Click-through rates for the iPad, for example, are twice that of the iPhone, according to Inneractive, a mobile ad exchange, and thus the ad rates are also higher for the iPad.

Whether mobile ads ever catch up to online advertising in revenue will have huge ramifiations for big companies like Facebook, Twitter and Pandora whose audiences are rapidly shifting to mobile devices. Currently, the sectors that spend the most on mobile advertising are telecommunications, retail and restaurants, automotive, finance and education, according to Millennial Media. Many brands, however, are still just experimenting with mobile and are spending a very small percentage of their ad budget there.

Here’s a look at the main categories of mobile advertising, as well as some emerging strategies that publishers and developers are banking on to help close the monetization gap.

Search advertising

Still the big dog in mobile advertising, bringing in about half of all mobile ad spending. That is likely to continue as consumers turn to their smartphones as a research tool while on the go. As Google pointed out, the smartphone is often the first step in a longer research process that continues on a tablet or computer. Mobile search is also valuable for advertisers because most consumers are very intent-driven when they search on a mobile phone and are likely to complete a task after searching.

Google said that 9 out of 10 mobile searches by users have resulted in an action such as a purchase or a visit to a business. While Google, which pretty much owns this category, can obviously benefit from growing mobile search, local search engines like AroundMe and location-based services like Foursquare may also see a lift. The rise of mobile apps may also threaten Google as more consumers get their mobile queries answered through a dedicated application.

• Amount forecast to be spent in the U.S. in 2012: $1.28 billion*
• Companies with the most revenue: Google (95 percent of the market).

Rich media and video ads

These offer advertisers an often pricey way to take over a screen and give consumers what can be a more immersive experience. Advertisers can use video, animation, photo galleries and interactive elements, which can make mobile advertising more akin to a TV commercial or a slick magazine. Opera Software, the mobile browser company, reported in July that users who clicked on a rich media ad spent an average of 52 seconds viewing a video and 1 min and 25 seconds interacting with photos. Opera noted that advertisers have started using rich media and video ads more frequently this year than traditional banner ads.

• Amount forecast to be spent in the U.S. in 2012: $647.1 million*
• Companies with the most revenue: Apple iAd, Medialets, Crisp, Celtra

Banner display ads

Some of the most popular ad units in mobile are banner display adds, but in terms of ad spending, they were eclipsed by search ads last year. Display ads are still very prominent, in part because advertisers can buy in standard formats, like they’re used to doing online. But the units are problematic on small screens because they can trigger more accidental clicks.

And if advertisers keep the banners small to avoid turning off users, then they can run into another problem — namely that they’re harder to make engaging and thus easier for readers to ignore. A traditional online banner ad may fetch $3 to $5 for every thousand impressions, which is still a lot more than mobile banner ads, which receive $1 or less on a smartphone, the New York Times reported. Banner ads won’t fade overnight but they are losing favor with advertisers. Opera Software said that static and expandable banners went from 66 percent of ads in January of this year to 36 percent in June.

• Amount forecast to be spent in the U.S. in 2012: $457.5 million*
• Companies with the most revenue: Pandora, Google, Twitter, Millennial Media, Apple and Facebook

Those are the major mobile ad types that are growing. Below, are some other formats where the spending is smaller but that publishers and developers have high hopes for.

Location-based advertising 

One of the most promising parts of mobile advertising because it leverages the mobility of smartphones and tablets. But the early efforts have been slower to take off, in part because ads delivered via geo-fencing or proximity don’t necessarily catch people at a time when they want to act or don’t factor in a person’s preferences. Providers like Sense, JiWire and WHERE are getting smarter about mixing location data with behavioral profiles to deliver more relevant ads to people.

Companies like Waze, a crowd-sourced navigation app, and Roximity, which hooks into in-car entertainment systems, are showing how drivers can also be targeted with location-based ads in their car. There is a danger in being too pushy with location-based ads, and creeping out users who don’t know their location is being tracked. BIA/Kelsey forecast that U.S. mobile local ads, based on a user’s location, will grow from $664 million in 2011 to $5.8 billion in 2016.

• Early leaders: JiWire, WHERE, Sense Networks

Native advertising

The latest rage for companies like Facebook, Twitter and Tumblr. Unlike with standard ad units, publishers help advertisers create messages and content that work within the flow of their platforms. By using the existing units of content, like a tweet or update, advertisers have an organic way to advertise through mobile that is harder to ignore.

Facebook said it now gets 14 percent of all of its revenue via mobile sponsored stories and install ads, which appear right in the news steam of its mobile apps and website. EMarketer estimated that Twitter would make $129.7 million in mobile advertising this year, more than Facebook. The challenge with native advertising is that it can be hard to replicate across different publications and often requires more work to cater to each platform.

• Early leaders: Facebook, Twitter, Tumblr

Other

There are some other approaches that show that it’s not just about placing a basic ad somewhere in an app or website. Kiip (see disclosure below) rewards people after achievements and milestones during games and apps. Pontiflex lets people sign up to receive ads and offers from brands they select. Appssavvy allows advertisers to place ads alongside activities inside apps and websites. Tapjoy helps people earn in-app rewards for watching videos, installing apps or subscribing to services. Conduit is creating lock-screens for Android devices that can be branded and potentially carry advertising.

*figures from eMarketer

Disclosure: True Ventures is an investor in Kiip and the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

App Annie Intelligence, which tracks more than 700,000 apps, found that global revenues for freemium apps on iOS have quadrupled over the last 24 months. And for Google Play, worldwide freemium revenues have grown 3.5x in 2012. Now, freemium apps generate 69 percent of the worldwide iOS app revenue and 75 percent of global Android app revenues. Meanwhile, premium app revenue from paid download apps have remained relatively flat over the same periods.

The numbers confirm the trend we’ve been noticing but the fact that there’s been no let up shows just how app developers continue to embrace the freemium model and how those apps continue to bring in more money. We reported two years ago that the 1/3 of the top grossing apps on iOS in the US had moved to the freemium model. By the end of 2011, Distimo reported that about half of the revenue from the 200 top grossing iPhone apps came from freemium app while 65 percent of the revenue from top apps in the Android Market came from freemium apps. Here’s a look at some of the charts worked up by App Annie Intelligence: 

In January, IHS said that in-app purchase in freemium apps brought in $970 million in worldwide sale last year, or 39 percent compared to paid downloads. And freemium app revenue was expected to grow to $5.6 billion by 2015, representing 64 percent of the total market. The App Annie data, which is limited to iOS and Android, suggests we may be on a faster pace than IHS predicted.

It’s not just in the US, where the figures generally mirror the world stats. App Annie said countries like China and Japan have rapidly adopted the freemium model in the last year. Japanese freemium revenues grew by 24x in the last year on Google Play and Chinese freemium revenue grew by nearly 25x on iOS since January 2011.

Not every app needs to go freemium. As Flurry recently pointed out, some apps are better suited to that model. For example, apps with high intensity of usage in a short window creates an opportunity for developers to make money though in-app purchases that users can binge on. And for users who come back repeatedly over a long period of time, there’s also a chance to keep selling them on more content and add-on functions. Apps that don’t necessarily hold on to users over a long period of time might monetize better through one-time paid downloads, said Flurry.

I suspect we’ll see paid downloads remain as a viable option for some developers. Instapaper’s success, for example, has shown that consumers will pay up front for a good product. But increasingly, the bigger money seems to be found in letting people in for free and then monetizing a smaller group of users over time through in-app purchases, subscriptions and other added features.

Image courtesy for Flickr user 401 (K) 2012

MediaEverywhere provides publishers with an SDK based on HTML5 that allows them to create custom mobile websites in a short period of time but also re-use the work for native apps for smartphones and tablets. The SDK  allows publishers to control the look of their content while easily distributing it to multiple devices in a cost-effective way.

HTML5 has been hyped as a tool to help developers build once and reach mobile browsers and apps. But the technology hasn’t developed as fast as proponents would have liked, including Facebook’s Mark Zuckerberg, who admitted that the company’s reliance on HTML5 was its biggest mistake. So why does it make sense for MediaEverywhere?

CEO Kunal Gupta told me Polar Mobile did a lot of optimization to its SDK to improve performance including a lot of caching on the device and a single-page architecture. And he said he created the tool specifically for publishers to help them present articles, blogs, photo galleries and multimedia content. Polar Mobile has also integrated support for third-party ads and also handles Google Analytics and Adobe Omniture for analytics.

He said publishers are finding that the revenue they’re currently making on mobile doesn’t justify the heavy price tag of dedicated native apps, which also take a long time to develop. And he said mobile consumption is increasingly moving to the web browser. Pew reported earlier this month that 60 perecnt of tablet news users rely on their browser to get news on their tablet, compared to 23 percent that mostly use apps. With a tool like MediaEverywhere that’s optimized for media publishers, Gupta believes brands have a way to be on all devices quickly without paying a heavy price.

“The mobile economy isn’t working today. Publishers are spending too much to pay for audiences and advertisers haven’t kept up with the audience,” said Gupta.

Gupta said more publishers will be coming on board soon including some of Polar Mobile’s more than 400 existing media clients. If that happens, that should validate Polar Media’s bet on MediaEverywhere. The company raised $6 million in January to build out the product.

It wasn’t immediately unclear if the early announcement was a mistake, but it took a toll on Google’s stock price, which is down about 8 percent before trading was halted.

Google later blamed the early release on its printing contractor, RR Donnelly. “Earlier this morning RR Donnelley, the financial printer, informed us that they had filed our draft 8K earnings statement without authorization. We have ceased trading on NASDAQ while we work to finalize the document. Once it’s finalized we will release our earnings, resume trading on NASDAQ and hold our earnings call as normal at 1:30PT,” Google said in a statement provided to several outlets including AllThingsD.

Google’s third-quarter operating income on a GAAP basis was $2.74 billion, down from $3.06 billion in the third quarter of 2011. GAAP net income was $2.18 billion, down from $2.73 billion in the same period the year before.

One of the other important pieces of Google’s financial performance — cost per click — continued to slide, something that has worried financial analysts in the past with respect to Google earnings. CPC was down 15 percent compared to the same period last year, and 2 percent compared to the second quarter of this year.

Revenue from Motorola — which wasn’t reported last quarter as Google waited for regulatory approval to purchase the phone maker — came in at $2.58 billion, split between the phone division ($1.78 billion) and the home division ($797 million). In the first quarter of 2012, Motorola reported revenue of $3.8 billion, split between the phone division ($2.2 billion) and the home division ($884 million).

Google’s stock has actually had a good run this year, but investors were not pleased with the early release as well as the numbers.

Update: the official release from Google is now available on the company’s website.

GOOG data by YCharts

The company is preparing a mobile app that will allow users to get unlimited access to a library of books for one monthly price. The app will combine discovery with access and reading, so users will be able to get recommendations and immediately begin reading. The app was designed from the ground up to optimize the reading experience on mobile devices.

The app will feature a growing catalog of books, from national best sellers to classics, both fiction and non-fiction.  Oyster is looking at working directly with publishers, not with authors. The app is being tested right now with a small number of users.

In addition to Founders Fund, Oyster’s new funding comes from SV Angel, Chris Dixon, Founder Collective, Shari Redstone’s Advancit Capital, Sam Altman of Loopt.

The company was founded this past summer by Eric Stromberg, a former business development and product guy at Hunch; Andrew Brown, who worked at Google and Microsoft; and Willem Van Lancker, a former user experience designer for Google Maps. Stromberg told me the idea sprang from his fascination with the transformation of books and what they will ultimately look like in digital form. He said he wants to create a tool for helping people find and read a lot more books than they’re doing today.

“We want to create a product that fits into people’s lives and lets them find books and read all the books they wished they had read,” said Stromberg.

Stromberg said there’s no date for the launch of the app and no price yet. He said he wants to create a social environment that lets people recommend books to each other, similar to how Spotify users can share their tastes with others. And Oyster will also work in the background to learn from a user’s tastes and habits to suggest other books. Stromberg will be relying on his experience at Hunch, which provided personalization and recommendation services to companies.

For publishers, Stromberg said Oyster gives them another way to generate revenue and get their content in front of users. He said Amazon’s Kindle best seller list drives a lot of sales for publishers but it prevents other works from being discovered. Amazon’s lending library also plays in this market but it’s limited to Amazon Prime customers and only allows for one book to be borrowed a month.

There are still a lot of questions about Oyster and whether it can compete against Amazon and other competitors. A lot will come down to its book selection and how Oyster’s talks go with publishers. Stromberg said Oyster will try to focus on quality over quantity. With the success of access-related media providers like Spotify and Netflix, this might be a chance for publishers to test out a paid library model and also lessen their reliance on Amazon.

Flite’s Desktop Ad Studio has helped publishers such as Conde Nast, Forbes, BuzzFeed and others create dynamic ads that can be updated in real-time and can incorporate third-party apps such as Facebook, Twitter, YouTube, PayPal and others. Now, with Touch Ad Studio, publishers already working with Flite on premium web ads can access very similar tools to make engaging mobile ads optimized for touch screens. Touch Ad Studio is launching Tuesday on iOS and is being used by a handful of clients including Forbes and Conde Nast, which is also an investor.

CEO Will Price told me that some publishers are seeing 30 percent of their traffic come from smartphones and tablets. But the CPMs for mobile ads can be a fraction of what they get on the web. With ad networks and retargeting technology, it puts even more pressure on publishers to prevent their ads from being commoditized. He said Flite has helped publishers create unique and differentiated ads that have native elements for their publications. That allows them to command higher CPMs, which he believes can carry over to mobile.

“Having an audience isn’t sufficient, you have to come up with an ad format that is not available for ad networks or retargeting media buyers,” Price said. “Right now, publishers are recognizing that without some differentiation at the editorial level and what they offer brands, they’re not going to be able to be successful over time.”

With Touch Ad Studio, publishers can easily create ads that respond to all kinds of gestures and can be updated in real-time so the content is never stale. The ads can include photo carousels, videos and can use apps from Flite Hub, Flite’s collection of third-party applications. The studio, which will be available for Android soon, operates like Photoshop and can be used by designers without any programming skills. It also includes reporting tools to see how ads are performing.

Flite first launched as Widgetbox, making content widgets before transitioning into building mobile apps. It then renamed itself Flite as it pursued its rich media ad technology. The company has raised a total of $27 million to date including $12 million raised last year from General Catalyst Partners, Sequoia Capital, Hummer Winblad and NCD Investors.

But New York City startup GorillaSpot Media has created a new mobile video app called Cliptamatic that looks to combine some of the short communications and sharing of Twitter with branded premium video like Hulu. The goal is to make concise premium video a kind of language that inspires reactions and gets people talking. The app, available for the iPhone, will start with a limited selection of election news, sports and comedy clips, usually no more than 30 seconds long, but will soon expand to movies and TV content.

Here’s how it works: users can choose to follow sports clips from the Big Ten Network to start, subscribing to their favorite conference team’s channel or they can choose from a variety of 2012 election issues, which includes curated content selected by GorillaSpot. There’s also comedy content from Latham Entertainment, which owns the Kings of Comedy and other properties and provides channels for Bernie Mac, George Lopez, Steve Harvey and other comedians. When new clips become available, users get alerted based on their subscriptions. They can also follow other users and see what they’re sharing or find what’s popular in the Cliptamatic network.

When a user finds a video they like, they can easily share it out to Facebook or the Cliptamatic feed with their own caption. The videos will run inside Facebook. Twitter integration is coming soon.

Cliptamatic has limited utility at launch because of its smaller library of content. And if it stays this small, it’s not going to be very useful for people. But there’s reason to believe this can be a more widely used tool because of GorillaSpot’s experience in the premium video world. GorillaSpot, for the last five years, has worked with studios and TV networks, such as Paramount, ABC, CBS, MTV, HBO, AMC, MLB and others, for its products, which include SceneWeaver, a video mashup application, and ReelCards, which provides online premium video e-cards. The company plans on rolling out film and TV content in the coming weeks and months, with many TV clips uploaded within minutes of their airing.

Athan Stephanopoulos, CEO & Founder of GorillaSpot told me GorillaSpot has already done a lot of heavy lifting with content owners and shown them how they can monetize their clips in a safe way. Now, he believes many more will be interested in teaming up on Cliptamatic. Some TV networks may release clips, with short 3-second post rolls that promote a current show. Other movie studios may just want to point to their archive of content. And some media companies may just want to get in now to help build Cliptamatic up into a larger sharing platform.

Stephanopoulos believes that there’s a ripe opportunity in creating a social video sharing service that is built specifically with mobile in mind, so consumption and distribution is easy. And he said premium content is capable of expressing people’s feelings in ways that user-generated content can’t convey.

“We’re trying to create a simple experience for finding content that’s relevant to you that helps you elevate your social conversation,” Stephanopoulos said. “Hulu is like a full meal while YouTube is like an appetizer, but we’re trying to provide the best bite of a meal.”

I think there’s definitely a place for Cliptamatic if it can score the right content. Video is a great conversation starter and tool for expression but I hesitate to use it sometimes because a clip may be too long or I can’t find the right video. And doing it from a mobile device makes it even harder. But if I could find the perfect Will Farrell quote from Anchorman or an illuminating clip from the upcoming debates that, I would love to share it at the right time. Movieclips has some great clips, which are available through YouTube as well, but they’re often a couple minutes long or more and there’s no mobile app.

We’re already used to sharing longer videos on Twitter and Facebook but I think we could see a lot more of that if the content was better packaged for quick sharing. And with the popularity of gifs these days, we’re understanding how short video moments are becoming a form of expression.

The appstore, which will go by a few different names depending on the country, will offer the same features U.S. customers have been familiar with, including the popular Free App of the Day, personalized recommendations, customer reviews and one-click payments. Some of the apps will also be localized for each market.

Developers will be able to take advantage of the Appstore for Android’s services like GameCircle, which offers leaderboards, game syncing and achievements, and in-app purchase. Amazon previously telegraphed the opening of the appstore abroad when it called for developers to submit their apps for international distribution in June.

Amazon’s Kindle Fire tablet, which is now sold out, got off to a strong start in the U.S. last year and validated the 7-inch tablet category. Now, Amazon is facing a lot more competition from Google’s Nexus 7, the Barnes & Noble’s Nook Tablet and likely an iPad Mini from Apple . In order to continue growing, the Kindle Fire will need to go international and it will need a full app store to compete. Also, having an international app store will also be helpful whenever Amazon gets around to launching an expected smartphone.

This is also good news for developers who want more downloads, especially paid downloads, of their apps. While Amazon has gotten some flak for its pricing methods, which it’s eased up on, its appstore has proven to generate a lot of revenue for developers, significantly better than Google Play. Now, we’ll just have to wait and see what exactly Amazon announces next week in Los Angeles, but an international Kindle Fire would make a lot of sense.

That’s the hole that Sling Digital is trying to fill with a new product that is being framed as the Moneyball for Twitter ads. Moneyball, if you don’t recall, is the approach popularized by the low-budget Oakland Athletics, which bought players cheaply in order to obtain wins. Sling Digital’s Audience Intelligence tool works by monitoring Twitter users’ conversations and breaking down who they are interested in, what affiliations they have, and what sites they visit and share from. The goal is not to buy keywords but to use a lot of data to buy audiences cheaply.

From the information it gathers, Sling can figure out cost-effective keywords to buy that allow an advertiser to find the right audience but at a much lower price than buying a traditional keyword. For example, if a beer company wanted to target soccer fans, it could buy the words “soccer” or “football” for a promoted tweet, but that would be expensive. But if it uses Sling to listen to the millions of conversations a particular set of users is having, it can find out that buying a particular name of a footballer or a soccer club could have just the same effect, because that’s what people are chatting about on Twitter.

MTV has been testing out Sling Digital and found it could advertise to fans of Snooki at a much cheaper rate than usual. During a recent campaign, Sling looked at the tweets of Snooki’s fans and found the keywords and articles they were sharing and using, which categories they were engaging in, and which other celebrities influenced them. Choosing new keywords suggested by Sling, MTV was able to get its cost per engagement with its target audience down to $1.93, compared with $4.95 with its original keywords.

Sling is primarily focused on helping customers advertise on Twitter. But it can also help them buy display ads on other sites using the same model. So if an advertiser wants to reach a sports audience, it could pay a lot to hit ESPN.com. Or it could use Sling to buy cheaper ads on smaller sites that users are currently visiting and sharing articles from. The system works on a rolling basis, looking at the last two weeks of tweets and conversations, but it can be narrowed to look at a narrower time frame.

Saif Ajani, the founder of Visibli, the Toronto company behind Sling Digital, said services like bit.ly already show what links are being shared. And tools like Radian6 analyze and monitor social media conversations. But, he says, there’s still a need for a tool that pulls it all together and uses the collective data to help guide advertising decisions. 

Visibli, which was originally founded in 2009, has raised $365,000 from Extreme Venture Partners and angel investors including LocalResponse founder Nihal Mehta. The service reminds me a little of SocialFlow, a New York–based company that helps advertisers time their update and ads to hit users when they are most receptive to a message. LocalResponse also analyzes tweets and social updates to let advertisers act on real-time consumer intent. All of these companies spend a lot of time understanding users’ conversations to optimize engagement with them.

It takes a lot of work and smart algorithms to understand what people are saying and how it can be used to target ads and updates. But if done well, it can be a big opportunity as more advertisers look to tap social as a way to reach consumers.