FEATURE: Sell Phones: What will make mobile advertising tick?
Mobile Marketing and Advertising is the new “it” in the industry. All three recent industry shows (MES, MECCA, and CTIA) in L.A. last month were buzzing with the potential of mobile advertising. Carriers, who until now had not paid attention to this evolving sub-segment, have started to organize internally to be the clearinghouse and magnet for agencies and advertisers. The advertising agencies and big brands have started to throw MDF dollars at experimenting with this new medium called mobile. Analysts have started predicting billion dollar markets by 2010. The ecosystem has also started shifting and new alliances are being probed and tested for positioning. Is mobile marketing going to be another over-hyped industry segment or will it actually help generate revenue, drive exits for VC investments, enhance content value-proposition, and most importantly, deliver value to the consumers? This article discusses the elements critical for the long-term viability of the mobile advertising and marketing industry.
To get a grip on the potential market in the U.S. or Western Europe, we take a look at Japan as the harbinger of what’s to come in this space. According to Dentsu, mobile advertising revenues for 2006 will be approximately $373M or close to $3.8 per subscriber (for the year). By 2009, this number is likely to scale to $5.5/sub/year. According to InfoPlant, almost 60% of the Japanese consumers use mobile coupons and discounts more than once a month. The U.S. market is just starting to get organized and move from SMS marketing to mobile/local search marketing, interstitials, in-content ads, banner ads, etc. In 2006, US will do less than $1/sub (for the year) in mobile advertising revenues, the bulk of which will be SMS marketing. Europe is also slowly waking up to the possibilities around mobile ads and has been experimenting with some clever business models such as Operator “3″ subsidizing usage and phones in lieu of advertising on the phone. These models are also being offered in the microenvironments of downloadables, subscriptions, video streams, etc. It is apparent that due to the availability of context, immediacy, and personalization, mobile has significant advantages over the other channels as an advertising medium.
The potential is clearly there, but how long will it take to reach a critical mass? How many years before the industry cracks $1B? $10B? Instead of being a blip in the advertising revenue stream, when will the mobile segment start rivaling revenues generated from advertising on Internet, radio, newspaper, and TV? Can it? If yes, what does it take to get there? What technical, business, and legal issues need to be addressed before agencies have dedicated staff to tackle mobile advertising and real dollars instead of MDFs as part of the budgeting exercise? Finally, who will be the dominant players controlling the ecosystem five years from now?
First, let’s discuss the technology piece. As we have seen in Japan and Korea, higher processing power handsets and 3G pipes play a significant role in the adoption of rich advertising content. If an ad is non-intrusive, delivers value, and is relevant to the consumer, there will be a higher propensity of adoption vs. when after 45 seconds of “connecting to server” screen, an ad rears its ugly head to slam in the face of an already frustrated consumer. In the U.S., 3G is being adopted fairly aggressively, and when Cingular picks up pace with its WCDMA/HSDPA deployment, growth is going to accelerate into 2007. By 2008, 3G penetration will reach over 25 percent. Adoption of Smartphones is also increasing. With Motorola’s Q and RIM’s Pearl, price point is getting near mass-market consumption levels. By next year, we will start seeing $100 smartphones. In the U.S., 25 percent of the converged devices sold during the first half of 2006 were 3G devices. This is up from just 3 percent in 2005. User interfaces are also getting better. UIOne, MYDAS, Flash, Screen 3, 1mm and other proprietary solutions are extending the possibilities.
Most of the effective mobile advertising and marketing will be search driven - whether it is based on declared intent from the user or passive impressions based on user’s context, history, and preferences. Local search and advertisements will be a significant part of the equation. Service providers with good “mobile” search engine technology will be at competitive advantage as they build a strategic framework to address the bigger opportunity.
For mobile advertising to be successful, one needs “reach”, “purity” and “analytics.” Reach is how many “real” customers you have. Purity is the “quality” of information on the customers. Name and address just don’t cut it. Analytics is matching users interests - implicit and explicit, context, preferences, network and handset conditions to ads and promotions in real-time. Not just bucketing a user in a group and giving them a number, but understanding the user in every way possible and customizing every single interaction, every single push, every single imprint and every single promotion to the finest degree possible.
So, who has the reach? Clearly, carriers with millions of billing relationships currently have the tightest relationship with the end-customer in this ecosystem. On the other end are the Internet brands like Yahoo, Google and MSN, with over half a billion unique visitors each. Other important players include giants like Amazon, EBay, Myspace, Youtube, Skype, AOL and Paypal.
The internet brands have good reach but limited purity. Purity is about good profile data. The customer profile information that Internet players have assimilated doesn’t really always translate well into view of a customer’s interests and preferences. They can and will build a direct relationship with consumer, but it will take time and has to overcome some technical and business hurdles.
Finally, one needs the analytical framework. The goal of the framework is to capture the behavior and interests of the user while they are browsing, shopping, interacting with a variety of applications and content and even simply calling 1-800-Flowers. This knowledge mixed with the explicit profile helps enable build characteristics and traits of users on a mass scale. Once the segmentation and understanding of the user is fine-tuned, the gathered knowledge can be continuously applied to enhance the user experience while they are interacting with their mobile phone by targeted promotions and offers sent to the user, and mobile advertising can be enabled such that it adds value to the user experience.
In terms of platforms, there has been a lot of activity on building backends, but little progress on the front-end where it matters the most. What is absolutely needed is an easily accessible control framework for “permission advertising/marketing” so the user can selectively or globally switch-on or off the types of ads/promotions they would like to entertain and when. We need a SIP/Presence-like capability that works across all apps and services and is as universally accessible through open APIs. Mobile advertising is not just all visual, either. It can interact with the customer while they are on hold or support free 411 or premium services, or can be integrated with podcasts, essentially finding clever ways to provide ad/promotion content in exchange for something that provides value to the end-user. The context engine combines various inputs and uses location and other contextual information to package information before it is pulled or pushed to the consumer. This is true for all the application areas such as portals, storefronts, local search, mobile search, off-net access and other applications.
For the carrier, it is an excellent way to build loyalty and “stickiness.” It is also a way to take the saturated levels of data users to another level by subsidizing premium content and even transport costs by advertising thus lowering the barrier-to-usage. However, the carriers need to balance the influx of users and data traffic with the potential for additional revenues. Spectrum is still limited and it needs to be used wisely in any strategic scenario.
For the user, relevant (opt-in) and targeted advertising and promotions deliver value. In all recent surveys, the number of users willing to pay for the Mobile TV service is a very small fraction of the number of users who want to use the service. With advertising, they can afford more and start enjoying the full capabilities of their handsets.
From an advertiser’s point of view, mobile provides unparalleled reach and a reliable and accurate measurement tool. The ad/promotion system should have the capability to create promotions at national and local level (city, zip code, location) and everything in between. The system needs to support extensive querying and segmentation capability to design sophisticated campaigns for e.g.
- Give me users who are most likely to purchase a new ringtone from Usher.
- Give me users who are Pop aficionados, have coke as their favorite cola, wear Nike shoes, single, living in large metro areas on the east coast, income level above $120K, have ARM11 or higher devices and have responded to at least 50% of ads in the past 2 months.
While the potential is immense, there are also significant risks and potential challenges before the industry evolves into a vibrant advertising medium. The prominent amongst them are privacy and data security. Once you start mining user data, significant profile information can be developed. Then how that information is used and by whom becomes an issue and a significant legal minefield. In addition, the security policies and procedures need to be in place to protect the data from theft or misuse if the industry doesn’t want regulators to get involved.
It is clear that mobile advertising and marketing has big potential if certain technical and business requirements are met and industry strives to take into account the user considerations that matter the most. But which players will dominate and control the ecosystem? Without a doubt, carriers have the purest profile information available, but can they execute their strategies? Well, they have approximately a 3-4 year window. Once 3G and Smartphone penetration curves collide and pass 20-30%, if the carriers haven’t built a good mousetrap (value proposition) by then, all bets are off. Different dominant players will start to emerge, as it will get easier for Internet and traditional brands to build direct relationships with a good proportion of the subscriber base. It is also possible that in some geographies, carriers and brands will work closely to establish a tight service offering and equitable revenue split. The role of savvy brands like P&G who are generally ahead of the curve on most technology trends is going to be important. Brands and service providers who are able to integrate user experience across channels will benefit the most (Microsoft will be a strong player in cross-channel advertising.) There is real value in understanding user behavior on the Internet and mobile and cross-leverage in a) building a solid profile fingerprint and b) using it to push content.
Then, there is the whole world of off-net advertising and marketing. Carriers are increasingly playing a lesser role in that segment. But the market is very fragmented amongst hundreds of content providers and mini-aggregators. They only have a piece of the (reach and purity) puzzle and hence the analytics they apply will be limited in scope. Could they collaborate to work to leverage each others strength? Certainly. Can the user profile information be available as a web service (with user’s permission, of course)? Sure. Can carriers start to offer that to trusted providers in exchange for revenue-share? Possibly. There is clearly enough room for experimentation in both technology and business models arena of this nascent industry segment. Finally, ads and promotions should be “super-distribution-friendly” (across carriers and devices) meaning–treat ads and promotions like content that can be passed around “easily.”
It is quite clear from the industry trends the mobile industry (especially in the U.S.) is moving from an emerging state to a more interactive and immersive application and services environment. By 2011, global advertising industry will be close to $600B. Can mobile start to increase its revenue share from its current levels of less than 0.2% to 2-5% by then? Since this medium can provide context, immediacy, and personalization, the answer is yes. However, there are technical, business, and legal hurdles to be crossed before the industry becomes a thriving institution. Until then, stay tuned to our commentary on the shifts and turns in the ecosystem.
Acknowledgements: My thanks to Sunil Jain, Victor Melfi, Amar Patel, Anne Baker, Sarla Sharma, and Shawn Conahan for their valuable assistance with the article.
Source:Fierce Mobile Content
