Change of channel: smartphones become the new ad platform
MOBILE ADVERTISING Operators are competing with Google and Apple for advertiser revenue, writes Charles Wallace
On the first day of winter, the German automaker BMW’s mobile marketing division had a brainstorm. Since it is a legal requirement in Germany that all cars must be equipped with snow tires when winter begins, BMW sent out a text message to every car owner in its domestic German database with a photo of their car sporting brand new winter tires. The result was dramatic: €14 million in new tires sales.
Chalk up a legendary success to the power of the nascent field of mobile advertising, a marketing tool that has recently begun to grow exponentially: Japanese advertisers spent over $1 billion on mobile ads in 2010, while the figure reached $790 million in the US, and European brands spent $110 million, according to British mobile researcher mobileSquared.
It is no surprise, then, that the mobile advertising sector will be a big focus at this year’s Mobile World Congress in Barcelona February 14-17.
Advertising mogul Martin Sorrell, founder and chief of WPP, is scheduled to give one of the keynotes, alongside of telecom industry executives. Big advertisers are also flocking to the mobile sector’s huge annual conference this year: Coke is sponsoring a Brand App Challenge in Barcelona for developers to create customised mobile applications for a wide range of mobile operating systems. The idea is to inspire novel approaches to advertising use mobile apps.
The rich potential of the mobile ad market has attracted Silicon Valley giants. Google outbid Apple by paying $750 million for the leading mobile advertising company, AdMob, in 2009. Apple countered by buying mobile network Quattro Wireless for $300 million and rolling out its new iAd advertising platform. Now, Facebook is joining the race to grab local and mobile advertising, launching services in the US and Europe that offer users discounts at stores, restaurants and entertainment venues when they “check in” to shops and establishments using their smartphones.
So where does that leave mobile operators? Several years ago, Blyk, a venture-based start-up, pioneered a permission-based mobile marketing model that is now gaining momentum among telecom operators. The principal with services like O2 More, Orange Shots and E-plus Gettings, is for operators to offer opt-in push messaging models that offer consumers incentives based on their preferences. The real value comes from the quality of two-way interaction with targeted segments of consumers. “If well executed and highly qualified, this direct messaging approach looks promising as a new form of engagement in which operators are uniquely positioned to bridge brands and consumers,” says Paris-based Forrester Research analyst Thomas Husson.
Operators bet on mobile advertising as a way to generate lucrative new revenue streams has not lived up to expectations. Now that this niche market is gaining momentum and Google and Apple have invested more than $1 billion in acquiring mobile advertising networks, the nascent mobile marketing value chain is maturing and evolving. Analysts say it is not too late for operators to play an important role, but it may be a different one than originally envisioned.
Mobile operators need to close the cultural gap with agencies and advertisers and make the most of their consumer data by selling marketers relevant clusters of information in an anonymous and aggregated form, says Mr Husson. Operators have the ability to offer marketers metadata, such as device ownership, average revenue per user (ARPU), past behavior, service usage, roaming information, and call history, on top of consumer profiles and couple it with other enablers like location, payments and couponing.
Mr Husson says mobile operators would be better off positioning themselves as trusted wholesale enablers of such metadata and enabling services instead of trying to play a key, integrated role in monetising their own web portal audiences, which are increasingly shrinking. The challenge in moving to this business model will be for operators to become the trusted party both for advertisers and consumers, who want their privacy and identity to be respected, he says.
The line between straight ads and more nuanced marketing has become blurred with all the new technology.In addition to standard SMS, MMS, email and the voice channel, there is an application channel for apps tailored to the iPhone, the Android and the HP Palm OS, as well as so-called proximity channels which utilise bluetooth, wifi, near field communications (the technology that lets you make payments with your mobile phone) and RFID, which uses radio waves to communicate with a tag.
Content providers as well as advertisers need to be aware that mobile now accounts for between 5 per cent and 10 per cent of all web traffic, says mobileSquared’s Nick Lane. “If their website isn’t optimised for a mobile experience, then potentially they could be alienating new customers. No company can afford to do that. They’ve really got to think about not just the PC experience but the mobile experience.”
Experts believe the future in mobile advertising will be in location-based services, which take advantage of the mobile’s unique ability to use GPS to put a consumer near a point of sale. For example, San Francisco-based Placecast has set up geo-fences around fast-food chain Sonic’s outlets, American Eagle Outfitters clothing stores, and recreation gear company REI’s shops in the US, and Starbucks in the UK. The technology sends out text messages known as ShopAlerts to consumers who have already opted in to receive offers who enter the area near those shops.
Coca-Cola is taking a different approach. It doesn’t do any traditional advertising on mobile but has produced a very successful augmented-reality game called Life Cycle that promoted the Coke Zero brand and another app called Scavenger that allowed consumers to collect points in a shopping mall using their mobiles. “This type of marketing is still on the smaller end, but is growing very,very rapidly,” says Susan Stribling, a Coke spokeswoman.
Advertisers like Coca-Cola are using the medium cautiously, embedding subtle brand messages in downloadable apps like games rather than investing in banner advertising that covers a screen and irritates the viewer. Others, such as L’Oreal and hair product company Brylcream, have used quizzes, sent via SMS or MMS with texting, to entice mobile phone users to engage with their products.
There are still some issues to be worked out. Mobile is an intensely private medium and customers often resist having ads sent to their phones. “People don’t take lightly being bombarded with advertising and spam so it needs to be treated as a completely separate platform,” says Paolo Pescatore, an analyst at UK mobile consultancy CCS Insight.
While mobile advertising started out being measured in much the same way as other traditional types of ads, using a cost per thousand views as the standard, it has quickly transformed into using mobile’s more productive measurements, says Harald Neidhardt, chief marketing officer of Germany’s Smaalto, which helps publishers find ads for their apps. So instead of CPM the trend is toward cost per click or CPC.
“The market is about 80 per cent performance-based now,” Mr Neidhardt says. Mobile operators themselves are leveraging the platform to sell products and services to their own customers.
Marco Veremis, chairman of UK-based Upstream Systems, whose firm provides advertising support to 40 mobile operators around the world, says his company generated $80 million in revenue in 2010 by producing $500 million in new sales for his clients.
Consider a successful recent campaign for Vodafone Europe. When a Vodafone customer finished an expensive overseas voice call, he would receive a so-called unstructured supplementary service data (USSD) message advising him that he could have saved a substantial amount of money on the call if he had subscribed to a discount call package offered by the operator. The campaign was so successful that sales jumped 20 per cent in a single month, Mr Veremis says.
“This represents real revenue, it’s not speculative, it’s not brand, it’s not impressions, it’s real revenue,” he says. The secret of the campaign’s success, he notes, is that operators already own detailed information about their customers, and know such things as at what time of the day they like to call and even what subjects they are interested in, judging by what they have clicked on in the past or downloaded from app stores.
Windsor Holden, chief analyst for Juniper Research, says it’s mobile’s potential for “very detailed analytics,” that helps make it most attractive as an advertising medium.“It’s a quantifiable distribution channel and it’s relatively successful both in terms both of engaging more users and offering opportunity to click through to respond to messages,” Dr Holden says. “As the use of mobile Internet increases, I think you will see a significant proportion of digital advertisement spending moving across specifically to mobile channels.”