Inside Mobile and Wireless
Monthly Columnist Gerry Purdy offers his analysis of the mobile media market
Why mobile will be the largest media market of all time
I was asked recently by a journalist what I thought about mobile as a media market and the eventual role that advertising will play with mobile devices. I thought about it a minute and replied, "Mobile will be the largest media market for advertising of all time." While that's a rather profound comment in light of the billions of dollars spent in advertising for print, TV, radio and Internet, mobile is destined to be very important - likely the most important - media market of all time. Here's why.
The entire concept of media markets is to provide valuable content to people while advertisers pay the publishing organization for the rights to "ride along" and get their message out about their product or service. Some times the "ad" is overt and separate from the content (like a TV or radio commercial) while at other times, the "ad" is included in the content (like you see on an Internet Web page) and still other times the ad is done via a product placement in the program itself (like what Ford did in the show "24" where most of the cars driven by the stars were Ford products).
The problem with most advertising is that it's a "disconnected" process: Advertisers really don't know who is receiving the message or often don't have any direct feedback from a specific ad. Rather, you hear things like "we received xx replies from this mailing." This was particularly true in print as well as radio and TV. But, with the introduction of the Internet and broad based advertising to millions of people, along came the concept of personalization, i.e. where the ads that are presented to the reader are tied directly to the reader's interest.
This small concept - narrowcasting of advertisements - resulted in Google making billions of dollars. Their thesis (as well as for Yahoo, Microsoft and others that provide a search application) is that you only provide ads to people about the very things they are looking to find. If I search for notebook PCs, then I'm only given ads about notebook PCs or if I'm searching for a particular gift, I'm presented with resources that should help me find the right gift.
Now, think for a moment about the opportunity that presents itself in mobile. There are around two billion subscribers to cell phones today going to three billion by the end of this decade. Then, realize that the location of each phone will be known to the network, the user and to the applications that reside in the network/phone. If I search for a bank ATM, then the system can detect where I am and automatically show me the ATMs that are closest to where I'm located. If I search for information on fly fishing, I can be shown nearby resources including streams where I might be able to do fly fishing.
When ads were created to run on radio and TV or in a magazine, the entire process has to build in a very high overhead to cover messages going to most of the audience that simply were not relevant. If I heard an ad for a car or new home development, but if I'm not in the market for a new car or home, the ad is truly wasted on me and most of the target audience.
Now, think what advertisers can do with the mobile environment: for the first time, advertisers (both the companies paying for the ads and the media companies that generate and distribute the ads) will be able to directly tie each outgoing message to a specific user. This is the ultimate in advertising: only advertise to people who are interested in hearing your message thus making them relevant a high percentage of the time. Advertisers get a higher effective response rate for the same funds spent. And, with mobile phones going into just about anyone in the developed world, it's easy to see how mobile could become the largest media market of all time.
There are some issues, however, that need to get addressed in order for mobile to become a large, successful media platform. First, the mobile industry needs to ensure that only the ads that people want to see actually happen. This is because mobile phones have small displays and every ad is, therefore, somewhat of an insult to the user. It's best if the mobile phone user "opts in" to the advertising process so that they affirm the ads that they want to see.
Mobile also offers a number of different ways for advertisers to reach their target market, including:
· Direct ad images in the general us of phone navigation.
· Results from a search request.
· Inside a game or other application (via "sponsorships")
· Messaging via SMS or MMS.
Mobile advertising started with messaging. Then we moved on to WAP, Video, and now even downloadable applications. WAP-based advertising has been popular in the off-net area. We are just now seeing opportunities in on-deck mobile WAP advertising. Mobile operators such as Sprint-Nextel and service providers such as MobiTV, GoTV Networks and others have embraced mobile video advertising before on-deck, WAP-based advertising could take off.
For off-deck mobile advertising, mobile operators simply act as connectivity providers. They are not involved in negotiations between content publishers and advertisers, have no say in ad placement or format determination and do not get any advertisement revenues.
For on-deck mobile advertising, mobile operators are paid a revenue share if advertising is handled by service providers themselves--MobiTV, GoTV, etc. or keep all the ad commissions if they sell the ad inventory themselves. For some cases, mobile operators may not get any advertising revenues. In cases where mobile operators themselves handle mobile advertising sales ,content placement, creative creation and management and ad-serving, they will get a large share of advertising revenues.
For mobile search, revenue is shared between search solution providers and mobile operators. In some cases, search solution providers can also take an additional revenue-share from the increased sales through recommendations served through their solution. For advertising revenues, around 50 percent is typically shared by each party. For premium content sales, search solution providers get a lower revenue share-it could even be a single-digit percentage. What's important here is to note that advertisers will pay a higher price (in CPM) than print, radio, TV or Internet because the advertising is so targeted. The lowest CPMs in U.S. mobile Internet advertising are in the $19-$22 range. This itself is considerably higher than the online CPMs of around $8-$10. On an average, CPMs in mobile WAP advertising are around $35. Similar analysis for mobile video advertising confirms that mobile video advertising is highly lucrative as well. Advertising within mobile games is exciting if it lowers the cost for the subscribers. Both banner ads as well as Jump pages are currently being offered, and the CPMs are around $40. Revenues are shared between the advertisement solution provider and content publisher in almost equal proportions (about 60/40).
The youth segment and the young working professional is the largest consumer segment for mobile games. Ads need to be developed and targeted accordingly. Frost expects the third-party content model to be the prime driver of such form of advertisement and content distribution, as it will not be easy to convince a mobile operator to give away content for free. On the plus side, mobile operators will still charge for data revenues-and increase in game downloads combined with advertising revenues could actually result in greater revenues than simple content downloads.
Keywords-based auction will have to be operator specific-unless the same search solution provider is working across multiple mobile operators and can determine the popular keywords. It might not be adopted in the initial stages as it will take some time to establish trends. Mobile search engines can be used for very different reasons than on-line search engines. The challenge is to determine which keywords to price higher than the others.
On the other hand, mobile operators have a wealth of information about their subscribers which will likely be more accurate than what is available in the on-line world. Location, demographics, gender, income and others information are some criteria that can be used to target advertisements, and ad-pricing will then change accordingly.
From this, it's easy to see that mobile media will become the largest advertising medium ever. Frost offers the following forecast for advertising revenue from mobile media over the next five years:
Written by: (with assistance from Vikrant Gandhi)
J. Gerry Purdy, Ph.D.
VP & Chief Analyst
Mobile & Wireless
Frost & Sullivan
gerry.purdy@frost.com
650-248-9366
Comments (10) | Post a comment Rate it:
Comments
By BusinessEdge | Posted 2:16pm | November 7, 2006
I think the key is less where the person is but who the person is. With television, they might know my household demographics, but not know who in the household is actually watching the TV, so how can they really market to the viewer?
With mobile devises, Ford can know who they send their advertising to. For a man, they can talk about features such as torque, horsepower and power. For a woman, they can talk about safety features, built in child seats and other things that are targeted to women. Same cell phone plan, different viewers. Same product pitch, different messages.
By Bill Morelli | Posted 5:24pm | November 7, 2006
I think you summed up your own problem here:
"This is because mobile phones have small displays and every ad is, therefore, somewhat of an insult to the user. It's best if the mobile phone user "opts in" to the advertising process so that they affirm the ads that they want to see."
I think the percentage of individuals who opt-in for cellular advertising will be very small. Although the mobile market has vast potential, I think it will prove self-limiting.
Advertising has become a necessary evil for many consumers and is partially blamed for the decline in movie ticket sales (being forced to sit through ads before the start of the film). DVR's now let consumers fast forward, a feature that advertisers arre still trying to devise a work-around for.
Unless advertisers come-up with something truly compelling, I think most consumers will avoid mobile advertising like the plauge - there is simply not enough screen real estate to support.
By Sulla | Posted 2:14am | November 8, 2006
Given that only carriers have access to location, gender and other information which make mobile users attractive target mobile advertising is likely to become a battleground between carriers and the rest of the world.
It will be interesting to see in what form consumers prefer their advertising, through search, SMS, or in some other form.
If the rest of the world does capture the largest chunk of the mobile ad pie, the main benefit of knowing the user's location gender etc may not apply.
By Atal | Posted 3:42pm | November 8, 2006
This leads us to interesting issues here. The mobile operators will benefit from sharing most of the information about users, however, they will naturally be guarded about the data and would like to maintain the walled garden.
By Antoine of MMM | Posted 7:52pm | November 8, 2006
Many times (lately) I have been reading that advertising holds a huge key to making mobile pan out (in $$$). However, I wonder if mobiles are too personal an arena to do that to the extent that personalization and location-based advertising wants to serve. It would seem to me, just from the change in the news culture of a passive/spoon-fed version to the active/give-me-what-I-want-and-that-only would make the assumption that people are willing to pay, but only when you make something relevant in a means that people can be their own gatekeepers. Advertising on mobiles seems to stretch over that fence, and it could be that instead of serving advertising, that maybe it should be people looking to assume to role of being advertisers, or even instead of serving ads, maybe the model can just be turned to mobile-interactive ads in which the ads grow to accommodate the number of mobiles.
Just some thoughts from a guy who sees mobile better as service and economic breakers, than just nice tools/toys (ref: Mobile Ministry Magazine).
By Will Kenlaw, Entrepreneur | Posted 11:08pm | November 9, 2006
Mobile Advertising to cellular phones is the ultimate test of mass customization. Success will be determined by the mobile ad solution providers' ability to customize preferences for ads to the individual user, theoretically for 7 billion people. The real question will be the level of granularity required to achieve this micro marketing. For example, for a category of interest, will the user require infinitely narrow selections (e.g. fishing, fishing tackle, fishing tackle freshwater, fishing tackle freshwater New England, fishing tackle freshwater New England state of Maine,etc) or will reasonably broad categories satisfy the users desire to receive only requested ads on a opt-in basis? Once the correct level of granularity is achieved and user momentum kicks in, word-of-mouth and the desire to be part of the latest chic trend will propel the success of mobile advertising. If only certain persons are getting ads from Nordstrom or the Sharper Image, that immediately makes it appealing and desirable to most of the population familiar with those brands.
By Michael Molin | Posted 8:43am | November 18, 2006
The problem of small screen area is solved by adding the second touch-sensitive display-keyboard instead of keypad for a device with a form factor like of the Motorola RAZR V3. Cell Computer Project - http://geocities.com/gene_technics. This approach allows to place a site menu or a program menu along with easily accessible banner or text advertisements - the ads is at the fingertips of consumers.
By Arthur Goikhman | Posted 11:39pm | December 4, 2006
Mobile advertising has been key to Cellufun's ability to offer free, quality content to our mobile portal's audience. We firmly believe that mobile advertising, especially of the in-game, product placement variety, will be a key driver for mobile content, and thus as ubiquitous as the phone itself
By Daniel Karlsson (www.Vigvor.com) | Posted 5:01pm | December 5, 2006
I fully agree with Gerry's predictions. I might however add that what's holding back the potential of mobile advertising that would be tolerable to consumers is adapted mobile devices/handsets. These need to be able to accomodate interactive ads without disrupting the service it is delivering to consumer. This will require innovation and better technology. Bigger screens, standards on ad formats, etc... My guess is that this has not been the focus of OEM's. Once MNO's (whom in key markets subsidize and thereby dictate OEM's priorities) wake up to this reality, mobile advertising may very well become the "killer app" for MNO's that will replace current cash-cow SMS, interco and Roaming revenues.
By Arda Cetiner | Posted 2:34am | December 6, 2006
I believe people will go for the opt-in advertising option for free applications, a well-known Google business model which is making money. Free games with advertising, free tools with advertising etc. Marketers will be happy to go for it as it will be easier to measure marketing campaign effectiveness. Mobile advertising is important from the MNO side since as the owners of the CRM data, they will be able to get a larger chunk of the advertising revenue in the value chain, which is expected to go to application providers.