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Analysis: are mobile ads the next gold rush?

Hot topic at 3GSM World Congress

Money talks. That's why mobile phone advertising has become such an irresistible topic.

As mobile phone executives converge on the 3GSM World Congress in Barcelona, which runs from Monday to Thursday next week, many plan to meet and discuss how they can benefit from the rush toward ad-funded mobile services.

Interest in mobile ads is being fueled in part by higher-speed devices that are encouraging more users to surf the web, by new broadcast mobile TV services that could attract a new breed of viewers on the go and, above all, by numerous ambitious startups, particularly MVNOs (mobile virtual network operators), which are eager to sink their teeth into a huge market. More than two billion handsets are spread across the globe, and their numbers are growing by the minute.

Arguably, the mobile phone is the most personal consumer goods device we own. It's a trusted communication companion, for the businessperson and consumer alike. And unlike a newspaper or even a computer, it's assigned to a single owner.

That has marketers licking their chops. They're excited over the prospect of being able to target their ads in a highly personalised way. And mobile operators, which have been reluctant to leverage their customer base for mobile marketing purposes, now see an opportunity to create a new revenue stream they simply can't resist.

Several groups are already testing the waters or are just about ready to dive in.

In Europe, for instance, HotSMS in the Netherlands currently delivers a free, ad-sponsored SMS (short message service) offer. Blyk in the UK and i-Wood in the Netherlands are preparing to launch free or heavily-subsidized voice and data services in exchange for mobile phone users' consent to receive ads.

Vodafone, Europe's largest mobile phone operator, is working separately with search engine giants Google and Yahoo. Google is developing a service that would link advertising to internet searches - a counterpart to its flagship business of selling ads linked to regular internet searches.

With Yahoo, Vodafone aims to jointly develop advertisements in a variety of formats, including banner ads and short videos. To help make adverts interesting to customers, the operator plans to offer discounts on services such as mobile TV, games and MMS (multimedia messaging service).

In the US, Sugar Mama, an MVNO owned by Virgin Mobile USA, gives prepaid customers additional minutes by watching online adverts, answering questions by SMS or filling out surveys about products and services. Another MVNO startup, Xero Mobile plans to provide college students with subsidised talk time in return for viewing targeted, relevant advertising. AT&T, Sprint Nextel and Verizon Wireless have signalled interest in developing mobile advertising strategies of their own.

Earlier this year, US startup AdMob opened for business as a middleman for managing mobile-phone ads. It joins Third Screen Media, which helps companies deliver adverts to phones without a glitch.

Not surprisingly, in Japan, which is often far ahead of the curve in delivering new mobile phone services, NTT DoCoMo has been running small banner ads on its mobile portals for more than five years.

Clearly, there's money to be made. Informa Telecoms & Media, a division of Informa, expects mobile phone ad spending in 2007 to more than double from 2006 levels to $1.5bn. By 2011, the market researcher projects spending of more than $11bn.

As enticing as mobile marketing is, industry experts warn advertisers, mobile phone operators, MVNOs and others to move carefully into this new area. The high level of personalization enabled by mobile phones makes these devices inappropriate for blanket advertising and any attempt to leverage users' IDs for unsolicited "spam" ads is guaranteed to alienate consumers, according to Emma Mohr-McClune, principal analyst at Current Analysis.

Mohr-McClune argues that consent and relevancy are the twin keys to unlocking mobile marketing's potential, without busting the lock entirely. Operators will have to offer their customers something in exchange for advertising consent, and they must make it relevant. And customers are more likely to accept advertising on a mobile phone if the promotions appeal directly to their own tastes and interests.

All of which suggests that mobile phone advertising will most likely appeal to younger customers. "This is definitely a youth-driven market," Mohr-McClune said. "Youth is very price sensitive so they'd be interested in services that are free or heavily discounted."

Ask a few and they'll agree. "If the phone service is free or a lot cheaper than what I'm paying now, sure, I'd be interested," said Michael Amos, a 25-year-old cook in Düsseldorf. Amos currently has a flat-rate subscription, which he said is comparatively low priced but something he'd drop for a cheaper service.

If operators are prepared to lower fees or drop them altogether, they'll want to make sure they generate enough money through ads to offset lower subscription revenue. One way is to keep users in "walled garden" mobile portals where operators would have better control over the flow of mobile ads and the revenue they generate.

Some operators may find it easier to work with companies like AdMob, which also serves as a broker and can strike deals for advertisers with individual carriers around the world.

Still, mobile phone operators, MVNOs and others entering the mobile ad market should be aware that the service is no free ticket to print money, warns Sarah Harris, a senior analyst at Strategy Analytics in London. There have been failures, such as Spotcast Communications, which launched an advertising-supported service in Hong Kong in 1999 but shut it down a year later, she said.

Harris speculates that the service was canned because only the most strapped-for-cash users were really adopting it with any eagerness. Not necessarily advertisers' favourite people, these consumers were happy to "play the game" and receive the ads but not willing to go out and spend money.

Similar advertising-supported services were launched a few years ago in Europe for fixed-line phones but "you really don't hear anything about them any more," Harris said.

If the ad market for online PCs took years to mature and generate revenue, the market for ads zapped over the airwaves will take time, too. Nevertheless, momentum is growing as new ad-hungry MVNOs sprout up like mushrooms.

Operators know that if they don't carve out a chunk of the mobile advertising pie before the others, they could be left nibbling on the crumbs.


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