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Posted by Thomas Husson on April 13, 2010
Following its acquisition of Quattro Wireless for $275,000,000, Apple has just announced the launch of iAd, its mobile advertising platform (see my colleague’s take here). Adding the $750,000,000 that Google is ready to invest in AdMob (the deal is still under FCC scrutiny), the two most disruptive new mobile entrants have invested more than $1 billion — a clear signal that mobile advertising has long-term potential. The main difference between Google and Apple is that Apple is only just entering the advertising business, while Google’s entire business model simply IS advertising. However, that potential has yet to be realized. Does that mean stakeholders can generate significant revenues in the short term and that operators will be bypassed once again? I have read in various places some strange comments suggesting that Google’s mobile ad revenue share with mobile operators would be a way to finance network evolution. Just compare the cost of a base station and the significant investment required to finance 4G with absolute mobile advertising revenues and you’ll quickly figure out for yourself that this is unlikely to happen anytime soon. This is more of an online advertising discussion around the Net neutrality debate (remember France Telecom’s CEO warning that he was not “building freeways for Californian cars”!) but it will crop up later for mobile.
Primarily, I view iAd as a way for Apple to help maintain its Apple App Store leadership and differentiation against other platforms — and helping developers better monetize their free audiences via a 60% ad revenue share. When Google announced its acquisition of AdMob, the iPhone inventory in some countries, such as the UK, represented around 60% of AdMob’s total inventory. Contrary to common belief, the click-through rate within iPhone applications is much lower than on operators’ mobile WAP portals or on the mobile Web. iPhone inventory is still sold at a premium, but this is starting to decrease for a number of reasons, including because supply is higher than demand. Online banners and basic text links (sold via blind networks’ marketplaces) do not offer premium brands the quality they expect. In addition, when clicking on mobile ads within iPhone applications, users are almost always taken out of their app and have trouble navigating back to it. Apple had to react to this. In this regard, iAd is a way for Apple to offer a greater rich media experience for brands (combining the “emotion of TV ads with the interactivity of Web ads” as its press release stated) and to control the user experience in Apple’s closed environment.
That being said, how can operators react to these tectonic shifts in the evolving mobile advertising value chain?
Many of them had bold expectations that they have never met.
Alcatel-Lucent announced today an interesting mobile advertising solution for mobile operators. One of the components is its offer of a one-stop shop for buying mobile media in a territory by aggregating operators’ inventories. By offering reach, more targeted audiences, and simplifying the ease of campaign booking, it will be of value to agencies and advertisers.
You can expect more consolidation and lots of innovation in this market in the coming months and years. However, I generally believe that mobile advertising will really take off later than expected but that it will be more disruptive than many think. Revenues will grow quickly, but the market will take time to scale in terms of absolute value. Look at Japan, the most advanced mobile market worldwide. According to Dentsu, the leading interactive marketing agency in Japan, total mobile marketing and advertising expenditure in Japan in 2009 was ¥103.1 billion ($1.14 billion). While there’s little doubt that growth has been impressive in just three years, one should bear in mind the context: Companies started rolling out their mobile presence several years ago, 3G penetration is at more than 90%, while more than 60% of users access the mobile Internet monthly — metrics that the US and European dream of hitting. Christopher Billich has written an interesting article on the state of mobile Web marketing in Japan.
There are many players positioning different offerings to help operators leverage their assets. From startups to traditional telecom suppliers, the list is long. Here are just a few of the names: Comverse, Mobilera, Mobixell, Out There Media, Sofialys, VELTI, and even the likes of NAVTEQ and Oracle.
If you want to know more about this topic, I just published a report "how can European operators make the most of mobile marketing and advertising". You can access it here.
I’ll also host a teleconference at the end of April on this precise topic. You can find more information and register here.