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It's impossible to guard against every risk

Jessica Twentyman
Financial Times 28 May 2008

Richard Saggers is on a mission. As global head of mobile advertising at operator Vodafone, it is his job to build a convincing argument as to why brand managers should be looking at directing key marketing messages to the 2.5bn mobile phones worldwide.

Considerable challenges lie ahead for this nascent market, he says. "Mobile media needs to be easier to buy and it needs to be better understood, especially when it comes to interpreting the results of mobile advertising projects. We need to help advertisers understand why they should use mobile and how it fits into wider campaigns."

It is a vital task for Vodafone and its competitors, says Martin Scott, an analyst with research company Analysys Mason. Business success among the operators is typically measured in Arpu - average revenue per user - and Arpu is beginning to stagnate in developed markets, he points out. "Mobile operators need fresh revenue streams to provide growth beyond simple voice services and mobile advertising has the potential to be one," he says.

Mr Scott is holding back on predictions as to how big that revenue stream might be because the market is still so immature.

Others are less cautious. Industry analyst Gartner, for example, forecast that the market will surpass $2.7bn in 2008, up from $1.7bn in 2007. But despite the bullish projection, Gartner research director Andrew Franks agrees it can't come to fruition unless a number of inhibiting factors are resolved.

"Some of the impediments to growth include slow adoption of multimedia, lack of consumer acceptance, lack of metric transparency, immaturity of standards, diversity of platforms, form factor issues, cross-media integration priorities and the complexity of the value chain, inventory of content, privacy, education and ease of accessing content," he says.

Phew - so where does that leave advertisers looking for new ways to make an impact on prospective customers? "Broadly speaking, it leaves a tiny handful testing the waters with pilot mobile advertising campaigns on pretty tight budgets, while others wait to see the results before diving in with mobile campaigns of their own," says John Cassidy, a senior manager in management consultancy firm Accenture's communications and high-tech practice.

Among the pioneers, success stories are starting to emerge. For example, new mobile operator, Blyk, launched in September offering subscribers 217 free text messages and 43 minutes of free talk, so long as they agree to receive six advertisements by text every day. To sign up for the service, users provide Blyk with details of their hobbies and habits - giving potential advertisers the opportunity to target messages.

Among the 18-24 year olds that Blyk targets, the proposition has proved attractive, and it has reached its target of 100,000 users six months ahead of target.

"Young people are very open to the idea of receiving advertising - so long as it has something to say to them that is relevant and of interest," says Timo Ahopelto, head of strategy and business development at Blyk.

In a recent Blyk campaign for Penguin Books (owned by Pearson, publisher of the Financial Times) to promote Nick Hornby's novel, Slam, 67 per cent of the Blyk subscribers targeted responded to a text offering a 90-second audio download of the book's opening chapter. Of these, 51 per cent downloaded the clip. Those that said no were pointed to the Penguin website, where they might find books more to their taste.

As the market develops, advertisers will be looking for opportunities to target older consumers and they will venture beyond the realm of text-based advertising to incorporate multimedia formats: video clips, web pages, and music and game downloads.

That has created a thriving ecosystem of small companies selling "ad serving" software to operators, which will let them to implement and manage campaigns. "There's a rich profusion of companies in this space - probably too many," says Judy Gibbons of venture capital firm Accel Partners. Her company has bet on Amobee Media Systems, creator of a platform that has hosted campaigns for companies including Coca-Cola, Saab and Lacoste. This technology enables operators to insert advertisements dynamically into mobile content such as WAP browsing, video and music, messaging and games.

It recently announced a deal with mobile TV and video specialist QuickPlay that will enable it to stream rich video media to mobile phones. "All the evidence suggests that mobile advertising will need to be far more sophisticated than simple text messaging to grab the attention of consumers," explains Zohar Levkovitz, Amobee chief executive.

But more sophisticated advertising formats need more sophisticated devices in the hands of users who have signed up for data tariffs from their mobile operators, points out Brad Rees of Medicacells, a mobile market analyst firm, and this is still at a low level.

However, the "iPhone effect" is changing expectations, he says. Combine this with the introduction of flat-rate data tariffs in 2007, some 10 per cent of the UK public could be browsing the mobile internet by 2009. That would represent a watershed.

"With larger screens, genuine broadband capability and integrated GPS [geographic positioning systems], mobile phones will finally become the personal internet devices envisioned with the advent of 3G," agrees Mr Scott of Analysys Mason.

And, as Robert Thurner, commercial director at mobile marketing agency Incentivated, points out, mobiles "typically have one user, which means they are a powerful channel to deliver highly targeted and relevant information".

But how willing will consumers be to receive advertising on their intimate, personal device?

To prevent mobile advertising being seen as spam, marketers need to use mobile operators' profiles of their customers cleverly, tailoring advertisements to match a subscriber's habits, says Mark Harrison at AditOn, a new business owned by PA Consulting.

With AditOn's platform for operators, mobile phone users are sent a daily publication of content, including advertising, which is "released" four times a day for about five minutes on the idle screen of the user's phone.

Recipients do nothing unless they are interested in an item on the screen, in which case they can click to view the content or advertisement in more detail. That action is recorded by AditOn's technology and feeds a personalisation engine that tracks users' individual behaviours and preferences.

To avoid flouting data privacy rules, however, operators and advertisers need the consent of subscribers - and even when they get consent, they still need to agree on common formats for sharing this information.

Efforts in this area are under way, says Mr Saggers at Vodafone. In April, the company announced it was working with rivals O 2 , T-Mobile, Orange and 3 to define a common mobile advertising audience measurement system, similar to those used in other media such as TV and print media.

"We need the transparency to create a win-win situation for everyone: the operators, their platform developers, subscribers and the advertisers themselves."

Contact the telecommunications team

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