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Advertising-Funded Content: A Cynic’s View

Concerned that I was getting too enthusiastic about the opportunities for Telcos to carve out a niche in the advertising space, I put in a call to a mate who has a relatively senior marketing role within a global mobile operator (let’s call him ‘X’).

X has been around the industry for a while - he was a product marketing manager for SMS way back when - “total joke, I was a little nobody put on this minor product that was going nowhere and then BOOM! the thing takes off, much to everyone’s surprise…”. He retains a healthy skepticism about the performance and future prospects of operators believing them to continue to chase mirages of revenue growth (3G, HSDPA, MMS, Mobile Content etc. etc.), rather than accept that the market has peaked and that the future holds near-term cost-cutting ( “slash ‘n’ burn” ) followed by long-term operational efficiency ( “yield management” ) with, at best, 2% per year earnings growth.

Here’s a highly edited ‘transcript’ of our call:
Me: So, tell me, where do you see the opportunities for operators to get involved in the advertising value chain?

X (laughing): Advertising - the latest great white hope, eh? We are recruiting like mad in this area and senior management see ‘the google business model” as being the next big source of revenue growth. But why? What do we offer: the portal sites can provide all the value that advertisers need? We operators don’t bring anything to the party - we can’t add any value. And, in any case, advertising (like most web browsing), just doesn’t work on the mobile phone - it is a crap experience. We will end up as an ISP and ISP’s don’t get a chunk of Yahoo! and Google’s advertising revenues.

Me: What about the customer information you hold on customers and the AAA benefits of the SIM? Couldn’t these be used to (a) provided better content and advertising to customers and (b) a better feedback loop to advertisers?

X: But we don’t understand our customers! We have a billing relationship and we know how much they spend but we don’t know what they spend it on beyond voice and messaging (mainly because so little is spent). Google, through its search facility, knows what I want at that moment and can provide relevant advertising at that moment. But we are rubbish at this - it is not, as you consultants say, part of our core competence ( ouch! ). Our portals are rubbish - noone wants to use them.

Me: But what makes them rubbish - bad structure, wrong content or over-priced?

X: All of the above but probably the last two are key - content is not compelling and it is too expensive.

Me: Well, how about outsourcing the portal to the specialists but with a deal to provide integration with your identity, CRM and network assets to promote personalised advertising? Higher advertising revenues would enable you to drop the price of content and potentially even make it free, like the new service annouced by Universal.

X: This all sounds fine in practice but even if we do outsource our portal to a Yahoo!, I just can’t see us managing the process effectively. I think advertising will be a small revenue stream but there is no way it is going to be the industry-changing event that people expect.

Me: I agree that advertising’s importance MAY have been overblown, but don’t you think that many of your objections are not really structural but based on your cynical belief that operators will execute badly? If this is your premise, then aren’t you assuming that they will never adapt or develop effectively.

X: Oh, I think you are absolutely right. But let’s face it, all the empirical evidence is on my side!

I am trying to persuade X to attend the event on the 4-5th October and expound his “cynical-bah, humbug” views about this at length.

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Comments

Your friend, X, may very well have mountains of empirical evidence on his side, but regardless I believe that the telcos must develop their own advertising and sponsorship oriented business models and associated skills.

They shouldn't merely hire the talent from the outside, but also train their front line marketing employees to be able to talk the talk and walk the walk.

The portal aggregator (like Yahoo, MSN, etc) partners are the Trojan Horse that have continued to offer over the top Value Added Services (VAS) that will further relegate telcos to a low-margin commodity status.

However, that said, I'm not in denial about the valid points raised by X. I'm just suggesting that as difficult as it may be for the average "marketing challenged" telco to evolve up the broadband value chain, they must do it ASAP.

Granted, it's a very daunting task of organization re-birth that borders on a near business metamorphosis. No matter, IMHO, it's still a better course of action than most of the traditionalist alternatives.

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