The Fragmented World of On-Line and Mobile Advertising

As we prepare for our big 'Telcos in Advertising' workshop on 29 March, here are some thoughts:

What we need to do is learn to work in the system, by which I mean that everybody, every team, every platform, every division, every component is there not for individual competitive profit or recognition, but for contribution to the system as a whole on a win-win basis. William Edwards Deming

For those not familiar with Deming, he is widely recognised as the man behind the massive improvement in quality and scale in the Japanese manufacturing industry after the Second World War (providing a precursor for such things as Total Quality Management and Just-in-Time in the 70's and 80's).

Current Mobile Advertising Fragmentation
His philosophy was in the forefront of my mind as I wandered around the dozens of exhibitions from companies offering mobile advertising solutions at 3GSM last week. My guess is that there is probably 100 start-ups focused on this area (and another 100 just about to launch) plus a plethora of established vendors in adjacent markets looking to position their existing offerings in this space. Several operators (O2, Orange/FT, etc.) are conducting trials with different start-up enablers to explore the required customer experience for such things as mobile portal advertising.

The Need for Scale - A Reminder
All this is natural enough, especially in the modern world where VC's are reasonably happy to back a few businesses in a hot area on the basis that one might make it big. But is it sustainable? Well, we have already indicated the Telco 2.0 view that a large-scale Telco advertising platform is key if this market is going to develop to become an attractive proposition to operators. Clearly, there is a role (and potentially an important one) for start-ups in this space but the critical thing is for operators to develop an open, standardised platform which unlocks the widest possible audience of Telco customers to advertisers.

Every other large-scale networked market has 1 or 2 dominant platforms (Windows on the PC, Google and Yahoo! on Web search, GSM and CDMA for mobile telephony, etc). At the moment on-line and mobile advertising remain fragmented from an operator standpoint:

On-Line. Consolidated Internet platform players (Google, Yahoo!, MSN) have created a valuable and growing paid search and banner market but operators receive breadcrumbs because they remain fragmented minority-players and add little value.

Mobile. Fragmented supply side (start-ups) and fragmented operators mean the market is too complex and expensive for advertisers to use as a single channel. Currently, the market is like dozens of separate channels each of which require a slightly (or radically) different approach from advertisers and media buyers.

This matters because if Telcos want to build a market which will add around 10% revenue growth (as indicated by respondents in our recent survey) then the industry needs to be worth over $100 billion to them across fixed and mobile. That is a helluva lot of money and a goal that remains out of reach with the current fragmented approach.

So What Does the Future Look Like?
One way or another, the next 3 years will see massive consolidation amongst mobile advertising enablers and either 1 or 2 will make it big or Google and Yahoo's mobile offerings will become established as the undisputed platform kings for search and banner advertising.

As for operators, the future is in their hands. For them to be sucessful they need to resolve the strategic questions we outlined in our last post and ensure:

  • They unite around a common platform - either through partnerships or through building a set of standards which allows them to interoperate and unlock the entire Telco channel.
  • They adopt advertising as a core, rather than peripheral, part of their businesses. This involves a significant effort to: work through the business models for advertising; understand how to deliver advertising to customers (and knowing which customers want what type of business model); and weave advertising into their core voice, messaging and content services so that it adds value, rather than hinders, the customer's 'transaction' whether that be communication or consumption.
  • They can provide value off-portal to the advertising community. Operators, whether mobile or fixed, should be looking to use their position as ISP's to exploit preference and usage information that they hold about customers for on- AND off-portal activities. Operators know that their fixed and mobile customers move outside their portals and that the world of the walled-garden is becoming less secure. One way they can become more than bitpipes when customers are off-portal is become a trusted provider of selected customer information which enables content providers and advertisers to target their services for customers more effectively. We suspect that this will probably be the biggest area of opportunity for operators in the medium term, but will likely be the slowest to develop owing to greater technical complexity and the reluctance of many operators to embrace a model which at first seems to reduce their role.

Much remains to be done to be done by the Telco community to realise value in these developing markets. Management in this area should look at our new 100 page report, Telcos Role in the Advertising Value Chain, (published next week) and the workshop on 29 March as part of the Telco 2.0 event, or, if you're based in the USA, another GSMA event we're involved in on the 30th March in New York.