Mobile Advertising: Is the Future Black for Blyk?
We like the hutzbah of the Blyk team. "A new pan-European free mobile operator for young people funded by advertising" sounds good in theory, and we applaud the bravery and boldness of its ambitions. But it breaks the principles for success in this market that we identified in our recent Market Study, and we believe its business model - in its current form - has little hope of success.
As the company gears up for its summer launch in the UK, the PR machine has kicked into action and management have announced a rash of recent deals:
- Advertising partnerships with Coca Cola, Buena Vista (Walt Disney), I-Play Mobile Gaming, L'Oreal, Stepstone (on-line recruitment), Yell (directory services) and others
- A Billing, Customer Care and Partner Management platform agreement using MetraNet from MetraTech
- An equipment deal with Nokia Siemens
- An Ad-serving and Customer Profiling platform agreement with First Hop
- And, of course, a network agreement with Orange
But Do Customers REALLY Want What Blyk Offers?
Blyk has been at pains to point out that research shows that its target customers (the youth segment) are ready and willing to receive targeted advertising. This is part of the reason why the company is investing heavily in CRM, ad-serving and customer profiling systems.
This seems like sensible stuff. Google has shown us all the value of targeted on-line advertising. But one of the key differences here is that the user experience for Google is incredibly simple and friendly:
- Type in search term to a beautifully clean Google homepage, receive list of highly relevant web pages and highly relevant advertiser pages. Click through to get information/product/service. Done.
Blyk is proposing a much more convoluted process in which customers must complete a form (or forms) with their user preferences to ensure they receive relevant ads. It's not clear whether the system then refines these preferences based on usage or whether the user needs to continuously update them but, either way, this is an annoying intrusion. The mobile is an incredibly personal device and we are not convinced that Blyk visibly imposing itself between the user and their desire to communicate with their contacts is a smart move.
Like Google, the power should be in the system which make this all happen seamlessly and invisibly: I pull the advertising/promotions I want OR Blyk magically pushes relevant stuff to me. The magical bit could be done via a partnership with a loyalty scheme provider (such as Nectar) where customer buying behavior is automatically tracked enabling Blyk to push relevant ads to users. Alternatively, let the user pull ads - by, for example, asking for deals on Coca Cola from local stores. Just don't ask me questions about what I want, get out of my face!
Sure, Yoof don't like to pay for things but I think the above issue represents a serious demand-side risk for Blyk. In addition, as we have already pointed out in this blog, the inventory available for operators like Blyk is limited - people will only consume a finite amount of advertising associated with telephony services.
Mitigating Demand-side Risks
The real opportunity is to become an advertising enabler when customers head off-portal to enjoy others services. In the case of the youth segment, this is likely to be to music-oriented places like iTunes, Pandora, Sony BMG's MusicBox, Last.fm etc. etc. We believe that Blyk would do better to focus on helping partners like this deliver more appropriate services AND advertising (for fashion, games, video, etc) to their customers. The social networking sites all do this quite well already, but there are opportunities to improve the community experience of these sites. Google's interactive TV concept demonstrates how contextual information (which operators have in abundance) can add to the social networking experience enjoyed by the youth segment:
Blyk will also have location, (micro-) payment services, customer history and customer demographic information with which to further improve the relevance of services and advertising for these sites. Critically, unlike Google, Blyk knows who else the user calls or interacts with. This latent social information is a potential goldmine. After all, Google has made hundreds of billions of dollars of shareholder value out of scraping other people's hyperlinks.
Surely, this would be a better long-term bet than merely offering voice and texts in return for ads? Blyk's management team may be planning this, but all the current noise is around ad-funded telco services.
Supply-Side Risks are Also Substantial
Now, we're sure that Blyk's management team have done the numbers. But we struggle to see how advertising alone is a viable revenue model for an operator. Internet-based businesses can achieve exceptionally low distribution costs for their services. The same is not true for operators like Blyk. Network costs will always remain high. It is interesting that Blyk has teamed up with Orange in the UK. Orange has traditionally eschewed MVNO deals (unlike T-Mobile, O2 and, more recently, Vodafone).
So why are they bothering with Blyk who will never be anywhere near the size of such MVNOs as Tesco Mobile, BT or Virgin? We reckon that this is a neat hedge to stay close to a potential competitor which is moving in on a market where Orange has traditionally been strong. Orange has a larger proportion of pre-pay customers than its rivals because it has a greater number of young customers (a legacy of its optimistic 'Future's bright' message). By being Blyk's network provider, Orange can learn about Blyk's services, branding and operational processes. But Orange is unlikely to be motivated to trade margin for revenue since the risk of cannibalising existing customer revenue is high if it drops its wholesale prices too much.
Bottom-line: We think Orange will not offer Blyk enough of a supportive pricing deal and Blyk will struggle to cover its network costs with ad-funded telco services alone. In the off-chance that Blyk takes off (with its current model), you can bet that Orange will itself fight back - initially with price-led offers to its youthful pre-pay base and later by copying Blyk's ad-funded model.
Better Opportunity: Improving Youth-oriented Voice & Messaging Services
We can't help feeling that Blyk should mitigate the supply-side profit risk by having at least some services for which it charges users. Young people do have disposable income. They may not have as much dosh as their earning adult counterparts, but parental allowances, student grants and dole money can all be spent on Telco services as well as booze, drugs, fags and music. This would have the added benefit of positioning the company as a value-added service provider rather than a 'cheap-as-chips' player. Helio and Amp'd (notwithstanding the latter's current financial difficulties) have been successful in the US and generate mouth-watering ARPUs.
The key thing for Blyk is to focus on making their voice, messaging and music services, and their devices, BETTER than the competition not cheaper than them. Don't just think about targeted advertising: deliver targeted Telco services and targeted devices.
Some examples might include:
- Partner-branded devices - Paul Smith (fashion); Coca Cola; Cobra (beer); etc.. Nokia have produced interchangeable fascias for their phones for years. Why not extend this idea to produce limited edition fascias or phones featuring favourite bands? Young people would pay for a Snow Patrol limited edition phone. Blyk could make money from sales of such phones and accessories on their website particularly if they also considered...
- Youth-oriented device features. We believe that Blyk would benefit from partnering with handset manufacturers or OS players to integrate a unique youth feature-set into the devices. They could consider such things as: an iTunes button to connect and pay for songs from the site; a 'Call Me' text button to send a FREE text to request inbound calls from (affluent) parents/friends (Blyk would enjoy inbound termination revenues) and/or sharing of inbound termination with Blyk users to grow this lucrative revenue stream. We will be exploring in detail these concepts and others detail at the Telco 2.0 Digital Youth Summit in October.
- Youth-friendly voice and messaging services. Make your CORE service more attractive to your customers with a mix of free and paid-for content and services: Offer a selection of FREE and premium rate tailored ringback tones featuring favourite bands/soundtracks. Let users send a Blyk Emoticon to each other for free (on-net only) but pay for a selection of premium emoticons and animated messages. For example, users could send mobile Flash-powered interactive greetings (that work between Blyk users and internet users). Non-Blyk mobile users can download a client (so Blyk starts to parasitise other operators' customer bases).
Create an eco-system of developers for services and open up the Blyk platform for them to create bespoke applications and content. Offer generous revenue share options for them - other operators do this badly because they see developers as a distraction or threat. Copy Microsoft's approach with Windows and see them as the lifeblood of the Blyk value proposition. Give them an easy to use Blyk developers kit and allow the most popular services to appear automatically on the device menu or at the user's request (via over-the-air updates). (In fact, Microsoft can even sell you the tools for this.)