Mobile Advertising Is Really Another Comms-Enabled Business Process
We should all now be aware that the global digital advertising market adds up to about 2 per cent of the telecoms industry's revenues. But advertising is a sub-set of a bigger sector - 'marketing services and business intelligence' -which is far more valuable and far more pertinent for telcos to support.
As Rory Sutherland, vice-chairman of Ogilvy, said at Telco 2.0, there are probably more good ideas in mobile marketing than there is money to pay for them.
Limits to advertising, and the Google threat
The ad industry traditionally argues that there is no theoretical limit to how much enterprises might choose to spend on advertising, and that therefore their business is a natural growth sector. However, it is also a highly cyclical sector; there is always scope to cut advertising budgets. It would be a robust optimist who projected a major increase in advertising spending in the near future; as well as the bleak macro-economic outlook, there are signs of a structural shift in progress in the industry (as the IBM Institute for Business Value also thinks), with traditional TV and newspaper display advertising collapsing.
The only major success story, which is also the biggest success in advertising since the arrival of commercial TV, is Google. Google has certainly profited by enlarging the addressable market for online ads - its scale, and its two-sidedness in deliberately subsidising the creation of an audience through search, and inventory through its content-creation services, have enabled it to reduce the minimum scale required to advertise effectively online. Businesses that would never have advertised to a mass audience can do through Google Ads.
This price war strategy, however, has obvious consequences for the potential margins companies entering this field might expect. And do you really want to set out to compete with Google in its core business? Unless there is a drastic change in Google's strategy, business model, and technology, the great majority of the $100bn in annual revenues the company is aiming for will come from advertising. It is a valid question how much online advertising will be left for others; arguably, as a capital intensive business with global scope, it is likely to be dominated by a very few giant firms. Google and Yahoo! are there already.
Then, as Scott Shoaf of Juniper Networks said at the Telco 2.0 Executive Brainstorm, experience from some of the world's biggest businesses that sell advertising - the US cable TV MSOs - shows that although ads are a major source of revenue, it isn't obvious that the distributor is best placed to capture it. 90% of the money goes to the content owners.
The importance of "..marketing, and business intelligence"
Fortunately, that is not the only way to make progress with mobile ads. In the 2-Sided Business Model strategy report, we included advertising in a group of businesses with marketing and business intelligence. Increasingly, however, we're seeing it as part of a broader spectrum of enterprise services; after all, one of the main aims of CRM is to understand the customer in order to sell them your products, and one of the key disciplines of marketing is to make it as easy as possible to buy. Can you really divide advertising from these functions?
One of the major selling points telcos have in advertising is much improved reporting and analysis. So where is the clear distinction between this and the company's general management-information system? Also, one of the services we mentioned in the post about Rory Sutherland's presentation, Fizzback, is designed to elicit real-time feedback from your customers. This is, again, a silo-breaker. Is it marketing? Is it advertising? Is it CRM - or possibly VRM? If you recall the use case - asking passengers on a coach for their impressions, and having the driver adjust the air conditioning - it's not all that different from some of the logistics-focused CEBP applications Voicesage and friends specialise in. The main difference is that rather than monitoring the temperature of goods in a refrigerated container, it's monitoring the perceived temperature of passengers in a heated bus.
So the first lesson about ads from this spring's Telco 2.0 is that, as we've said before, it's not really about ads.
Advertising as a communications-enabled business process
Instead, it's part of the sprawling, chaotic undemarcated frontier between classical enterprise IT, Web 2.0, and mobility. Specifically, it's all about the edges of those businesses - where it makes contact with suppliers or customers, where other people's business processes overlap into yours or vice versa, and where the company overlaps the edges of its own IT system.
We've pointed out before that a lot of very expensive, and often very good, corporate IT stops at the loading dock; as soon as people, information, or goods leave, they go off the radar, even if they are moving about within the same organisation. The reason is twofold - mobility is difficult, unless you have the accumulated asset base and expertise of the telcos, and it's a strange world out there, so corporate IT systems tend to hunker down behind their firewalls.As Thomas Howe put it at Telco 2.0:
An important, but underestimated market for CEBP is within the enterprise. Many companies lock out suppliers, customers, other stakeholders and even employees in the field from their systems. CEBP breaches this - it extends the enterprise IT system outside the firewall.After all, it's still difficult to do damage directly with just a telephone call, even if you can make all hell break loose over the Internet, and CEBP applications make any phone part of your IT capability. It's almost certainly the cheapest way to extend your system into the field.
A major inefficiency created by the firewall is the number of customer-service calls which only generate a request for information - query-only calls. Using people to take calls from other people, look up data in a computer system, and read it out to them, is obviously a waste of their time, and 60-70% of the cost of a contact centre is labour. According to Glenda Akers of SAP, speaking at Telco 2.0, even before you get to answering the queries, 40% of call-centre agents' time is spent dealing with calls that have landed in the wrong place.
User experience trumps advertising. So perhaps the second conclusion to take away is that we should facilitate advertising, marketing, and business intelligence on the same basis that we facilitate - say - container-tracking.
Who owns the content in a telco?
If it's about people, then, it's about customer data. Scott Shoaf referred to the way in which ad revenues tended to go to content owners. What is the content in a telco, and who owns it?
We've always contended that the content is the accumulated social-graph data built up in the telco, and that the distribution system for it is voice - it's good to talk. It's increasingly clear, however, that it is not acceptable for telcos to behave as if they owned this data. Instead, as Marc Davis of Yahoo! said at the event, and as we have repeatedly argued, the data was created by the subscribers and should be considered their property. If content owners do tend to capture the ad revenue, this suggests that a big chunk of the benefit from advertising is likely to go to content owners - i.e. subscribers - and advertisers, just as the great bulk of the benefit from containerisation went to shippers - i.e. enterprises - and to consumers rather than to shipping lines.
The telcos' role, instead, should be to facilitate trade in this information - aggregating, processing, and making it available programmatically. The equivalent roles in container shipping were the providers of intermodal logistics services and the major load-centre ports.
Blyk is the standard example in the real world; its 29% response rate suggests that its advertisers certainly are profiting, and presumably the users are too, even though it seems that they take the free minutes and SMS messages and also use enough overage to reach the bill they were expecting. The telcos? Not so much. However, Blyk isn't a perfect example - as an MVNO, it holds the subscriber data itself, so it's not possible to separate out the roles of distribution, aggregation, and content. Perhaps everything, in the end, is a CEBP?
It's possible that the future of this business will, indeed, be dominated by reporting, targeting, analysis, CRM, and VRM, rather than anything that Don Draper would recognise as advertising. We mischievously invented a new TLA, IRM for integrated relationship management, to describe the intersection of customers and businesses in the era of the upstream customer, who is defined by being as much a producer as they are a consumer.
- Telcos' role in advertising, as in so many other things, will be as an indispensable enabler rather than a store front.
- It's not really about ads - as the value of telephony has moved to before and after the call, the value of advertising is moving to everything around the ad (the wider world of 'marketing')
- Telcos need to facilitate this in the same way they need to facilitate all kinds of other CEBPs - as another of the many services we provide for enterprises to improve their business processes
- It's not a glamour sector, as a lot of people think, it's an extension of CRM and management information systems.