Mobile Advertising: 100 times more customers - Blyk's Wholesale Strategy
What is happening with Blyk? There has always been a slight whiff of cordite around the ad-boosted, two-sided MVNO, with mutterings aplenty around the viability of their retail business. We've been long time admirers of elements of their business model, even if we have admittedly sat on the fence about their prospects.
Now, Blyk is apparently preparing to hand its customers over to Orange UK; some people are describing this as Blyk "giving up", or as signs of serious problems there. We disagree, and we would like to point to the simultaneous deal they signed with Vodafone in the Netherlands as evidence.
Why shift from a Retail to a Wholesale Business Model?
The original special sauce in Blyk's business model was that it could offer advertisers a highly targeted audience and a dramatically higher response rate than almost any other medium, because it was both hyper-targeting the ads and, more importantly, rewarding its subscribers for opening them with free airtime, a currency it had in abundance because of the low marginal cost of SMS or voice traffic.
However, even bearing this in mind, it's worth remembering that even if a response rate of 29 per cent is maintained, Blyk has yet to become a really big ad property. 29% of 200,000 subscribers sounds good, but what are the 'responders' actually doing? They aren't all buying or providing an actionable lead at this moment, and even if there are further transaction opportunities (e.g. the equivalent of your brand appearing on a customer's Google search list) the relative volume of customers reached is small and the value of the interaction is hard to assess compared to many forms of media.
Traditional media buyers prefer media with reach so that they can tell their advertising clients that their campaign will definitely hit lots of their target customers, and like it even better if they can prove the end result. Advertising clients also like certainty, and are often slow to adopt new media because they aren't sure they really work, Moreover, Blyk's retail proposition only targets the youth segment, not the famed ABC1 Adults or any other demographic, so their addressable market of advertising is considerably limited.
All of these considerations mitigate against the long-term viability of the retail version of Blyk which was focused on the youth segment - albeit a good place to prove a concept of this sort. Quantity, as Lenin said, has a quality all of its own.
Even if the retail version of Blyk did eventually become a decent retail business - and our sources reckon they had at least £50m in funding available at the turn of the year - the scale issue is going to remain a drag on the attractiveness of the operator to advertisers and on the rates it can charge them. That, in turn, has an impact on just how good it can make the end-user proposition after it's covered its operational and subscriber acquisition costs.
These may have been critical elements in the decision. Subscriber acquisition and support costs are hard to control and are essentially unavoidable - if you want to scale up, you've got to burn the money acquiring subscribers, and however many subs you have, some percentage of them will generate support calls. However, it is true that it's easier to spread the support and acquisition costs in a bigger pool of subscribers.
Also, why invest in all this tricky operational stuff when lots of players do it at a scale that Blyk is unlikely ever to be able to match? It therefore makes a lot of sense for Blyk to partner and focus on its source of advantage - the knowledge of how to interact successfully with customers like this, manage the metadata etc. - and let the operators do the operational customer management.
Our sources suggest that Orange is planning to market Blyk services across the entirety of their pre-paid subscriber base, whether under that name or under their own brand; there are also rumours that more deals with carriers are coming soon.
A reasonable theory: now make it work
So while being a niche MVNO can get you 200,000 subscribers; selling a white-label service to a carrier could get you access to 20 million subscribers, and with considerably more security with regard to things like wholesale airtime and pricing. This should in theory create a much more attractive media channel, a more effective and economic operational platform, provide added-value to the operator and ultimately a better commercial proposition overall for Blyk's owners. The practice will depend, as ever, on the go-to-market strategy and implementation.
In theory too, the ad rate for a 29% response rate over 20 million subscribers should be good relative to many other forms of media - although an interesting question remains over the exact contractual terms between Orange and Blyk. Will Blyk manage the business relationship with the advertisers and take a share of the revenue from them? We imagine that a success-based deal of this sort would make sense for all parties. It will certainly benefit Blyk if it can share some of the uplift in ad rates as well as the boost in scale from the deal.
It will also be interesting to see how the technical model will work. Blyk had its own complete core network, making it one of the most elaborate MVNOs, but we haven't yet seen them launch any developer APIs or new voice & messaging features although we always wondered when they might be coming. Presumably, Orange at least must be confident that the interfaces will work so that they can integrate with all the operator systems and processes.
So at the moment, it looks like Blyk is becoming a wholesale service provider to the telcos, for whom advertising will be another comms-enabled business process. We will continue to track their progress with interest.