The recent $750 million acquisition of AdMob by Google should be prompting an urgent change of course from mobile operator CEOs; unfortunately, it has simply increased the FOG (Fear of Google) surrounding their wireless operations.

Instead of mounting a reaction to stem the flow of Google into the mobile business (Android, Google Phone, Google Voice etc.), operator CEOs are busy fixing their legacy infrastructure and plugging the holes in their sinking ships – due in part to that very same Google, mobile networks are being battered by waves of data-hungry devices and applications that their spectrum-dependent networks were simply not designed for.

Over 20 years ago, these operators set sail to navigate oceans of  "voice” minutes and now find themselves surrounded by “data” icebergs. These icebergs started off small (SMS, WAP, MMS, etc.) but have grown (Video Streaming, Broadband Data Bundles, Apps) faster than bandwidth availability and have caused havoc with most networks around the world. The latest iceberg to hit the airwaves is mobile advertising, and Google is the polar ice cap operators are all drifting towards.

Enough with the maritime analogy (I descend from a long line of Genovese sailors). The fact is, while they are busy figuring out how to reduce their cost structure and retain their share of what is a shrinking voice market, mobile operators are making precious little investment in the infrastructure capable of supporting an “always on” mobile broadband world and, more importantly, the software systems required to generate new revenue streams from such things as advertising. Clearly, in order to survive, operators need to start thinking about how to monetize their “audience” as opposed to simply focusing on selling more minutes or kilobits. If they don't figure it out, Google will (or at least they will buy the folks like AdMob who have).

Some operators have half-heartedly launched initiatives in this space, but none have deployed the manpower and energy required to make media and advertising a mission-critical part of their business. The biggest risk is that operators continue to run after flat-rate data plans and push for more “dongle” sales, in effect commoditizing themselves out of the market and giving Google and others - like Apple - a free ride. Incidentally, Google has purchased AdMob in part due to the growing amount of ad revenues AdMob derives from iPhone Apps; revenue that an operator never sees.

Mobile Advertising Still Fledgling
“This market is simply not big enough” is one of the recurring comments from the operator community. The reality is that mobile advertising has yet to break through as a solid media for big brands and still represents a very small part of the $500 billion spent each year on advertising. Today a majority of the 7 billion monthly ad impressions delivered by AdMob are, for the most part, brands from within the mobile media community who are buying inventory from mobile publishers. As a result, we are still in a situation where the industry is feeding off of itself. This will only change once the larger FMCG (fast moving consumer goods) brands start spending mobile ad dollars. Some of the key barriers often cited by agencies and advertisers include:

• Reach and Frequency: Unfortunately, these are still key drivers of media spend. The industry needs to convince brands and media buyers that it isn’t about “counting the people you reach” but should now be more about making sure they “reach the people that count.”

• Effort vs. Spend: This is a big issue for agencies who typically make money by getting a commission on their clients’ spend. Because of the fragmented nature of mobile and the relative immaturity of the medium, agencies have to spend too much time planning, buying and monitoring mobile campaigns relative to the amount of money they can allocate against them. 

Other key things holding mobile advertising back include: accountability, metrics, adopted standard ad formats and guidelines, common and transparent pricing and most of all “trust”. Operators have a key role to play in helping mobile become a real media and can tackle each of the points raised above. They also have much more control over the evolution of the medium than ISPs did in the early days of the Internet.

The GSMA is the first operator association to take a stab at dealing with some of these issues starting with their mobile metrics initiative first launched in the UK. Although this is a very commendable initiative, I am not altogether sure if it has been given enough attention in the upper echelons of the carrier community. Advertising has become a bad word in the operator community, and some of the early movers in the space have almost pulled the plug on their ad plans – the term “pilot light” was recently used by an operator to describe its advertising initiatives – just because an operators’ advertising initiative doesn’t generate tens of millions of dollars the first quarter of operations doesn’t mean it should be put on “pilot light”.   

Here is the problem: Operators are too often big, slow and impatient, (which is not a good combination).  Google, on the other hand, is big, fast and has all the time in the world. Google and others who have thrived thanks to the Internet have launched their services in “beta” and have built their powerful computing machinery in phases and through iterative processes. The industry’s self obsession with carrier grade and five 9s ends up hurting more than helping. Never will you find an operator willing to launch a service (including mobile advertising) without crossing all the t’s and dotting all the i’s. AdMob has been able to run its mobile ad network using one single instance of its platform while operators will most likely each require having their own platform and in many cases this will need to be fully redundant. 

A project manager working on an operator advertising initiative told me that the IT and network security department had delayed the launch of their mobile advertising solution because the ad server was indicating a 5 percent error rate. It turns out that these were not errors but rather responses from the ad server that indicated that there were no appropriate ads for that particular ad space, and the server delivered a “house campaign”.  It took over a week to convince the IT/Network department that this was not an error but rather a feature. These kinds of roadblocks will stifle the growth of operator driven mobile advertising revenues. 

Monetizing the Mobile Audience
We have seen some big announcements by operators in the advertising space: Vodafone and Telefonica invested in Amobee Media Systems (my former company), and Orange recently purchased media sales house Unanimis, but more needs to be done. Very little of the key resources and assets available to operators have been put to proper use. In reality, operators should be in a better position than Google to monetize the mobile audience and unlock the long-term value of mobile advertising:

• They can zero rate traffic associated to an ad being delivered on a phone. This is an obvious yet often overlooked point. People do not want to have to pay to watch an ad, and brands do not want people to have to pay to experience them. Operators are the only ones billing users for services (even with premium SMS, the cost appears on the operators bill), and as a result they are the only ones capable of delivering on true ad-funded models.

• Operators have visibility across all mobile media consumption: video, games, music, messaging, browsing, searching etc. This puts them in a unique position to build relevancy across all mobile media uses. What a person clicks on inside a game can be then taken into account when serving an ad in a mobile video session. Ultimately advertisers will be able to build a relationship with mobile consumers and take them on “customer journeys”.

• Operators have more information about their subscribers (age, gender, location, type of billing plan etc.) and can also use this to create relevancy.

• Operators have access to new inventory formats that Google, Microsoft and Yahoo won't. One example of this is peer-to-peer SMS ad insertion. This inventory type is likely to be bigger than anything else occurring on a mobile phone.

As Sanjiv Ahuja, former CEO of Orange, said at TM Forum’s Management World 2009 in Nice earlier this year, it may be time for operators to become “smart pipes”. Unfortunately, I think that by definition a pipe cannot be smart (I even heard an operator mention that maybe they should become “good dumb pipes.”). The reality is that if the CEOs of these major mobile ventures don’t start navigating their ships out from the FOG, they will likely hit an iceberg and sink. They will go from being pillars of the industry and “operators” to simple “carriers”. 

I am shocked to find the same advertisement over and over again on my operator’s portal. The ad is for “Optical Express” and includes the caption: “Win a free laser eye surgery”.  It looks like this advertiser was sold on what that the ad industry calls a “run of network” and that the operator is not selling enough ads for me to get anything other than "Optical Express". Either this operator is not using any of the information it has about me to serve a relevant ad or it is smarter than I think and it has noticed that I have been typing the wrong numbers on my phone and that I should have my eyes checked. Somehow, I don’t think it’s the latter.

Return to Show Daily