TWO SIDES TO EVERY STORY: IS MOBILE ADVERTISING GOOD FOR MOBILE?

SUMMARY

The mobile trinity - location, personalization, and timeliness - make mobile devices a marketer's dream. The adoption of the mobile channel as a means of influencing purchasing behavior and perceptions for non-telecoms products and services is not a new phenomenon. Major brand owners such as Coca Cola, Unilever and Cadbury's began experimenting with SMS and WAP based marketing campaigns three or four years ago.

However, the confluence of a number of technological and market trends in the last year has led to dramatically increased awareness and interest in mobile marketing and advertising amongst advertising agencies and brand owners. These trends include the falling cost, availability and ease of use of multimedia handsets; increasing usage and interest in mobile multimedia services, especially mobile video and TV; and growth in off-portal mobile services and content. Indeed, mobile has become the newest and fastest growing business-to-consumer communication channel, and it seems everyone is trying it.

For marketers, mobile marketing and advertising has great promise - it combines the wide reach of television with the precision of direct marketing and the tracking potential of the Internet. It enables marketers to create permission-based marketing campaigns rapidly and cost-effectively in the most personal of all media: mobile.

For mobile operators, mobile marketing and advertising offers an opportunity to engage with a new set of enterprise customers (brands and advertising agencies), and develop a new and potentially lucrative revenue stream to complement their own content services.

For consumers, mobile marketing and advertising may provide free or cheap entertainment on their phones and a convenient way to interact with the brands they like.

In the Shosteck Group's latest study we analyze the emerging market for mobile marketing and advertising. In particular we examine the motives of the major players as they each position themselves to exploit this new opportunity, and assess whether it is a real opportunity or possibly a threat to mobile operator business models.

Our research indicates that mobile advertising is a huge opportunity with the potential to generate in excess of $1 billion in annual revenues by 2010. But the development of a robust and profitable mobile marketing and advertising market will only be possible if the major players - operators, handset vendors, content providers and Internet portals - collaborate. However, the extent of this collaboration may be limited as the motivations and objectives of the key players may conflict.

For example, the study looks closely at how mobile advertising may prove to be an important new business model for mobile operators and deliver new revenue streams to counter the revenue drain that the VoIP and off-portal content trends threaten. Conversely, the study also assesses the potential strategies of the Internet Portals, current leaders in on-line advertising, who may exploit mobile as just another channel for their existing on-line business models, thus driving mobile operators towards becoming merely access providers and keeping most of the spoils of mobile advertising to themselves.

We will therefore consider the critical question: will mobile advertising be the salvation of the mobile operator's profitable business model in light of these trends or will it be another nail in its coffin?

Some of the issues this study addresses are:

• What are the different mechanisms through which the mobile channel can be used for marketing and advertising?
• What is the difference between mobile marketing and mobile advertising?
• How are marketers, merchants and brands using the mobile channel today, and how might this change in the future?
• How will mobile advertising differ from advertising on TV or on the Internet?
• How will mobile advertising affect current mobile business models?
• What trends are driving and enabling growth of this market, and what could prevent it from reaching its potential?
• What implications does this trend have for mobile operators and their customers?
• Will end-users tolerate advertising on their mobile devices?
• How fast and far will the mobile advertising market grow?
• How much of future advertising spend will go through the mobile channel?
• Will mobile advertising which encourages end-users to stream video and other high bandwidth services require additional network investment which will see little return on that investment?

STRUCTURE OF THE STUDY:

• Chapter 1 provides the foundation and the introduction to the key concepts.
• Chapter 2 defines mobile marketing and advertising, and identifies the major categories of players and their relationships in the mobile advertising value chain, highlighting the opportunities and potential tensions between them.
• Chapter 3 identifies the different techniques and technologies used to exploit the mobile channel for marketing and advertising, providing examples of their implementation in various markets throughout the world, and insights into how they may evolve. This chapter also analyzes the different business models and perspectives of the key players associated with each technique.
• Chapter 4 identifies and assesses the major market and technology drivers, enablers, and barriers for mobile marketing and advertising.
• Chapter 5 looks at mobile advertising in the overall mobile market context and analyzes its strategic importance for the future of the industry. It identifies key market and technology developments driving dramatic change in the mobile industry and demonstrates the imperative for new business models in mobile, and how and where mobile advertising may fit into these business models as they evolve in the future.
• Chapter 6 looks more closely at individual market characteristics and the experience of mobile marketing and advertising to-date. It provides data on current and forecast spend on mobile marketing, placing this in context with the overall marketing and advertising spend. We also describe and analyze demographic and cultural differences between geographic markets and their impact on the potential growth of the mobile marketing and advertising market.
• Chapter 7 identifies the key opportunities and potential threats the trend towards an open Internet model presents, summarizing the strategic implications for players in the value chain and recommending appropriate strategies and actions.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

CHAPTER 1: INTRODUCTION

• 1.1 Structure of Report
• 1.2 Summary and Conclusions

CHAPTER 2: THE MOBILE MARKETING AND ADVERTISING MARKET

• 2.1 The Mobile Advertising Opportunity
  • 2.1.1 Mobile Marketing in Context
• 2.2 Defining Mobile Marketing and Advertising
  • 2.2.1 Mobile Marketing or Wireless Marketing?
  • 2.2.2 Opt-In and Opt-Out: Putting the User in Control
  • 2.2.3 Push and Pull Advertising in Mobile 24
• 2.3 Summary and Conclusions

CHAPTER 3: THE MOBILE MARKETING AND ADVERTISING VALUE CHAIN

• 3.1 Brands and Content Owners
• 3.2 Marketing Agencies and Mobile Marketing Agencies
• 3.3 Mobile Marketing Solutions Providers
• 3.4 Mobile Aggregators
• 3.5 Search Engines and Ad Aggregators
• 3.6 Device Vendors and Client Software Vendors
• 3.7 Mobile Operators
• 3.8 The Evolution of the Value Chain
• 3.9 Summary and Conclusions

CHAPTER 4: MOBILE ADVERTISING TECHNIQUES AND BUSINESS MODELS

• 4.1 Mobile Messaging, Marketing and Advertising
  • Interactive TV/Radio
  • Mobile Couponing
  • Product Promotions: Competitions & Sweepstakes
  • Charitable Giving
• 4.2 Banner Ads -- Pay Per Click, Pay Per Call
• 4.3 Mobile Search and Discovery
  • Google's Mobile Search Initiatives
  • Yahoo!'s Mobile Search Initiatives
  • MSN's Mobile Search Initiatives
  • Other Mobile Search Initiatives
• 4.4 Sponsorship of Mobile Voice and Content Services
  • Sponsored Mobile Voice Services
  • Sponsored Mobile Content and Entertainment Services
• 4.5 Product Placement
• 4.6 Interstitial Ads
• 4.7 Mobile TV/Video Commercials
• 4.8 Local Area Wireless Advertising
  • Advertising via WiFi
  • Advertising via Bluetooth
  • User Reaction to Proximity-Based Advertising
• 4.9 Summary and Conclusions

CHAPTER 5: MARKET AND TECHNOLOGY DRIVERS, ENABLERS AND BARRIERS

• 5.1 Market Drivers
  • 5.1.1 Marketers' Search for More Effective Advertising Channels
• 5.2 Market Enablers
  • 5.2.1 Improved Mobile User Experience
  • 5.2.2 A Receptive Market
  • 5.2.3 Industry Guidelines and Regulation
    • The Mobile Marketing Association Code of Conduct
• 5.3 Market Barriers
  • 5.3.1 Potential for Consumer Backlash
  • 5.3.2 The Mobile Device: Still a Challenging Multimedia Environment
    • dotMobi: a Potential Solution to Device and Network Incompatibilities?
  • 5.3.3 Technological Uncertainty May Hamper Investment
  • 5.3.4 No Consensus Yet on Appropriate Business Models
• 5.5 Summary and Conclusions

CHAPTER 6: A BRAVE NEW WORLD FOR MOBILE

• 6.1 The Hidden Dangers of Internet Pricing in Mobile
  • Flat-Rate, Unlimited Access Could Be the Norm for Basic Mobile Services
  • Implications for Mobile Advertising
• 6.2 Disintermediation: A Further Threat to Mobile Revenues
  • 6.2.1 IP Services Arbitrage
    • VoIP - A Clear and Present Danger to the Mobile Business Model
    • Video-over-IP - A Sleeping Dragon
    • Off-Portal - New Wholesale Opportunity or Another Case of IP Services Arbitrage?
    • Implications for Mobile Advertising
  • 6.2.2 Mobile Network Bypass
    • Competing Wireless Broadband Technologies
    • "No-Net" Access
    • Implications for Mobile Advertising
• 6.3 The Death of (The) Mobility (Premium) and The Strategic Significance of Mobile Advertising
• 6.5 Summary and Conclusions

CHAPTER 7: THE FUTURE OF MOBILE MARKETING AND ADVERTISING

• 7.1 Market Analysis: Regional Perspectives
  • 7.1.1 The Americas
  • 7.1.2 Europe
  • 7.1.3 Asia-Pacific
• 7.2 Market Forecasts: Putting the Future Into Perspective
  • Notes on Forecasting Methodology
  • 7.2.1 Scenario 1: Mobile Becomes a Core Media Channel
  • 7.2.2 Scenario 2: Consumers Reject Mobile Advertising
  • 7.2.3 Scenario 3: Mobile Operators Lose Control of Major Mobile Services
• 7.3 Summary and Conclusions

CHAPTER 8: STRATEGIC ACTIONS AND CONCLUSIONS

• 8.1 Mobile Operators
• 8.2 Mobile Marketing Solutions Providers
• 8.3 Brands, Marketing Agencies and Mobile Marketing Agencies
• 8.4 Search Engines and Ad Aggregators
• 8.5 Device Vendors and Client Software Vendors
• 8.6 Billing System Vendors
• 8.7 Summary and Conclusions

LIST OF FIGURES

• Figure 2.1 - Relative Penetration of TV Sets, PCs, Internet Subscriptions and Mobile Subscriptions, By Region, 2004
• Figure 2.2 - Global Market for Advertising Spend, By Channel, 2006
• Figure 3.1 - The Traditional and New Media Advertising Value Chain
• Figure 3.2 - The Mobile Marketing & Advertising Value Chain
• Figure 4.1 - Cost Per Lead Across Various Direct Marketing Methods, US Market, 2004
• Figure 7.1 - Global Subscriber Handset Type, 2005-2010
• Figure 7.2 - Scenario 1: Total Mobile Advertising Spend, Per Region, 2005-2010
• Figure 7.3 - Scenario 1: Mobile Operator Revenues from Mobile Advertising, Per Region, 2005-2010
• Figure 7.4 - Scenario 2: Total Mobile Advertising Spend, Per Region, 2005-2010
• Figure 7.5 - Scenario 2: Mobile Operator Revenues from Mobile Advertising, Per Region, 2005-2010
• Figure 7.6 - Scenario 3: Total Mobile Advertising Spend, Per Region, 2005-2010
• Figure 7.7 - Scenario 3: Mobile Operator Revenues from Mobile Advertising, Per Region, 2005-2010
• Figure 7.8 - Global Mobile Advertising Spend, 2005-2010
• Figure 7.9 - Global Mobile Operator Revenues from Mobile Advertising, 2005-2010
• Figure 8.1 - The Alignment Necessary for Successful Exploitation of Mobile Marketing and Advertising