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Calling on Advertisers

The mobile phone has long been seen by marketers as a promising medium. But so far, it hasn't delivered.

The audience for mobile ads remains minuscule, and advertisers have been reluctant to commit big budgets to mobile campaigns because results are so difficult to measure. Meanwhile, privacy concerns limit the amount of customer information carriers can share with marketers, which restricts advertisers' ability to extract key demographic and usage information that could improve their marketing.

As a result, while most experts don't expect mobile advertising to take off anytime soon, they say it will eventually come into its own. "I would put mobile [marketing] in the category of overhyped near term and underestimated long term," says Mark Mahaney, an analyst with Citigroup.

Still, in 2007 some companies placed strategic bets on mobile marketing in moves analysts think indicate the long-term value of the market. Vodafone Group PLC and Spain's Telefónica SA took stakes of undisclosed value in Amobee Media Systems, a San Francisco company with technology for delivering ads to mobile devices. Nokia Corp., the world's largest handset maker by sales and market share, launched a new set of multimedia services it hopes will attract advertising.

Internet giant Google Inc. launched a mobile-search-based sponsored-link program. Advertising firms WPP Group PLC, Publicis Groupe SA and Aegis Group PLC either acquired or took stakes in advertising companies focused on mobile advertising. Meanwhile, some big advertisers signaled their intention to move into the space.

Revenue from advertising on mobile devices approached $1 billion last year, according to Gartner Group, a technology-research firm. That is still pretty slim, considering Group M, an advertising forecaster owned by WPP, estimates that $479 billion will be spent on advertising world-wide this year. Estimates on how the market will develop vary significantly. By 2011, Informa Group PLC in London puts the market at roughly $11.3 billion; Gartner forecasts $12.8 billion in global revenue; and research firm eMarketer Inc. sees $16 billion over the same period.

One obstacle has been consumer resistance to commercial messages on mobile phones. In 2006, according to Jupiter Research, a telecommunications-research group, 49% of mobile users "strongly disagreed" with the concept of mobile promotions, even if they were relevant and would allow the consumer to save money.

What's more, the market still has few phones that can display video advertising to its best advantage. Jupiter says neither mobile Web nor mobile video has reached 20% penetration in Europe, largely because the cost of downloading video and other data to mobile devices has been prohibitively high.

Then there is the wide variety of forms that mobile advertising can take, making it hard for advertisers to know where best to place their bets. It can include simple text ads, by far the most common; banner ads; ads in mobile games; video ads that precede free content; and Internet-based search ads.

One of the biggest hurdles for advertisers is the difficulty in extracting meaningful demographic information about how consumers are using media on mobile devices. On the one hand, executives experimenting with mobile campaigns point to high initial response rates. But partly because operators have been wary about releasing data -- such as the age, gender and spending habits of customers -- advertisers aren't getting enough information about mobile users, according to eMarketer.

Because of the difficulty in measuring success of mobile campaigns, combined with the confusing abundance of forms, most advertisers haven't ventured much beyond the test stage, says John du Pre Gauntt, a senior analyst with eMarketer. For the most part, he adds, "98 cents in the dollar of this market is experimental dollars."

Another problem confounding the spread of mobile advertising is the evolving nature of the mobile experience. Many cellphone companies want to be the gateway to mobile-Internet content and have sought to keep consumers on the carriers' own "portals," which offer specially tailored content such as games, music and news services. These services are attractive to advertisers because they allow them exclusivity, and operators like them because they keep the consumer from venturing into the wider Web.

But increasingly, traditional Web search, provided by the big search companies -- Google, Yahoo Inc. and Microsoft Corp.'s MSN -- is the way consumers connect to the mobile Web. While open Internet-based search advertising promises a more measurable, direct response for marketers, it is still immature and doesn't draw the numbers of users that the carriers' portals do.

So for now, advertisers can count on better response rates from the cellphone companies' portals than they can get from the search companies' mobile offerings. But analysts say that will eventually change as consumers seek out on their mobile devices the full Web capabilities that they can get on their computers.

"A banner ad on a portal is likely to get more traffic," says Paolo Pescatore, an analyst with U.K.-based research firm CCS Insight. "But the off-portal model is going to grow more quickly over the medium to long term."

Carriers, agencies and technology companies are taking steps to address the issues that make mobile advertising a hard sell to consumers and marketers.

For one thing, the cost of high-bandwidth services such as video will begin to fall as carriers, including AT&T Inc., Deutsche Telekom AG's T-Mobile unit and O2, a U.K. unit of Telefónica, move toward flat-rate plans. When this happens, it should help spur more consumers to browse the Web on their mobile devices. Thomas Husson, a senior analyst with Jupiter, predicts that by 2012, about 40% of U.S. callers will browse the mobile Web, compared with only 16% today.

Last year's introduction of Apple Inc.'s iPhone, along with other Internet-friendly devices coming on stream from manufacturers such as Nokia, promises to induce advertisers to be creative in their approach to mobile marketing. The iPhone "has pushed a lot of people to be more experimental with the mobile Web," says Jon Carney, managing director of Marvellous, a mobile-advertising agency acquired in 2007 by the U.K.'s Aegis Group PLC.

Once consumers are persuaded to consume commercial messages, response rates could be higher than they are with regular Internet ads. In banner ads on wireless application browsers for cellphone, "we're typically seeing click-through rates of between 2% and 3% per ad," says Richard Saggers, Vodafone's head of mobile advertising. "The rate on the Web is typically between 0.1% and 0.2%."

Neil Andrew, head of advertising with 3, the U.K. mobile-telecom unit of Hutchison Whampoa Ltd., says some response rates to banner ads have been as high as 15%. Blyk Ltd., a U.K.-based company that offers young people free text messages in return for agreeing to accept marketing, says it has seen response rates of up to 40% for some campaigns.

The Denver-based Mobile Marketing Association, members of which include handset makers, operators and advertisers, is working to devise better ways to standardize and measure the effectiveness of mobile campaigns.

Laura Marriott, the association's president, says many of the measures for determining success in a mobile campaign have been inherited from either the Internet or more traditional media. No universal standard exists, for example, for measuring how the operator and the media buyer should be paid by a client when a customer responds directly in a "click to call" model, by clicking a button and placing a response call. Ms. Marriott says her association hopes to have guidelines in place in the first half of this year.

Also, as mobile-Web use grows, the confusing array of ad types is likely to settle into a handful of more familiar methods. Jupiter predicts that short message service, or SMS, text ads will decline as mobile Web browsing improves and that video and banner ads will predominate.

Improved Web browsing also will help end the turf war between the operators' portals and the big search companies -- and the search giants most likely will prevail. "Operators are currently still the default for most users, but I think they are aware that that role will change over time," says Mr. Husson, the Jupiter analyst.

Some big advertisers are showing an increased willingness to take the plunge. Coca-Cola Co. last year introduced Sprite Yard, a mobile-based social-networking site. Consumers can type into their cellphones a bar code, printed at the bottom of drink cans and bottle caps, giving them access to content such as ring tones on the Sprite Yard mobile portal. The site at the time of its launch was described as one of the biggest commitments made to mobile marketing, though the budget hasn't been disclosed.

Arguably, the mobile-phone industry's biggest plus is its youthful demographics. "If you were in [information technology] in the 1990s and you didn't advertise on the Internet, you very quickly became irrelevant," eMarketer's Mr. du Pre Gauntt says. "The same thing is now happening with the mobile for certain sectors, such as the soft-drink manufacturers and music companies, because consumers in their target market are drifting into mobile in a big way."

This, the industry hopes, is what will propel it from a marginal to a dominant position in the advertising food chain.


Jessica Hodgson, The Wall Street Journal. February 12, 2008

Copyright © 2008 Dow Jones & Company, Inc.. All rights reserved.