A Marriage of Ad & Content

VAS (value-added services) is seen as a revenue earner that has a great
potential for growth. In fact, it is considered to have the potential of
surpassing revenues from voice. Even though revenues from VAS are growing, they
have not reached their potential. The primary reason for the slow growth of VAS
is that the Indian consumer is cost sensitive. S/he doesn't want to spend money
on things that s/he doesn't consider essential.

To increase revenues, service providers have tried charging indirectly for
VAS. For instance, though the content may be free, the consumer needs to call up
the service provider at premium rates. The consumer, however, doesn't fall into
the trap and such strategies don't work too long for service providers. However,
there seems to be an easy way out-the advertising-supported content. Although it
is not a new concept in India, its use has been limited to gaming. However,
there are other services that can be supported by advertising and offered to the
consumer for free.

In-game Advertising

This segment is one of the early adopters of this revenue-generating model.
Advertisement support has led to the reduction in prices of mobile games and has
paved the way for mass utilization. Mobile gaming is evolving as a big source of
revenue. It is estimated that the mobile gaming market will be between $250-$350
mn by the end of 2008. The advertising industry in India is worth more than $2
bn and is growing fast. But, a lot of changes are happening in this industry.
Advertisers are facing a big challenge in garnering eyeballs for their clients.
In such a scenario, the new media has a lot of potential. The new media is most
personal and all pervasive in one's life and this is something that an
advertiser can cash in on. And this is what is offered by in-game advertising.
Advertisements are viewed as many times as the user plays a game. This helps in
building brand value.

According to a survey by Nokia, Indians are hooked onto mobile games, and the
average playing time is larger than the world average and among the highest in
the world. This means that you give him a game and he will spend a lot of time
playing it. That also points out the fact that it will be more profitable to
catch him while playing, rather than trying to sell him a game to play.

Mobile advertising is already catching on in many countries and has led to
the reduction in prices of games to an extent of making it free in many cases.
This has helped the mobile gaming industry grow.

With the advent of 3G services in India, mobile gaming will get a definite
boost, as services like reality games, location-based games, and networked games
are becoming possible. Things like social networking through games, which is
very popular in countries like Korea, can also become popular in India. It can
be a success story similar to that of Orkut. All this will help increase the
customer base of gamers. This will further attract advertisers keeping the
prices low even for these high-end features. These games will be a good source
of network service providers as they get paid for the network.

Location-based games have not been a major commercial success so far. A few
commercial location-based games have been launched such as Botfighters and Mogi
Mogi. Geocaching, which is a real-world GPS assisted treasure hunt game, is also
an example of a location-based playful application that has gained popularity.
However, the location-based genre is niche. And it has the potential of
generating huge interest of advertisers. However, one problem is that high-end
mobiles are required for any decent mobile gaming.

Public Service Messaging

Another important service, which is not to be funded directly by the
consumer, is Social Service Messages (SSMs). In the recent times, there has been
a rise in the spending by government agencies as well as non-governmental
agencies on delivering such services. Organizations like Greenpeace and PETA are
using a lot of these services to raise public awareness about their concerns.
Even corporates, under their CSR (corporate social responsibilities)
initiatives, have started using mobile phones to reach out to the needy, to
garner support for their initiatives, and to build brand respect. Going forward,
this segment is going to see a lot of growth. These messages cannot be blocked
by subscribers by opting for the Do Not Call registry.

As a Public Mobilization Tool

Over the past couple of years, political parties have used mobile phones to
deliver their campaign material. In the recent Gujarat election, supporters used
messaging to garner support for their parties. Political parties are willing to
pay a premium to content creators to create content for their campaign and then
circulate it through mobile phones. Apart from political parties, groups like
'Youth for Equality' and other pressure groups, formed to raise their voice
against various issues, have increasingly used mobile phones to garner support.
Content providers and service providers can form a permanent platform for them
to be able to do so. Service providers will be able to earn money, at the same
time do a lot of public service.

For Rural Consumers

The potential of rural areas remains untapped for both service providers and
content developers. The business model to tap these areas is evolving day-by-day
and nobody knows for sure what is best for these areas. But, one thing has
become very clear that these are the markets of the future and this is where the
growth will come from. The rural market is generally characterized by low
household incomes and thus, lower ARPUs. However, some rural areas have
surprised experts with their hunger for telecom services. What is needed for
these areas is innovative services that are cost effective and useful. Service
like Fisher Friend, launched by Qualcom, has shown that if the right kind of
service is provided, there is no dearth of takers even in these low-income
areas. However, there is no denying the fact that the power to spend is low;
therefore, services that are funded by advertising are required.

Rural areas are major consumers of agriculture related products like
fertilizers, seeds, tractors, etc, and these companies will be willing to spend
money to reach to their consumer. If the farmer can get information on what
fertilizer or which seed he can use and in what quantity, for free, he won't
mind listening to an advertisement from a fertilizer company. Similarly, a
farmer wants weather information, mandi prices, and crops that can fetch him
more profits, etc. In rural areas, people have time to listen to the ads,
provided it's free. As rural incomes are rising, no company can afford to ignore
these areas.

In-video Advertising

Video-related VAS is already very popular, but most of the revenue is lost
because of peer-to-peer transfer, especially through Bluetooth.
Bluetooth-enabled phones have become very cheap these days. This has slowed down
the growth in the area of video downloads. This problem is being successfully
tackled by in-video advertising. This started with movies and is now catching up
with other video services as well. Downloads like trailers and snippets are
easily available for free, as they can be funded by movie producers to promote
their movies. Recently, Nokia launched a new ad-supported video service, called
Medeo. These videos will feature Hollywood stuff, and is available only to Nokia
smartphone users. This trend is likely to increase and is going to see a lot of
innovative ways of incorporating ad funding.

Mobile Advertising

Mobile Advertising is emerging as a big industry. As mobile is a very
personal device, carried by its owner almost all the time, it becomes an avenue
for advertisers to reach out to their audience in a very selective way, with
very specialized and customized campaigns. As an industry, it's very new and
growing at a tremendous pace. As of now, advertising on mobile phones is a tiny
business. Last year, the spending on mobile ads was $850 mn worldwide, according
to some estimates, compared to some $25 bn spent on Internet advertising and
$450 bn on all advertising. But, experts are already excited about it. It is
destined, some say, to surpass not only Internet advertising, the latest fad,
but also television, radio, print, and billboards.

At the moment, most mobile advertising takes the form of text messages. But,
mobile advertising is getting into other forms as well; for instance, video and
music. The forecast for this segment is between the range of $15-$20 bn by 2010.

At present, there are 230 mn mobile phones in the country, and the number is
growing at the rate of 8 mn per month. Compare that with the number of PCs in
the country. Yet, the biggest selling point of mobile ads is what marketing
types call “relevance”. Advertisers believe that about half of all traditional
advertising does not reach the right audience. Less effort (and money) is wasted
with online advertising: half of it is sold on a “pay-per-click” basis, which
means advertisers pay only when consumers click on an ad. But, mobile
advertising through text messages is the most focused.

If marketers use mobile firms' profiles of their customers cleverly enough,
they can tailor their advertisements to match each subscriber's habits. In
September, Blyk, a new mobile operator, launched a service in the UK that aims
to do just that. It offers subscribers 217 free text messages and 43 free
minutes of voice calls per month as long as they agree to receive six
advertisements by text message every day. To sign up for the service, customers
must fill out a questionnaire about their hobbies and habits. Websites like
www.160by2.com offer free message to any mobile, but that messege will also
carry an ad.

There are websites which offer money for receiving ads on your cell phone and
reading it. Services like these are not yet popular, but things are gaining
momentum and customer can expect better bargains like free talk time, money per
SMS received, etc.

Vodafone in the UK sees mobile advertising as a potentially lucrative source
of additional income. For the time being, most ads on its network are still text
messages, although it has begun displaying ads on Vodafone Live!, its mobile
Internet homepage, through which subscribers access the Internet and download
videos and music. Vodafone is also running several pilot projects in which
subscribers receive free content in exchange for viewing ads. Earlier this year,
subscribers in the UK were given the option of downloading footage from Big
Brother, a reality-TV show, in exchange for viewing a promotional video clip.
The firm has also offered free video games punctuated with ads to customers in
Greece, and free text messages to Czech students who agree to accept ads in the
same format.

Most mobile advertising strategies now rely on text messages, since few
customers have taken to more elaborate services that allow them to download
music, games, and videos and to surf the Web. Only 12% of subscribers in the US
and Western Europe used their mobiles to access the Internet at the end of 2006.
Most people think mobile screens are too small for watching TV programmes or
playing games, although newer models such as Apple's iPhone boast bigger and
brighter screens.

That is not the only problem. While consumers are used to advertisements on
television and radio, they consider their mobile phones a more personal device.
A flood of advertising might offend its audience, and, thus, undermine its
value. Tolerance of advertising also differs from market to market. In the
Middle East, for example, unsolicited text messages are quite common, and do not
prompt many complaints. But, subscribers might not prove so open-minded in
Europe or the US.

Operators have a lot of databases with information about their clients'
habits, which would be of great interest to advertisers. But, privacy laws may
prevent them from sharing them. Moreover, advertisers, operators, and middlemen
have not agreed on a common format for this information, nor have worked out how
to share the revenue it might yield.

Some think these obstacles will confine mobile advertising to a niche for
years to come. But, others see a whole new world of possibilities, as more
people use their phones to access the Internet, and consumers grow used to the
intrusion.

Bluetooth Marketing

Bluetooth Marketing is a new addition to the available ways of marketing.
These days, most phones are equipped with Bluetooth. So, when a consumer is near
a shop, a system automatically sends a message through Bluetooth about the
offers and contests available at the shop. But, the problem with this form is
that of security. How often do you travel keeping your Bluetooth on? Most will
say never. That's probably the reason that despite sounding so promising, the
service has not picked up.

Advocates, however, say that it's not really very intrusive as you have the
option of rejecting the message if you don't like it. Moreover, these devices
are installed only where you are already in a shopping mood and a consumer would
want to know what are the offers that s/he can look for.

Location-based Marketing

Wireless applications and services that are based on users' locations could
lead to a profitable advertising market, only if consumers accept the idea.

Mobile phones, some of which are now equipped with satellite-positioning
technology, could be used to alert people to the charms of stores or restaurants
they are walking or driving past.

Tying ads to online searches from mobile phones is another potential
goldmine. A subscriber typing in “pizza”, for instance, could receive ads for
nearby pizza parlours along with the generic search results. Such a customer,
mobile operators hope, is likely to be more grateful than annoyed by the
intrusion. What could be more relevant than that?

Nokia's announcement on October 1 that it plans to buy digital mapping
company Navteq for $8.1 bn validates the potential of the location-based
services model.

So-called location-based services (LBS), which use a cellular network's
ability to locate particular handsets, have been used in fleet tracking and
other commercial applications. BSNL has already announced the introduction of
LBS in India. Bharti, in its recent network expansion contract with Ericsson,
has asked for location-based service enabled network. Others are also jumping
into the fray. This clearly shows the importance of LBS as a source of revenue
for these mobile operators.

Within the past year, similar services, such as turn-by-turn directions and
“find-a-friend”, have reached consumers. However, mass deployment in India is
yet to happen. As these location-based services gain market traction, carriers
are optimistic that advertising revenues will follow. They hope to launch
ad-supported services, allowing local advertisers to reach consumers willing to
receive ads tied to their location and interests. Such a subsidy could result in
small local ads on the phone browser, or in text “coupons” based on search
results.

Companies like Active Media Technology have already introduced technologies
and services to help advertisers reach their audience through mobile ads.

As ad-supported applications are developed, carriers will have to build
billing and back-office operations, while working with application providers to
develop effective revenue mix.

There's a new thought process and the financial model is being developed
around how the carrier and the third-party provider of information share
revenue. A quicker path to work this out might be to leverage existing
revenue-sharing models that carriers have with content providers such as record
labels.

Depending on the handset model and the network, a global positioning
satellite (GPS) chip determines a user's location, or the location is determined
by measuring the strength of the handset's radio signals to nearby cellular
towers.

History Repeats Itself

It has been a trend that advertising support has reduced the price of media
content. Advertising has been there since it was introduced in the print format
in the early years of the last century, which led to the reduction in prices of
print content. Later, when television came in, advertising made television
content absolutely free, however with cable TV coming in, prices where
introduced. Internet advertising is a step ahead, in the sense that many a time
you get rewarded to watch content. This trend should continue with mobile as
well, as this is the latest media available and is much more personalized and
always on medium.

Nilabh Jha

nilabhj@cybermedia.co.in