Google, Apple entry into mobile ad space changes landscape

U.S. wireless carriers need to become more like media companies or cede control of the mobile marketing space to powerful companies like Google Corp. and Apple Inc., according to a few industry insiders, commenting on Apple’s acquisition of Quattro Wireless earlier this week.
As wireless carriers watch their voice revenues decline, they are expecting to make up that revenue shortfall with by selling access to content, which comes in two flavors – paid content, or free content that is subsidized by advertising. Not surprisingly, since most people prefer free content, a lot of people think the mobile marketing space is set to explode, even if it’s not there yet. Thus, Google announced in November plans to buy AdMob for $750 million as a way to enter the mobile ad sector, and Apple picked up Quattro earlier this week for a reported $275 million. Both AdMob and Quattro power mobile advertising networks that match advertisers and direct marketers with consumers.
“The acquisitions put pressure on operators to move faster if they want a part of that revenue,” said Zohar Levkovitz, founder and CEO of Amobee, a company that provides advertising solutions to mobile operators. Amobee just inked a deal with Telefonica to deliver a global mobile ad serving and campaign management platform across Telefonica’s 18 markets. Amobee also powers Vodafone’s advertising initiatives.
Foreign operators have been selling content longer and are getting a piece of the revenue from mobile advertising, Levkovitz said. In Europe and Asia, users often can choose between an ad-subsidized content for free or paid content without the advertising. Levkovitz said 96% of the time users choose the ad-subsidized model. Those results are mirrored in the Apple app store, where users prefer free apps to paid apps, he noted. Even the term “carrier,” which is popular in the U.S., as opposed to “operator,” which is the common term for foreign wireless service providers, implies more of a dumb-pipe role. Yet wireless providers have an intimate relationship with their customers and can capitalize on that relationship by being part of the value chain in delivering mobile advertising, but they need to think more like media companies than telecom companies, Levkovitz said.
In 2007, carriers had a better chance to capitalize on the mobile ad space because they had a deep knowledge of the mobile customer, agreed Derek Kerton, principal analyst at The Kerton Group. Carriers have billing relationships, as well as demographic and location information. Today, companies like Google and Apple also have some of that information. “Carriers had a phenomenal range of personal data, but that list is now reduced greatly.” Indeed some consumer groups are asking the Federal Trade Commission to block Google’s acquisition of AdMob based on privacy concerns, among other things. Carriers that partner with Google may get a piece of the revenue share, but in the long term, they likely will not have the sole relationship with mobile users so they need to reinvent their relationship with the subscriber, Kerton said. “In the long term, they may be dumb pipes with some services thrown in.”
Not quite there yet
However, the mobile ad space is still hampered by a lack of standards and a lack of smartphone adoption, noted Mason Wiley, senior VP of marketing for Hydra Network, a performance-based online advertiser. “Mobile advertising is going through tremendous growth, no question, but it’s still a drop in the bucket compared to everything else.” For example, 200,000 mobile coupons were delivered in 2009, which is about the number of coupons that can be delivered in one city’s newspaper over the weekend. Nevertheless, Wiley said his company is keeping close tabs on the space to see when it takes off. Google and Apple’s entry into the marketplace could speed mobile advertising adoption as both companies have deep resources needed to help the space evolve.