As cellphone carriers itch to turn their consumer data into dollars, Mercedes-Benz is among the first advertisers to benefit from new partnerships between telecom providers and a young but growing telco data firm called Zeotap. In Spain, the luxury car dealer recently aimed mobile ads to high-income men between the ages of 40 and 60, in part based on the amount of money they paid for mobile service each month.
As the growth of new mobile subscribers dwindles, telcos have investigated a variety of new revenue streams generated from the information they have about current customers, including data on home addresses, demographics and the places that subscribers' phones turn up.
Zeotap is one of the few firms that has managed to sign data monetization deals with multiple tier-1 carriers, most of which have found data privacy and security regulations to be significant barriers to fulfilling their goals of creating new revenue streams from their data. Tier-1 carriers have direct connections to the networks they use to provide voice and data services. Zeotap, founded in Germany in September 2014, says it has partnerships with six telcos in India, Europe and North America that represent a total of more than 100 million subscribers.
The startup declined to name any of its telco partners, highlighting the sensitivity around a business model that depends on telcos sharing customer information.
"It's such a tough business to convince these empires to share their data," said Dirk Freytag, a board member of Zeotap and former senior VP of advertising products and technology at AOL, which itself was recently purchased by Verizon in part to help the telco giant monetize its data through advertising.
"It is a long sales cycle to build trust with a telco provider," he added.
Mr. Freytag owns a 3% stake in Zeotap, which raised $8 million in funding thus far.
Like most data-centric digital ad models, advertisers pay a fee to target based on the telco data, and in turn, Zeotap provides a cut of that fee to the telco partners. The global market for telco data as a service could be worth as much as $79 billion by 2020, according to estimates by 451 Research based on a survey of likely buyers of such data.
Put simply, Zeotap links telco data to mobile ad targeting systems. The company ingests anonymized, non-personally-identifiable network data through feeds from its telco partners and uses it to target mobile ads to segments of those consumers through its own platform and those of ad tech partners.
While some equate mobile data with real-time location data, Zeotap isn't currently working there. Instead it focuses on other telco information that categorizes consumers according to factors such as income proxies and the types of contracts they have.
"Real-time information sounds amazing in theory, but often limits scale while being very sensitive on the privacy side," said Daniel Heer, CEO and founder of Zeotap.
Seeking big spenders
Zenith España, which works on Mercedes' media duties in Spain, wanted to aim its ads for the Mercedes-Benz E-Class at people who could actually afford the pricey sedan. Zeotap built clusters of consumers based on the amount they were billed for their mobile data and voice services each month. The automaker targeted two groups, individuals between the ages of 40 and 60 who spent 100 euros or more on their mobile bill each month, or those who spent 100 euros or more and paid for more than one mobile line, in order to reach likely business entrepreneurs or people with families.
"There aren't too much qualified data for mobile in our market and we needed to target accurately bearing in mind E-Class is an expensive model not available for everybody," said Miguel López-Guzmán, digital media director at Zenith España.
The Mercedes-Benz campaign was the first Zenith ran with Zeotap. "We hope to launch at least another campaign by the end of May," said Mr. Guzmán.
"In Spain, they have found the right agency who understands what the value is," said Mr. Freytag regarding Zeotap and Zenith. The data firm must continue to add marketing clients, he said. The company recently hired Michael Sullivan, former VP of demand at mobile ad firm Nexage, as its general manager for North America to help woo the ad industry.
Telcos in recent years have begun exploring ways to create new businesses from the data associated with their primary mobile carrier services. Companies including Verizon, Sprint and Telefonica have partnered with SAP, IBM, HP and others to manage, package and sell data in various forms to marketers and other clients, in some cases sharing unprecedented levels of data.
Zeotap believes there is a very small number of firms that are directly competing with it to foster multiple mobile carrier partnerships. One is Smartpipe, a company that has access to mobile network data and partners with ad tech firms including Komli Media, which plans to use data from Smartpipe for audience targeting in Indonesia, Singapore and Thailand. (No, Smartpipe is not related to the parody startup Smart Pipe featured in a sketch on Cartoon Network's Adult Swim in 2014.)
A self-imposed hack
It's not surprising that firms like Zeotap and Smartpipe stress the privacy aspects of their technologies and data partnerships on their websites and when promoting their businesses. Not only are privacy regulations different across the globe, telcos have come under scrutiny in previous attempts to monetize user data. Even when systems are built with privacy in mind, companies risk consumer backlash if companies are not forthcoming about how data is being shared and used. Zeotap says its partners notify their customers that their information is shared through their websites, print statements and by other means.
Some privacy watchdogs suggest that anonymization techniques are faulty in many cases because even information associated with a hashed or encrypted identification code can be linked back to a home address and potentially re-identified by hackers.
Mr. Heer, the Zeotap CEO, said privacy and data leakage are the most imposing obstacles for telcos when it comes to developing new revenue streams from their data. The company has consulted with privacy lawyers and others in developing its technology and business model, he said. It also makes a point to communicate with privacy executives at telco partners before reaching out to business decision makers.
In addition, the company is undergoing a self-imposed hack of its system. "We are hacking our own technology to make sure data leakage cannot happen," said Mr. Heer. He declined to elaborate on what the process entails.
"Ad targeting by telcos needs strong user controls and serious de-identification," said Jules Polonetsky, CEO of Future of Privacy Forum, a Washington, D.C., think tank primarily funded by companies such as AT&T, Facebook, Google, Apple, American Express, Disney, Bank of America, Amazon, Tune, and Ernst & Young. "We were impressed with the steps Zeotap employs to ensure careful de-identification of any data it handles."
Zeotap may attempt to seek partners outside of the advertising industry that could use telco data. "Telco data can create a lot of value in many different industries beyond advertising, and we have it on our mid-term roadmap to explore these other verticals," said Mr. Heer.