AT&T Bumps Against Google, Microsoft in Three-Screen Ad Sell

Telecom Predicts It Will Be a Billion-Dollar Business Within 'a Few Years'

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With nearly every American old enough already toting a cellphone and fewer signing up for land lines, it's no surprise AT&T is looking to diversify. But its new advertising division, looking to replace billions in lost Yellow Pages revenue, pits the telecom against internet giants rather than usual suspects Verizon Communications and Sprint.

"Our list of competitors now includes Google, Microsoft and Comcast," said Greg McCastle, senior VP of AT&T Ad Works, the unit selling ads on mobile phones, TV and desktop internet.

Credit: Richard B. Levine

That's a big departure for a company that used to compete against paper directories in advertising. The new competition comes as AT&T looks to sell advertising in three media it connects consumers to in the largest grossing side of its business: wireless phones, internet and TV.

Connecting all those screens in consumers lives is a task many current stakeholders in digital advertising have taken up. Though its heritage lies in internet advertising, Google more recently has placed bets in TV ads, building its own set-top box, and bought a company to bolster its mobile ads. Microsoft, with a foothold online and in TV via its Xbox consoles, has been looking to build out its mobile audience in the U.S. with its latest Windows Phone software.

Where AT&T has the leg up is scale: it provides mobile service to 100 million subscribers and TV service to 3.6 million households via its U-Verse service. It also boasts more than 29 million visitors to its, according to ComScore. But what AT&T doesn't yet have is the range, breadth or bulk spending that big tony advertisers have brought to the internet giants for years. Mr. McCastle says Ad Works will be a billion-dollar business in the next few years; to compare, Google's mobile ads business alone has already exceeded that threshold.

Given that competition in advertising is steep, AT&T is looking to differentiate itself with the data -- anonymous and in aggregate -- that it gleans from its more than 100 million customers. For TV, that 's looking at actual viewing patterns on its 10 million set-top boxes, so if an advertiser doesn't want to pony up top-prices for ads during Fox's "Glee," set-top data shows what other shows that same viewer is watching. Looking at the behavior of the largest smartphone pool at any carrier, AT&T can figure out what apps or websites certain audiences tend to visit on phones. While AT&T sells ads on third-party ad networks in all three media, it won't sell data to advertisers to inform purchases with other vendors.

"Our business is selling advertising, not data," said Maria Mandel Dunsche, VP-marketing & media innovation for Ad Works. After an upcoming study with ComScore, AT&T is also hoping to connect the dots between devices and tell what any one audience is doing on all media.

To woo new advertisers, Ad Works has opened up a new lab with giant motion-tracking touchscreens and iPads in midtown Manhattan. The lab shows off its new data-driven, multi-screen vision for advertising. A robot named Gordon that AT&T developed 20-some years ago greets visitors when they come off the elevator.

The new lab comes at a time where Ad Solutions, which includes Ad Works and Yellow Pages, is bleeding revenue, largely because of lost directory business. Revenue for the most recent quarter was down more than 16% to $803 million from the prior year's period. Revenue stumbled nearly 17% last year to $3.9 billion. The same year, AT&T print directory revenue fell $858 million. Two years ago, the unit that is now Ad Works broke off from the Yellow Pages business unit.

Verizon , which has more mobile subscribers than any other company in the U.S. and also has a TV service, Fios, is starting to connect the dots to sell advertising on all those platforms as well, said Brian McClary, social and emerging media specialist at Ford Motor Company, who is using Ad Works.

"Verizon is starting to mess around here, but AT&T has been first to market," Mr. McClary said.

Correction: Previously, this article incorrectly stated that AT&T provides U-Verse TV service to 10 million households. There are, in fact, 3.6 million U-verse households with a total of 10 million set-top-boxes.
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