Mobile-Marketing Plans Meet Unlikely Opponent: Telecoms

Start-Ups Push to Subsidize Phone Apps With Ads, but That Strategy Could Strip Carriers of Billions in Revenue

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Is corporate greed stifling mobile marketing's potential?

A swarm of start-ups are hoping to use advertising to subsidize the kinds of mobile services consumers are used to paying for, such as directory assistance, video and even voice. But while such models could spur consumer use of advanced phone technologies and increase the potential bounty of mobile advertising, their adoption is far from ensured, as consumer fees are still highly lucrative for carriers.
Ujjal Kohli: His company, Rhythm New Media, serves up free content to phones in Europe.
Ujjal Kohli: His company, Rhythm New Media, serves up free content to phones in Europe.
According to Informa Telecoms & Media's World Cellular Data Metrics, telecoms took in $6.97 billion in revenue from data services in the second quarter of 2007.

"We believe that penetration of data services of all kinds would markedly increase with advertising subsidies," said Roger Wood, senior VP-general manager of the Americas region for Amobee Media. "Usage of data and content would spike considerably if it was subsidized."

Early successes
Marketers and the telecom industry may find out soon enough if Mr. Wood and others are correct. Already a number of directory-assistance plays are showing that ad-subsidized telecom services can draw marketing dollars and become popular. Jingle Networks' ad-supported 1-800-Free411, which works on both land lines and mobile phones, last year handled 6.5 billion calls at a clip of more than 20 million per month.

Virgin Mobile broke the initial ground with its Sugar Mama program, in which customers volunteer to view ads or take surveys in return for free voice minutes. Other firms are taking the free-calling idea farther. Talkster offers free international and long-distance calls if users listen to a radio ad. And while Google's newly unveiled mobile operating system does not promise free services, it appears to have left open the option of ad subsidies for advanced applications.

While most consumers in the U.S. are still shelling out for extra features, known as "data services" in the trade, the ad-subsidized trend is starting to take off across the pond. Rhythm New Media, based in Mountain View, Calif., has begun serving up free video clips in European markets, and U.K. phone company 3 said more than 1 million customers, or about a quarter of its users, have registered for a free, ad-funded service that shows 15-second spots before and after two-minute videos of sports, weather or celebrity news. Ads are targeted based on time of request, age and gender and are managed in terms of frequency. Rhythm CEO Ujjal Kohli said he is in discussions with a number of U.S. carriers and expects to be in operation in the U.S. soon. In Europe, cost-per-thousand pricing for the service runs $150, he said; the rate in the U.S. is expected to be about $100.

Marketers advertising on the service in Europe include Paramount Pictures, Unilever and Nivea.

Not for the family
Few of the wireless carriers, internet companies, content providers and upstart middlemen jockeying over the potential mobile bounty, estimated to be $10 billion or more in a few years, are thinking about sharing some of it with wireless subscribers. And that's too bad, said Josh Crandall, managing director at Media-Screen, a San Francisco-based market-research firm, because one of the main barriers to adoption is the cost associated with more-advanced, non-voice features. "The pricing model needs to change," he said.

His firm conducted a study of more than 4,000 consumers, and only 11% said they use their phones' extra features. Added fees and small screen size were the biggest barriers to using more data services.

Mr. Crandall said carrier pricing policies for data plans are established to generate revenue from business customers and are not optimized for the benefit of the consumer market. "There are no data plans for the entire family," he said, which would make the services and the advertising on them easier to swallow.
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