New technology is disrupting traditional advertising, and in its place different forms are evolving, offering very specifically targeted messages. Lawrence Kenny and Rob van den Dam describe how advertising spend in the emerging online channels is now growing at a remarkable rate
The advent of emerging online advertising channels is making marketers lick their lips. These marketers are seeking more effective ways of optimising their expenditure and they are excited over the prospect of being able to target their ads in a highly personal way. They are spending more and more on targeted personalised advertising - at considerable cost to traditional advertising. Everyone is fighting for the new media advertising revenue. At the same time telcos have begun to realise that advertising can become an important source of revenue, an opportunity that they simply can't resist.
Although telecom operators have little presence in advertising today, the medium represents an emerging opportunity that operators are uniquely positioned to address. They have unique assets that advertisers value. First of all, they have a large customer base. And with their authentication, authorisation and accounting controls, telcos are able to determine who the customer is and what services and products they are buying. Useful not only for controlling where the ads go to, but also for tracking advertising effectiveness.
Telcos have a direct relationship with customers. They collect vast quantities of customer data, which they can use to develop profiles of their subscribers, including demographic characteristics, personal attributes and preferences of those subscribers – and even, perhaps, their shopping habits and viewing patterns, provided the operators have the relevant analytical tools and capabilities. They can combine these customer insights with their ability to identify where individual users are based and offer highly targeted, localised promotions. Moreover, many operators have already developed solid relationships with local advertisers through their directory businesses.
Telcos are also well placed to enable the advertising experience practically anywhere, on any device and at any time. They can, for instance, manage the delivery of ads across the mobile phone, PC and TV-set; over fixed, wireless and other networks. What's more, they also provide a direct interactive response channel for the customers, and a feedback loop to advertisers allowing them to track advertising performance.
As telcos move into media - an industry that has historically been part funded through advertising - it will find that relying on subscriptions and pay-per-view models is unsustainable in a world where consumers do not expect to pay for all content. Content is expensive to generate and offer to consumers, and advertising provides a means to offer richer content at a more reasonable cost. Many telcos are therefore experimenting with opt-in advertising plans to fund content. Perhaps this is the most significant benefit, as it allows consumer access to richer content and media. Advertising may also provide consumers with access to content they previously were unaware of. A number of operators are already taking steps toward adding advertising on IPTV and cell phones.
The big advertising revenue still comes from television. But the traditional TV advertising model is becoming increasingly unsustainable. With the shift from analogue to digital broadcasting, the number of TV channels has multiplied, and audiences are becoming much more fragmented. This reduces the efficacy of an approach that relies on centrally scheduled programmes to deliver real-time advertising to a large, undifferentiated audience; and uses ratings to estimate the size of the audience. It results in low effectiveness, as advertisers need to pay for large audience even if they just reach small targets. Which makes TV ads too expensive.
IPTV could provide the answer. IPTV presents the opportunity to combine the powerful brand-building effect of conventional TV-quality advertising with the strengths of online; the ability to target specific audiences and allow customers to easily pursue their interest in a product, even to the point of purchase.
IPTV is an advertiser's dream. With IPTV, telcos have the ability to control where the ads go to - targeted at large groups, small groups or even individual television sets within a single household.
The ads can be fine-tuned to the people within a household most likely to be watching at a certain time. When watching IPTV, users will be able to freeze the programming in order to interact with any advertising that attracts their attention, submit their details for further information on a brand or in some cases make an online purchase. And IPTV provides the means to measure precisely how many people have seen a particular advertisement. Payment models can be geared to actual viewers watching, the number of “red button” pressed, or perhaps a percentage of the sales.
With IPTV the ways in which ads can be personalised are limitless. Different ads can be generated once one ad has been shown a specific number of times. It gives advertisers the benefit that their ads won't annoy irrelevant audiences, or be shown too often and alienate their customers. IPTV also opens new opportunities to diversify ad formats. Ads can be placed when the set-top box boots up, on information screens, as a screensaver, as buffer when a movie loads, or dynamically in the video streams. The facility to 'telescope' out an advertisement could be possible using a click-through function for the consumer. There is also the possibility of search and recommendation, perhaps in partnership with an Internet search engine such as Google.
IPTV could provide a gateway to Internet advertising for sectors traditionally reluctant to embrace the medium. And IPTV will attract local companies who would otherwise not have considered TV advertising as an option. Telecom Austria has already explored ultra-local TV-advertising in the village of Engerwitzdorf and found it especially attracted local companies for advertising.
In Europe, the French IPTV market is leading the pack in targeted advertising trials, but IPTV providers in other European countries are also experimenting with advertising. Examples are Tiscali TV (formerly known as Homechoice) running a dedicated Honda channel in the UK, and Telecom Austria. BT is talking to both brands and agencies about offering (Vision) IPTV advertising. In the US, Verizon is currently deploying the technical tools that will allow it to insert local ads into its programming. On that foundation, the telco plans to introduce more targeted and interactive ads in its FIOS IPTV service. Though advanced ad deployments are still a ways off, AT&T (with its U-verse IPTV service) also likes the promise of an ad play that combines mobile phones, television and the Internet.
Mobile advertising represents another unexploited opportunity for telecom operators. It is one that telcos are particularly well-positioned to capture since they have control over what is delivered to the device and are the only companies that have the right to know the location of their subscribers, information that advertisers would love to use to target customers. The mobile phone is the most personal consumer device we own, and that most people carry with them 24 hours a day. It affords advertisers an opportunity to present very targeted and time-sensitive information that is of interest to the user. With nearly three billion cell phone users in the world, it's clear that mobile advertising represents a huge opportunity. Informa Telecom & Media predicts that worldwide spend of mobile advertising will be worth $11.35 billion in 2011.
Advertising on mobile devices can take many forms, including banners, sponsored video content and messages sent to users, but telcos and advertisers still need to determine what works best in different circumstances. Advertising techniques cannot simply be copied from the Internet. The screens and devices are smaller; the exposure time tolerated by the user is likely to be less; too many click-throughs will annoy users; and in many cases, operators must be able to identify the device type to render content appropriately.
Even more so than with Internet advertising, mobile advertising must be relevant, interesting to the audience and, especially, not overbearing in quantity. In fact, mobile advertising should be a combination of search, location and presence, and recommendation functions, based on a deep understanding of the consumer's passions, hobbies, purchases, past click-patterns and the like.
Outside Asia, where mobile advertising has grown rapidly in markets like Japan where NTT Docomo has been running small banner ads on its mobile portals for more than five years, the mobile operators have moved cautiously in adding advertising on cell phones for fear of alienating subscribers and increasing churn by doing so. But there have been a number of initiatives.
In the summer of 2006, Virgin Mobile USA introduced a programme called Sugar Mama, that compensates its phone users with free calling minutes for watching commercials, reading advertiser text messages and taking surveys from brands. In its first seven months, the Sugar Mama campaign awarded 3 million minutes to about 250,000 of the registered customers. Virgin Mobile recently announced that they will use JumpTab's search-based advertising platform to offer ads that are highly targeted and relevant for its users. Companies such as Verizon, Sprint and Cingular are now also beginning to test and roll out advertising on mobile phone screens.
In Europe, EMI Music and T-Mobile joined forces at the end of 2006 to pilot ad-supported mobile videos in Britain. Ad-funding company Amobee has recently launched a commercial advertising trial with Orange in France, with such companies as Coca-Cola and Saab having signed up for the trial. Orange customers interested in playing games will be offered them for free, or at a reduced rate, if they first agree to watch an advert. Mobile operator 3UK announced the launch of a service in April supported by personalised advertising to provide free content for its users. Also Vodafone and Yahoo! aim to launch a mobile advertising business in the first half of this year.
However, media brands such as Fox News, USA Today and The New York Times are now also joining the game by providing advertising via their mobile websites, which are accessed directly through a mobile browser and not through a mobile operator's menu. And they are not the only parties that think there will be big business for them down the road. Internet players Google and Yahoo! have already started to include advertising in their mobile search and portal properties. Yahoo! has even launched a mobile advertising platform in 19 countries across Europe, Asia and the Americas, instantly enabling advertisers to reach consumers around the globe on their mobile phones. Advertisers already signed up include the Hilton Hotel group, Pepsi and Singapore Airlines. And then there is Nokia, also jumping onto the mobile advertising bandwagon, by announcing two mobile advertising services designed for targeted campaigns on the handsets.
Highly targeted and addressable advertising will increase advertising revenue per viewer significantly, while the viewer experience becomes more personalised and well received. Several studies have confirmed that subscribers are more likely to respond favourably to advertisements if the topic is of interest to them. This type of advertising, however, raises the issue of privacy. There are acts in both Europe and the US to ensure that user-specific data is not used for any purpose other than for providing the telecommunications service itself. “Opting in” may well be seen as the route to go, and prove popular with consumers: giving them increasingly relevant ads. Here consumers allow their “user-specific” data to be used, in return for being included in special offers.
Many parties, from marketers to big media companies, to handset makers, to Internet players, to telecom operators, hope to get a piece of the pie. But operators have the demographic, transactional, behaviour and location data necessary to deliver marketing and advertising that meets the consumer need for relevant advertising. Operators are now at the point where they should exploit their unique technical advantages to secure their part of the pie.
Lawrence Kenny is Global Telecommunications Industry Leader for IBM Global Business Services. Rob van den Dam is European Telecommunications Leader for the IBM Institute for Business Value