October 2007

After two decades of uninterrupted growth, European mobile operators’ revenues are starting to falter. In the UK, operators’ retail revenues grew by an estimated 6.1% in 2006 compared to 9.2% the previous year. In 2002 to 2004, by contrast, revenues grew by 14% to 17% (Source: Ofcom - The Communications Market 2007). In the search for a tonic for this slowing growth, mobile advertising has been identified as a revenue opportunity. But, what impact will mobile advertising have on operators’ bottom lines?

As a starting point to assess the mobile advertising opportunity, it is useful to understand the status of the wider advertising market. As shown in Figure 1, the UK advertising market generates GBP19 billion, almost identical to the GBP18.8 billion of combined revenues (including wholesale) generated by mobile network operators (Source: Analysys Research, Global communications database). Growth in the overall advertising market is currently negligible (0.7% between 2005–06). However, Internet advertising has grown strongly at the expense of more traditional advertising media, and accounted for GBP2 billion in 2006.

The potential of the mobile device as an advertising platform has yet to be fully realised, and as such is not measured as a separate category. A key requirement for the development of mobile advertising is that the usage of mobile Internet services must become more widespread, and thus more interesting to potential advertisers. The main uncertainty over the potential of mobile advertising is just how widespread this usage will become. While advanced handsets such as the iPhone will spur the development of mobile Internet use, it is not likely that usage will reach the same levels as for conventional Internet access. As a comparison, a typical Internet user in the UK spends 25% of their media day online (Internet Advertising Bureau).

Once the mobile advertising market begins to take off, the challenge for mobile operators will be to capture a significant proportion of advertising revenues. Such revenues will have to be shared with a whole range of players within the mobile advertising value chain. For instance, Google is very strong in Internet advertising, and can be expected to command a significant share of the mobile advertising revenues. Nokia’s intention to capture a share of these revenues is demonstrated by its recent purchase of Enpocket, a specialist in the delivery of targeted mobile advertising.

The key to success for the mobile operators will be to control the handset and thereby the traffic. If users stay within the operator portal (or at least originate from the portal), operators stand a much better chance of capturing advertising revenues.

One area in which mobile operators can bring real value to the mobile advertising market is in employing user profiling data to support targeted advertising campaigns. The profiling information to which operators have unique access includes Internet usage history, location, data captured when a subscriber is acquired (demographic data etc.), and mobile spend by service type. Within the bounds of any privacy issues that may apply, this information is invaluable to advertisers for whom targeted access to a key group is of paramount importance.

In order to harness this information and to extract maximum value from it, operators must be able to work together with the entire advertising value chain: it is relatively easy to make use of the profiling information within the operator’s portal, but much more challenging to make it available in a useful way off-portal.

On balance, the model of mobile advertising that is currently emerging could provide a meaningful opportunity for operators to increase revenues, but to think that it is going to be the only answer to the overall slow-down in growth in the industry is optimistic. In reality, operators should not expect to get more than a few percent in additional revenues from mobile advertising in the medium term.

This press relase relates to a study called The Mobile Advertising and Marketing Revolution.