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Mobile Advertising Will Turn the Existing Operator Revenue Model “On its Head”

barraclough.gifSTL Partners is a consultancy and research company looking exclusively at the Telco industry. They authored a report “Telco’s Role in the Mobile Advertising Value Chain” which lays out a number of key areas that operators need to focus on in order for mobile advertising to succeed. We had a chance to meet with Chris Barraclough, Director at STL, to discuss their view of mobile advertising.

Hi Chris, what are your thoughts about the overall mobile advertising market at the moment?

Well I think it’s very clear that the activity and interest in this market has greatly picked up in the past 6 months or so. A concern I have is that the expectation and anticipation of capital markets and shareholders is probably running well ahead of where the industry is at the moment. This is both in terms of what the market can realistically deliver, as well as the actual progress towards making it happen.

It seems to me we are at a very early stage, and there are technical limitations, regulatory limitations, and business model limitations we have to overcome.

Will mobile advertising revenue be able to replace declining ARPU from voice?
Mobile advertising markets are increasingly seen as future sources of operator growth, but I think we need to get realistic about this. The telecom market, fixed plus mobile, is about $2,000 billion. The advertising market is roughly $500 billion, all in, including TV, Radio, etc. The digital sector of advertising is about $30 to $40billion. So although it is important, it won’t be able to replace a major portion of mobile operator revenues anytime soon.


What are some of the challenges facing the mobile operators?
stl-quote1.gifOne of the biggest changes that operators will need to come to grips with is that mobile advertising will turn the existing revenue model on its head. Previously, every bit of revenue that came to an operator was “downstream”, in other words came from a subscriber customer. This is the mentality these guys have. Now they are trying to build a business where the customers are “upstream” – they are trying to collect money for advertising from advertisers and agencies. Operators will need to consider from a strategic perspective how to service these customers and understand what they need.

There is a natural tension between the old business model and this new business model that has slowed things down.

What in your opinion is the biggest opportunity for the mobile operators in the area of advertising?
The big opportunity for operators is to develop a large-scale advertising enablement platform.

Currently the entire value chain is extremely fragmented, which limits the scale and reach that mobile advertising needs to grow. We believe mobile advertising is likely to consolidate around one or two large scale platforms because scale gives value to both advertisers (more inventory) and consumers (cheaper content and services).

The operators are best positioned to build a successful platform, given their customer base, customer information, billing relationships, and customer service capabilities. They have the assets, they have the reach, no one else does. If the operators want a slice of the pie, they will have to do this.

Will the other players in the value chain let operators take on such a wide responsibility?

stl-quote2.gifOur research shows that in fact the other players in the value chain want the operators to develop very broad capabilities in order to help the market grow.

As an example, we asked operators what assets they thought they could bring to the mobile advertising arena. They said the usual:
• location info,
• ad serving, and
• customer data.

When we asked advertisers what assets the operators could bring, they agreed with these, but also said they wanted operators to take a much wider view. For example, they wanted them to participate in:
• metrics and measurement,
• billing and collection, and
• post-transaction customer service activities.

STL has done lots of research in this area, can you share with us an example of one your Key Learnings?
Certainly. For example: operators will need to get better at managing innovation.

Operators are (perhaps unfairly) criticized for their inability to innovate. In order for mobile advertising to grow, the operators will have to innovate because it involves the delivery of new services to new customers with new business models. Notice that its not technical innovation we are talking about, but more in terms of ways of working and commercial arrangements.

Here is an idea of what one of the future business models may look like, and you see that it is very different from what we have traditionally seen.


A full list of these “Key Learnings” and “Key Actions” is in the latest version of our report Telcos’ Role in the Advertising Value Chain.

What is next for STL in the area of mobile advertising?

Our next conference will be the Advertising and Marketing Summit (16 October, London), where we will drill down on these action items with people from the industry. And I believe that you will also be there as “analyst-in-residence” at the event.

Thank you very much Chris.

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This week’s topic: What should Mobile Operators do to help grow the mobile advertising industry?

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