Commentary

Closing the Ad-Support Deal

Months ago, we started this column predicting that a fully ad-subsidized wireless service would emerge in the next year. Right on cue, the dubiously named Xero Mobile popped onto the radar this month with plans to exchange free airtime to college student subscribers for watching a set number of video ads each day. Yeah, yeah, yeah. I know that we've seen this before. How many "free-access" ISPs tried this model in the go-go 90s? Xero wants to launch for the fall semester, but this company is being brought to us by some of the same executives who did not bring us the long-promised Gizmondo handheld game and wireless device, which had a similar ad-subsidized model.

Hey, I only predicted we would see an ad-funded carrier this year. I didn't say it would work.

Nevertheless, the notion that advertising could or should substantially underwrite the mobile content value chain got more explicit support in recent weeks from two reports of note. The mobile interface provider ActionEngine issued a mostly self-serving white paper that it misnamed "Unraveling the Mobile Advertising Conundrum." Pushing its own mobile portal-based solutions, Action Engine argues that mobile marketing growth is "stagnant" because of poor user experiences and unclear business models. Specifically, the reportstudypitch claims "both WAP and SMS fail to deliver an immersive and device interconnected user experience that highlights the value mobile advertising can offer to subscribers, content and media brands, advertisers and mobile network operators alike." Of all the words I have heard associated with mobile marketing in the past few months, this is the first time "stagnant" or anything like it came up.

As I said--pretty self-serving stuff. Still, I do appreciate that ActionEngine is among the first providers in the mobile arena to say what others outside that world have been thinking--that it seems inevitable the mostly free Web content model will migrate to phones. Carriers and many others in the mobile value chain resist or ignore this "content-yearns-to-be-free" argument because it contradicts the mantra they've chanted for years: unlike the Web, mobile is a place where people really do pay for content and do so via a built-in micro-payment infrastructure.

Well, maybe not so much, says ActionEngine, and with this I can only agree. "We as consumers are conditioned based on the first and second screens [TV and Web] to naturally expect a base set of services without any additional charges." In fact, a very 1999 Web phrase has crept into the vocabulary of the mobile biz development guys I speak with at the major media companies-- "commoditized content." Yup, it is now pretty much a given that news, weather, scores and stocks will not have a specific additional cost to mobile users, so mobile companies had better find revenues elsewhere.

And when it comes to more elaborate mobile services like handheld TV, the need for ad support becomes critical. More than just subsidizing mobile content, advertising is integral to distributing video beyond that expected core of early adopters, says Brian Wieser, director of industry analysis, Magna Global. His "Mobile Video and Advertising: a Global Overview" is among the smartest and most historically informed breakdowns I have seen about advertising's place in the mobile TV picture and the hurdles network operators and their tech partners need to overcome to make the medium comfortable for traditional media buyers.

Early returns from European mobile TV trials suggest considerable consumer interest in the format, but it remains unclear how much value audiences will put on portable TV. "The subscription fee associated with providing a robust content offering is likely to be the most important factor limiting consumer appeal," says Wieser in the report. Separately, Wieser told me that like over-air TV before it, mobile TV needs marketing if it wants to achieve reach. "Mass deployment will depend on ad support," he said. "That is part of the point of the paper. If you believe an ad-supported model is necessary to drive the kinds of scale you want, it is further necessary to have an infrastructure that can support it." On the platform side, operators will need to satisfy the basic and traditional needs of any advertising infrastructure: uniform technology, an easy buying and reporting process, market intelligence and quality assurance, he added.

Wieser cited the slow adoption of video-on-demand as a good example of a medium that might have proliferated much earlier in its cycle if the cable companies had collaborated with the ad community both to subsidize and also market a delivery system many felt to be foreign. If mobile TV taps the distributioneducation juice advertising brings to the media mix, "you will see shortly after a parallel to broadband in 2001 or the Internet in 1994," he said.

Judging from the buzz levels and off-the-record tales I heard at the CTIA conference, it certainly seems that mobile marketing has made its case both among media companies and carriers that the mobile content evolution will be ad-subsidized. What I am not hearing yet is how this media ecosystem will seal the deal with consumers. I suspect that one of the dark arts of mobile marketing is going to involve communicating efficiently and convincingly to the end user that on-deck promotions represent a fair value exchange for them. If advertising is going to have a more prominent role on a platform as sensitive and personal as my cell phone, then it also has one more partner to pitch--me.

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