The art of making Mobile Marketing profits in Germany
2002 definitely is a difficult year for everyone trying to make a living in the mobile economy. Fair enough, the German mobile network operators, led by the big 2, Vodafone and
T-Mobile, have started to introduce the new generation of devices equipped with GPRS, colour screens, Java, MMS and cameras to their customer base. Yet, we all know that it will take a long time until these ARPU-driving technologies will have reached a significant market penetration. At the end of 2003, it is realistic to calculate with a penetration rate of 10 - 20%. In the case of Germany, this translates into 6 to 12 million subscribers which is quite a good target market for new services such as picture messaging or games.
In the meantime, everybody tries to make as much money as possible from
today's low-tech environment deployed in any handset. Yes, you are right,
we are talking about the operator's favourite cash cow SMS.
The Mobile Marketing market enjoys a bright future
The business with the wireless consumer attracts an increasing
number of participants as can be seen from the member list of the
Mobile Marketing Association. Still, the market is relatively young and small. While WAP-based ads basically don't exist at the moment, nobody knows the exact size of the revenues coming from marketing-related SMS. Contrary to established media industries like TV, Radio, Print or PC-based Internet, there is no independent organisation collecting data from the media sellers on the number and value of SMS disbrituted each month. This is clearly a gap that needs to be filled to give the parties involved a reliable mechanism for planning and controlling their wireless campaigns.
Still, analysts and experts foresee a bright potential to generate a considerable amount of value for all those groups involved in the creation and delivery of marketing messages to mobile devices. In a report published last year, Frost & Sullivan's analyst Allison Webb estimated that by 2006 there is the potential for 37 billion wireless advertisements and alerts to be sent in western Europe, worth $12 billion. With more than 60 million subscribers, Germany will probably account for 25% of this, i.e. $3 billion. This forecast is based on the assumption that 65% of all mobile subscribers will accept some form of mobile marketing.
Full-service Mobile Marketing agencies still dominate the market
The biggest piece of this cake is taken by the full-service Mobile Marketing agencies which all try to be as close as possible to the mobile operators. In Germany, the leading 5 agencies are 12 Snap, partly owned by Vodafone, Mindmatics, with a minority investment from T-Mobile, YOC, that seems to have close ties to O2, Apollis interactive, close to retailers and
a leader in location-based marketing, and Beamgate, that believes in the mix of content and advertising. All of them are either directly connected
to the SMSCs of the operators or via a cross-operator SMS provider and offer the full service ranging from concept and creation to delivery and performance measurement.
Moreover, especially 12 Snap, Mindmatics and YOC build their own permission communities, which basically means collecting mobile phone numbers and basic demographics of advertising-ready consumers. Thus, they aggregate the reach, sell the reach and, in between, do the media planning. Compared to classic media industries, they often accumulate the roles of three players in one, i.e. medium, media sales agency and media buying agency. By the time more classic marketing players will have discovered the mobile medium, this situation will change and foster an increased separation of tasks and power.
The favourite instruments of Mobile Marketing
Taking a look at the type of wireless campaigns that are carried out in today's marketplace, 3 main Mobile Marketing instruments can be identified. Very fashionable and probably generating the biggest revenues, too, is the integration of the SMS Response Channel into classic cross-media advertising campaigns. A representative of this instrument is the so-called on pack promotion which is done by including a shortcode and a keyword on the package of a product, e.g. a bottle or candy bar. Consumers having bought the product are encouraged by entering a contest to send the keyword to that shortcode by SMS. In the UK, 12 Snap enabled the wireless response channel for a cadbury campaign that teased SMS aficionados with prizes worth 1,6 million Euro.
Then there are Direct Marketing SMS campaigns which usually consist of sending a full screen advertising SMS with 160 characters to recipients that have given their permission before. This proactive SMS very often is the beginning of some more interaction, e.g. a short quiz with winning opportunities ("Txt & Win"). Unfortunately, the permission clearing process is sometimes very intransparent and the marketer is not able to track when and how the permission was collected. Of course, if users don't invite the ad message we would call it spam. And as everybody in the industry condemns spam, at least officially, we will not look further into this superfluous phenomenon.
Last but not least, we have Sponsored Info SMS which is basically some useful content (e.g. 130 characters) with some advertising (e.g. 30 characters). As mentioned above, Munich-based Beamgate is convinced that content creates stickiness. Beamgate users interested in football league results may pull them on demand or subscribe on a regular basis. Beamgate argues that business models based on paying customers for receiving Direct Marketing SMS don't work.
Depending on the marketing instrument and format we have come across
mobile CPMs (price of 1000 contacts) between 100 and 200 Euro. This is significantly more expensive than, for example, a CPM for banners on web sites. However, if you compare it to direct marketing then this price is not extraordinarily high. In practice, each advertiser has to find out what the effectiveness and efficiency of wireless campaigns really are. Market research reports emphasizing high response rates and branding abilities of wireless marketing should not be the only motivator behind allocating marketing budgets to the wireless channel, rather measurable experiences with your own target group.
Mobile operators' strong position might be in danger soon
First of all, it should be pointed out that mobile network operators benefit automatically from a growing Mobile Marketing market. In the case of Germany, they earn, on average, 6 Cent per SMS. The more wireless ad messages are sent in the network the better it is for them. Yet, we have the impression that operators are rather passive in the wireless marketing space. They rely on their current cooperation with the full-service agencies and watch how the industry keeps on evolving over time.
In the long run, new technologies for delivering mobile messages will jeopardize
this peaceful coexistence. Due to the high price for sending MT (Mobile Terminated) SMS, the marketing industry will gradually turn to mobile Email or Instant Messaging to deliver packet-based messages of GPRS. If mobile content providers or owners of permission communities can offer enough reach to advertisers then it becomes very easy for them to bypass the mobile operators which will be left with revenues from packet transfer only.
Therefore, we recommend to mobile operators to develop long-term Mobile
Marketing strategies that take technological change into account and can be
adapted accordingly. Recently, E-Plus has hired a Director of Mobile Advertising. Other operators will follow to build up internal know-how or work with external consultants to manage their Mobile Marketing division in an optimized way.
An adaptive position is even more needed when we think about premium versus
free mobile content. As a matter of fact, mobile spending power is limited and
we foresee a future in which a lot of content delivered to mobile screens will be advertising financed. Again, this reduces the operator to being the pipe because eyeballs are aggregated and marketed by the content providers or their media sales agencies respectively.
How will 3G affect the Mobile Marketing industry?
The creative Mobile Marketing people will enjoy multimedia handsets and
fast wireless networks as they have a lot of new ways to enhance the user
experience of Mobile Marketing. Product information dressed in audio, video or animations offers more appeal to the wireless consumer. As a result, the percentage of advertising-ready consumers will go up by the time Mobile Marketing "goes entertainment". However, depending on your role and position in the Mobile Marketing system, not all effects of 3G are good for you, especially if you are an operator. For marketers the distribution of marketing messages will become cheaper if operators loose their ability to artificially keep the price high as in the case of SMS. The countermeasure for operators is to create their own permission communities and start dealing with customer profiles - provided that the customer likes it.
