The Next Steps to Accelerate the Tectonic Shift in Mobile, Part 3

Part 3: Revenue scalability: Taking mobile advertising from a multi-million dollar to a multi-billion dollar business, and jumpstarting virtual items and mobile payment

As described in a previous blogpost, we need

– Usage scalability

– Revenue scalability and

– Truly mobile services

to unlock the full potential of the mobile device for consumers and to turn cell phones into the massive interactive platform opportunity for developers that exists.

Today’s topic: revenue scalability.

Mobile advertising is happening, despite popular opinion that it is not. Millions of dollars are poured into mobile advertising already today, and billions of impressions are delivered every month (e.g. for Coca-Cola, P&G, McDonald’s, Dunkin’ Donuts, IKEA, travel sites, …). However, what is not happening is billions of mobile ad dollars, despite cell phones being the medium that allows true “1-to-1 mass marketing” – something that used to be a contradiction in itself – and “cross-platform integration,” as the cell phone the only medium consumers carry with them while they are using other media platforms, from TV to outdoor to radio.

So why not billions? Advertisers need three things in order to shift substantial amounts to mobile: Simplicity, scale, and score.

Simplicity – mobile advertising has traditionally been too difficult to buy for agencies – one phone call needs to be enough for them to buy. The rest is our industry’s problem, not theirs.

Scale – the largest advertisers want to be able to reach 20, 30, 50 million people (uniques, not repeats) before they commit millions of dollars. The iPhone is likely to soon emerge as the first big platform that allows smooth and media-rich integrations into apps and mobile sites with massive scale.

Score – mobile is by definition a highly individual and therefore measurable device, even more so than the internet, as cell phones are rarely handed from person to person (at least in the developed countries where most of the ad dollars are spent), the return path is hard to change, the localization is added. However, only recently, with the mobile web and iPhone app explosion, have good measurement technologies emerged. Now they need to become accepted; that is the real challenge. To advertisers it matters more WHO measures the ROI than the granularity of the measurements.  That is no different from the online and TV worlds.  Very few online research institutes are accepted as the common “media currency” providers that provide a stamp of approval on media data.  In TV broadcasting, it is even fewer (one ;).  In mobile, the current situation is still in the chicken and egg phase: Without large-scale advertiser demand, an undisputed currency provider is hard to create; without clear currency providers, advertisers are hesitant to scale their ad investments.  The way to cut this knot is once again with a highly attractive platform like the iPhone, which can attract substantial ad spending despite a lack of clear currencies for CPM and branding effects etc, because of the obvious user engagement proven by (easily measurable) direct responses from apps and mobile sites.

Virtual items. Virtual items have been a soaring market in Korea and Japan, both online and mobile.  That success has yet to be transferred to the U.S. and other Western markets, but the new, media-richer mobile games on smartphones will offer lots of opportunities to open that revenue stream.  This could be a more significant market than one-time mobile game download revenue.

Mobile payment. For developing countries, the question is not “if,” but simply “when will it be really large.”  Traditional banking is used much less there, and most people do not have PC-based web access, so their cell phone will be their banking and electronic payment terminal.  The more interesting question is developed countries.  Here, the question is “how.”  Mobile payment will only be a serious replacement for cash or credit cards in instances when it is a) simpler, or b) safer, to use.  Paying the taxi with a cell phone will be the less likely use case; cash and credit cards will likely remain easier when you can just hand either one over to the cab driver in a hurry.  But for example,

– on e-commerce players’ mobile sites (think Amazon, travel sites, train tickets), the hassle of typing in the same credit card number again and again is one key holdback for consumers to use their cell phone to buy;

– premium text messaging is a very costly way of buying mobile content (steep charges);

– and online classifieds can be pretty unsafe when you meet your seller in person holding a bundle of cash in your hand.

In other words, to unlock new revenue streams like mobile payment and virtual items, the use cases have to be…  truly mobile.

So in one of the upcoming blog posts, we’ll talk about what creating “truly mobile services” means and why they hold such potential for new startups.