Box clever

Mobile advertising has so far proven something of a slow burn. In 2009 the industry’s hottest talking point has been application stores. Mike Hibberd looks at how the two may come together in the form of in-application advertising.

Early last year, Martin Sorrell, chief executive of WPP, one of the world’s largest advertising firms, commented that he had never seen a sector so over-hyped in the short term and under-hyped in the medium term as mobile advertising. It is an observation that has been much repeated.

Mobile advertising has certainly been talked up and there are some big numbers floating around the sector that could be used to back up any evangelising. Admob, one of the largest mobile advertising networks, has served more than 80 billion advertising impressions since its launch in 2006. In the first quarter of this year, Buzz City delivered 8.5 billion banner adverts across its own network, representing growth of 11 per cent on the previous quarter.

Even those within the industry, though, concede that mobile advertising remains very much in its youth, if not its infancy, and the fact that the majority of mobile advertising today is in formats like text messaging or online banners allows those with less confidence in the sector to argue that it’s failing to keep pace with the wider industry’s technological advancement.

Could app stores be the answer?

But could the growth in popularity of the application store model, the defining story of 2009, silence the doubters? Backers of the app store model paint it as a swirling galaxy whose powerful gravitational force will pull in other sectors from the mobile industry. One example could see location-based services revitalised by carriers like Vodafone making network APIs available to developers. Another could see mobile advertising take a technological leap, in terms of user interaction.

The large screens, touch interfaces and advanced functionalities such as accelerometers that are now found on top tier smartphones have certainly captured the imagination of the industry. A small section of the global user base has also proven itself to be enthusiastic for these developments and this has led to suggestions that the future of mobile advertising must be bound inextricably with the future of the application model of mobile internet usage. Advertising will do better, runs the theory, when it appears within applications rather than simple on web pages.

“Engagement may be nothing without reach, but neither of them are truly useful until a reliable means of gauging the
effectiveness they bring can be offered as part of the package”

The starting point is a key word in the mobile advertising lexicon: engagement. There is a widely held belief that the more successfully advertising holds the recipient’s attention, and possibly drives them to interactivity, the more valuable it will prove to be.

“From a branding perspective, if you can get people to engage with your brand-even in a satellite fashion-then you will be more successful in two ways,” says Jeremy Makin, principal product manager for mobile advertising at Vodafone Group. “First it will improve your campaign from a response perspective, which is what digital media is traditionally known for in advertising, and second it will help your brand awareness.”

Smartphones offer better engagement

The latest wave of smartphones, with Apple’s iPhone at its crest, certainly offers a wider range of potential forms of engagement.  Admob serves adverts onto around 40 per cent of the world’s iPhones, according to Thomas Schulz, the firm’s managing director for EMEA.

“A lot of the ads we’re doing on the iPhone are running in applications because, in the iPhone world at least, apps have a big chunk of the traffic,” he says. “You have more visually appealing models like trailers, revolving canvasses.  You occupy the page and you can link to a click to call or a map, whatever you want.  What we’ve seen in terms of click through on these ads on the iPhone is a multiple of what we’re used to because the ads are more appealing.”

Revenues are also higher than the norm, Schulz says. “There’s a very wide range but, in general, it’s definitely making more money.  It generates more money for the publisher, that’s for sure.”

Carling’s iPint goes down well

The logical extension of the coalescence of mobile advertising and mobile applications is that they merge altogether. British beer maker Carling launched a renowned iPhone application in summer 2008, dubbed the iPint, which made use of the phone’s accelerometer.  Users who downloaded the application were required to guide a sliding pint of lager along a bar by tipping the handset. On succeeding, the full screen of the phone became an empty glass that filled with beer, as if from a tap. Then, if the user simulated a drinking motion with the handset, the liquid gradually disappeared, as if consumed.

The iPint generated a level of coverage that far outweighed its penetration. Perhaps this is because it was one of the first brand-sponsored third party apps that appeared after Apple released its SDK. But it was also because the application was held up as an example of what the future of mobile advertising would look like; where adverts and applications had become indistinguishable from one another.

“When you look at applications like this, they are not perceived as advertising by the customer,” says Vodafone’s Jeremy Makin, “because they have this functionality. You can go in through the back door because the customer feels he’s getting something relevant, entertaining or useful and from a brand perspective, that’s almost subliminal,” he says.

Application as advert is one of three models in this subset of mobile advertising that Makin expects to prove popular-he suggests the example of a Nike-branded pedometer as a more functionally practical alternative to the pub-game novelty of the iPint. He also expects to see brand-sponsored Vodafone applications and brands injecting their adverts into third-party apps.

Using advertisers to fund applications, either through sponsorship or through their own strategic app-development, could prove particularly popular in the current financial climate, says Paul Berney, European managing director at industry group the Mobile Marketing Association. “There is likely to be an increase in ad-funded mobile applications because, when times are tougher, people are more likely to seek out free content. The task for brands is to create content that people want and give them the commercial message in a way that they find acceptable,” he says.

Application-based advertising, given a sufficiently capable handset, clearly offers a greater degree of engagement than more traditional banner and text formats. But engagement alone does not guarantee a successful advertising campaign-it has to be combined with reach.  “Engagement without reach doesn’t work,” says Vodafone’s Jeremy Makin bluntly.

Is Blyk’s model the new black?

Ad-funded MVNO Blyk recently adapted its business model to include a partnership offering that it hopes to take to carriers in its existing markets of the UK and the Netherlands.  Historically the firm had been focused purely on delivering advertising and marketing messages to its target user base of 16 – 24 year-olds on behalf of a selection of brands.  End users were originally given 43 free minutes of use each month and 217 text messages in exchange for their interaction with brand advertising messages but this was cut back early this year to £15 credit per user.

Slashed rewards and an attempt to build a white label business suggest that the Blyk model has not proven successful enough-and yet the firm has reported typical response rates of almost 30 per cent for its campaigns; far higher than the norm. So the kind of targeted advertising it offers is working.

The problem for Blyk, it seems, is that it simply doesn’t have a large enough audience to offer to advertisers. It still has only 200,000 users, and that does not give advertisers the kind of reach that they can get from other, more traditional channels.

In-app advertising faces a similar problem. Apple may have recently announced the download of the one billionth application from its App Store and the growth in popularity of the latest touch screen handsets may grab a lot of headlines, but these numbers remain small when viewed in the context of the industry as a whole.

Apple sold 3.97 million iPhones in Q1 this year and is estimated to have sold just over 20 million iPhones all told (including the original 2G model, many of which are presumably no longer in use). Global handset sales for Q109 were 269.1 million, according to Gartner. And from an advertiser’s viewpoint, that’s a far more attractive number than Apple’s figure.

This is a problem that will ease with time. Gartner pointed out in its Q1 report that sales of high end phones increased, despite the overall market contracting by 8.6 per cent.

App store frenzy

For now, though, application downloads are the preserve of an elite few and they are not enough together to lure advertisers in sufficiently large number. The problem is compounded by the new wave of fragmentation that the application store frenzy is generating. As the model proliferates, with operators and handset vendors all joining the fray, the overall addressable market for application-based advertising is undoubtedly growing. But the variations between the different stores are effectively creating a series of small markets that will have to be individually addressed, rather than one attractively large and cohesive whole.

Werner Reiter is a product manager at Telekom Austria, which launched its mobile advertising service recently. He argues that in-application advertising will be hampered until some kind of standardisation can be reached that will enable advertisers to generate creative (the content used in an advert) in one format that can then be inserted into applications from across the range of stores in various locations. “We need to run advertising campaigns on a standardised basis,” he says. “Lots of operators and partners are experimenting with in-app advertising but it has to come to some kind of standard.”

Standardisation is particularly important when it comes to measuring the performance of mobile advertising. Engagement may be nothing without reach, as Jeremy Makin says, but neither of them are truly useful until a reliable means of gauging the effectiveness they bring can be offered as part of the package.

KF Lai is CEO of ad network Buzz city, which specialises in more established forms of mobile advertising, such as WAP banners and text links. He raises doubts over the ease with which in-application advertising can be measured. “After ten years of advertising on the internet and on the mobile internet, people understand how to do search keyword ads and banner display ads,” he says.

“These more specialised ads, offering in application advertising, are more engaging and people charge a lot more for them. But they are not standardised ad units that you can track, or for which you can use standard metrics like CPM (cost per thousand), which is what the ad industry is used to. How do you charge for a billboard that appears in a game? I don’t know. How do you evaluate its effectiveness afterwards?” he asks.

Patrick Parodi, chief marketing officer and head of EMEA Amobee, a firm focused on ad-funding mobile content, takes a more optimistic view, arguing that mobile advertising as a sector has far wider scope than simply advertising on the mobile internet. Amobee offers a handset API that, Parodi says, is capable of metering and measuring any activity within an application once it has been downloaded.

“We’re talking about usage, the time of day the app is used, for how many hours, what level within the application the user goes to. All of that is routed back to our business intelligence software, which produces reports-not only for the advertiser but also for the developer,” he says. The fact that the solution monitors application usage offline, and can cache adverts within the application, enables the application to generate revenue at all times, says Parodi.

Carriers are cautious

Although this capability is in the market now, carriers themselves are more cautious when discussing their measurement capabilities.

“We will be looking to provide download numbers, usage data within the application and dwell time, for example, as well as more qualitative information around brand awareness. But it is very early days and, at the moment, we’re concentrating on getting mobile advertising up and running, getting people on board and building the reach,” says Vodafone’s Jeremy Makin.

But without measurement, securing brand buy-in may be difficult. Operators are well positioned to gather key metrics, especially the kind of information outlined by Patrick Parodi, which would require end users to opt-in to having their usage monitored.

However, others question their levels of motivation. Jay Seaton is chief marketing officer at Airwide Solutions which, among other things, supplies the solution that allows Blyk to serve mobile advertising into its calls and messages.  “The targeting and tracking in mobile is nowhere near as mature as in other media,” Seaton argues. “The potential is there. Operators have the relationship with the end user, they know which device the user has, they can log user preferences. But what we see from operators is that this is not the highest priority. Many are just waiting to see how the market evolves, so it’s just not urgent for them at the moment.”

Perhaps it should be more so. The carriers’ place in the application-based mobile advertising value chain is by no means secure. After all, they are not application developers, so they will not own the inventory on which these ads are served. And, even if it is the owners of the application stores that broker relationships and deals with the media buyers-directly or through agencies-they only have a stake if their own application stores prove more popular than those run by handset vendors and platform developers. And there is no evidence yet that this will be the case.

“The carriers’ place in the application-based mobile advertising value chain is by no means secure. after all, they are not application developers, so they will not own the inventory on which these ads are served”

Measuring up

Measurement, along with tracking and profiling, though, is one area in which the carriers are strongly positioned to take the lead, because of all the information they have on the user and the existing relationships they have with their customers. “Ultimately, if you’re really going to want to optimise this business, you’re going to want to have the information that sits within the carrier’s network that will help build value,” says Patrick Parodi.

He is not speaking from a neutral perspective, however. Amobee has received investment from both Telefónica and Vodafone and Parodi talks frankly about being on the operators’ side, against the likes of Google and Microsoft,” two companies that offer stiff competition to the carriers in the advertising space.

Telekom Austria’s Werner Reiter concedes that mobile operators cannot take their stake in the sector as a given. “This will be the most difficult part of the whole process,” he says.  “But it is possible to find a way, an answer that will see the operator owning the ad server and being the contact for the brands that want to advertise.”

Vodafone’s Jeremy Makin agrees, making reference to the new application development programme that Vodafone recently put in place. “I would say we see ourselves as an enabler,” he says. “And I think all developers would be prepared to share the revenues that they make from downloads of applications or the ads that run within them in order to compensate for the fact that we’ve built up this huge, global mass market platform for them.”

That platform, along with operators’ mobile advertising strategies across the board, has yet to fully prove itself. In-application advertising will form only one division of the mobile advertising offering and is clearly subject to the same constraints of measurement, format and standardisation that have acted on mobile advertising in other forms.

“I don’t accept the fact that the brand and advertiser market are completely sure what mobile is yet,” says the MMA’s Paul Berney. “The mobile industry still has a very educational role to play in helping people understand even the more basic forms of mobile advertising. I’d say that text marketing has nowhere near touched what it’s capable of doing yet-and if that still hasn’t reached its full potential, then everything else will have to follow behind.”

While everyone you speak to about mobile advertising is familiar with the Carling iPint, it’s interesting to note that none can think of another example of a hugely successful application-based advertising campaign.

This probably shows how difficult it is to create a successful campaign in any format. But it also points to the fact that, while 2009 may be the year of the application store, the app model is not about to storm the mobile advertising sector.