There were two big business news stories this week and they’re quite obviously related.
Firstly, Google’s UK ad revenue has exceeded the UK’s Channel Four (the second largest commercial TV station) and are poised to overtake the largest channel, ITN, within the foreseeable future. To put some figures on that, Channel Four is £800m ($1.5 billion), Google £900m ($1.7 billion) and ITN £1.3 billion ($2.5 billion). I don’t think even the web’s wildest supporters could have called than one 5 years ago.
The other important story is the launch of a European MVNO with the idea (you’ve guessed it) of offering an advertising supported service with free voice and texting. And this already has the backing of a number of investors and is founded and run by none other than Pekka Ala-Pietila, whose claim to fame is being the ex-President of Nokia, no less. So, we have to take this seriously.
I think it’s becoming pretty clear that we’re in a bubble - maybe not as big as 1999/2000, but a bubble nonetheless. And during a bubble some crazy ideas get funded, like giving everyone free PCs (in return for watching advertising). Selling PCs below cost (and making the difference up with advertising). Or launching a free-to-use search engine, with no obvious business plan - and as Google has proved above, there’s nothing intrinsically wrong with the model, providing you get your maths right.
Moving on to the maths, I’d love to be able to discuss what their model actually is, but Mr Ala-Pietila isn’t exactly known for being garrulous. Loose lips sink ships, after all. So other than saying that he’s launching in 2007 in the UK and selected other markets, he’s not giving much away on this one.
Because, of course, the $64,000 question (or could be a $64 billion dollar question in this case) is how many free calls and texts does a customer get in relation to how much advertising they need to receive. And frankly, I’d be pretty cagey about this equation too if I was in Mr Ala-Pietila’s shoes, frustrating though it is to us who want to get to the bottom of it. If it seems reasonable, he’ll get a whole bunch of competitors coming in. If unreasonable, journalists, analysts and bloggers will undermine his pitch to agencies and of course, to consumers when it’s finally launched. A new network needs consumer confidence as much as any other fledgling business.
But could such an idea work? After all if you restrict too severely how many free calls or texts you allow, you also risk severely limiting appeal and uptake. On the other hand, if you expect a user to sit through hours of advertising every day, no matter how well targeted, it’s not going to work either - apart from for those people who are so desperate and hard up for cash, that they’re simply not attractive to advertisers in the first place.
Hmmm. A hard balance to achieve.
But let’s look at a scenario. In the UK, ARPU (Average Revenue Per User) is about £40 ($76) a month on the 3 network. I chose 3 because although they have the highest ARPU, Blyk has to be targeting the similar youth market, many of whom ended up with 3 as they were attracted by the bargain voice packages. If Blyk is to be successful, they probably have 3 squarely in their sights, as if a customer was attracted by “cheap”, they’ll certainly be tempted by “free”.
So could a MVNO give $76 of calls and texts away in return for showing ads?
Well, mobile CPM (Cost per Thousand impressions) is all over the place right now, with many charging what they think they could get away with. But if we take $50 CPM (certainly at the top end of the scale) to run banner ads, you’d have to show each user 1,520 ads a month or 50 ads a day to be recoup these costs. Take a more relatistic (if still high in comparison to the web) of $10, this adds up to a whopping 500 a day. Probably more than will be acceptable to the average punter.
Taking the same kind of economics, if Blyk offer a more reasonable £20 ($38) package (which instinctively seems to me to the the minimum amount for credibility), they’d need to be showing 25 - 250 - the lower end of the scale might be just about acceptable, but that’s based on very high ad rates.
But then, it’s also not clear how these ads are sent. There’s clearly a vast difference, between the intrusivess of an SMS or MMS arriving on your phone, to banner ads appearing occasionally on your handset. I could certainly live with 25 banners a day, but that kind of volume would be plain annoying if your phone beeped 25 times a day with a new commercial message.
It could also be that Bleek are going to try a totally new delivery system, which they might think they could charge a premium for. But my 25 messages a day scenario is already charging a hefty premium, so I’m not necessarily convinced that’s realistic.
My conclusion would be that it’s possible to offer this kind of service, but it’s going to be hard to get the balance right between what you’re expecting the consumer to do in return for what they get.
A bigger challenge to them though, will be to get advertisers to take them seriously until they have a critical mass of customers. After all, most big advertisers want to hit millions of users, not just a few thousand - in fact, even a few hundred thousand would struggle to get attention. This problem will be compounded if they need to produce new advertising material (which sounds like what Bleek is planning) as opposed to just repurposing existing stock. I’ve been in this trap of a business model before at ZagMe, where you have to fight on two fronts; to acquire users and advertisers. And I can tell you, it’s very tough indeed. email me for my free White Paper if you’re interested in more detail.
So, I wish the people at Blyk the best of luck. But I fear this is going to be a hard business to get going as both an advertiser proposition and a consumer one. That said, you don’t get to be a Nokia President without an awful lot of ability and I’m sure that Mr Ala-Pietila has a few surprises for us when he decides to reveal more.
I too am very skeptical about this model.
A free mobile plan may not attract the kind of customers that most advertisers want to reach, unless it can match the other operators feature for feature. Most likely Blyk will be an absolute bare-bones service that will only be of interest to people who are tight with their money, and so advertisers won’t be interested.
(For web applications, the economics are very different. The cost of servicing each new customer is so low that it’s easy to sustain a free model, *if* you can build a big enough audience in the first place.)
But to be fair to Blyk, their revenues don’t have to match 3’s in order for them to be successful. Their revenues just have to exceed their costs. And their costs could be as low as the most efficient operator in the marketplace, or lower. Any idea what that number is?
Very interesting and convincing article noticing you are within your profession !
Olli
Google *IS* evil.
They are the new Microsoft but far more dangerous and ubiquitous. Their own stated goal is to organise (and manage and control) all the world’s information and services. Where does that leave opporunties for other small local and mid-sized business around the globe.
Their slogan “do no evil” is a farce……like with all power, comes greed, corruption and control.
I looked at the Blyk story too. And I looked at the maths and believed it to be untenable. It’s not just the volumes of ads, but the kinds of people who will be tuning them out. If you’re so bothered about free calls/texts, you’ll ‘appear’ to consume as many of the ads as you need to in order to get your freebies. But that might mean just keeping your phone on a certain wap page or similar. And you soon learn to tune them out.
Of course, they could be trying the spotcast model again where your calls are interrupted with adverts. And if it didn’t work last time, I can’t imagine it working this time either.
So yes, maybe we *are* in a bubble. I just hope that more sensible investments are made with better management, business models and implementation so that we don’t end up crashing by 2008.
Jason - they are an MVNO - they can’t be cheaper than the most efficient network because they are hosted.
I can’t wait to see how this one pans out, but Gizmondo tried having ad funded games consoles (delivered via mobile on a hosted mobile network basis, and this sounds like the same thing.
I think you have underestimated the value of mobile advertising. Users are unlikely click though an advert and read a corporate website, or start shopping on thier mobile. But if they receive an ad for the ‘Next Sale’ complete with directions to the nearest Next store, sent to them when entering a town centre, then that will be a lot more effective than 100s of banners on websites
The key to mobile advertising is location.
Brian - I don’t think anyone here underestimates it - but an advertiser will be offered a choice of placing adverts with Blyk, a network which has a small base of customers who probably don’t have any money anyway, or spending probably less CPM and using existing methods to every other mobile network customer.
Location will effectively double the cost of the adverts to the advertiser. My experience is that they won’t pay that.
Brian - to paraphrase John, I think you underestimate how much experience I actually have in this area. Not only have I run over 1500 location based mobile campaigns back in 2000/1 and wrote a widely circulated and respected White Paper on this area (email me for a free copy). But I’m deeply involved in mobile advertising in my day job for AdMob.
I have also consistently carried the torch for location based services, during the last 6 years when many players in the value chain have questioned it or written it off altogether.
So I can tell you quite definitively that, broadly speaking, far, far more people respond to non-location mobile marketing than location based messages.
Location does have a place in mobile marketing, but it’s very very far from being “key” as you suggest. If you want me to actually put a figure on it, I’ll go out on a limb and say that it’ll pan out that less than 5% of messages will eventually have a location element.
Russell
John,
I am aware of the fact that Blyk is an MVNO. It is still possible for them to have a lower cost base than the carrier that they rent from. Correct me if I’m wrong, but Virgin charged less than T-Mobile in the UK and still made more money per user, despite renting T-Mobile’s network.
This is because the costs that matter are the cost of acquiring a customer and the cost of customer support. The actual cost of renting the network is small compared to these.
Blyk should be able to achieve the lowest cost of acquisition in the industry, because a lot of people will flock to a service that is free. And since the overwhelming majority of customer support calls that a carrier fields are related to billing, zero billing means near-zero customer support.
I am still a skeptic, though.
Jason
My question is: will they run the same model for mobile advertising? I don’t know, correct me if I’m wrong, and I might be, since I’m talking from Brazil - where we’re somewhat lagging behind on many mobile market areas, mobile advertising definitely one of them - but couldn’t they use the screensaver idle time?
“But if we take $50 CPM (certainly at the top end of the scale) to run banner ads, you’d have to show each user 1,520 ads a month or 50 ads a day to be recoup these costs. Take a more relatistic (if still high in comparison to the web) of $10, this adds up to a whopping 500 a day.”
$50 CPM => 50/day
$10 CPM => 250/day not 500/day.
I think 250/day is still excessive, but then again, you based the analysis on the highest ARPU in the UK industry, perhaps Blyk’s aspirations aren’t so lofty.