Mobile Advertising’s Contribution to ARPU

One of the wilder claims made for mobile advertising is that it’ll help operators to get back to levels of ARPU (Average Revenue Per User, if you’re not from around these parts) that they used to enjoy historically. ARPU has been in decline for some years, mainly, but not entirely, due to falling voice tariffs.

This sounds a pretty compelling argument for a few seconds, until you actually consider the numbers and I was reminded of these in an interview with Chris Barraclough of STL Partners, over at MobiAdNetwork.

The rough figures are that the telecoms market (fixed and mobile) as a whole is worth $2,000 billion. Total global advertising spend is $500 billion. And digital advertising (including mobile) is worth about $40 billion – the mobile element of this would be pretty small, as it’s still pretty new, even if it is growing like Topsy. But to keep the figures easy, let’s say it’s currently $5 billion from mobile.

Doing the maths for you, this means that if all advertising spend miraculously migrated to mobile overnight, it would still only contribute to 25% of telecom revenues. And if 100% of current mobile advertising revenues went to operators (don’t forget that large slices of revenues go to mobile publishers and a significant slug goes off-portal), it would still only contribute to 0.25% of their total turnover.

Looking at this from the glass-half-full perspective though, billion dollar revenues in any industry certainly can’t be sniffed at and it’s hardly surprising that most operators are examining this sector with real interest. But it’s unlikely that advertising is going to save the traditional operator business model as we know it today, along with the healthy margins beloved by investors.

Of course, that doesn’t mean to say that a Skype-esque disruptive model couldn’t be developed by someone with a lower cost base, which accepted lower margins and where advertising revenues make a significant contribution. But it’s not going to be easy.

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