Now Playing On Your Cell Phone

Source: Business Week

Advertisers are jumping on the mobile marketing bandwagon. Will subscribers join them?

Discovery Channel's I Shouldn't Be Alive profiles people who have survived some pretty unusual (and life-threatening) ordeals, from shipwrecks to snowstorms. It's also relying on an unconventional way to hype the show: cell-phone marketing.

On the eve of the second season's debut, Discovery Channel began offering prizes, free ringtones, and weekly trivia questions via short text messages(SMS) to subscribers of some of the country's biggest mobile-phone companies -- Cingular Wireless, Sprint Nextel (S), and T-Mobile.

So far, more than 15,000 people have signed up to receive SMS trivia and reminders to watch the show, and they are among its most loyal fans, says Julie Willis, senior vice-president for marketing at Discovery. "We are getting a lot bolder about mobile marketing," she says. "This is something everybody should be doing."

"THE MARKET HAS ARRIVED." Many companies are heeding the advice. For years, fans of American Idol have been able to vote for contestants using SMS over the network of AT&T Wireless, now part of Cingular Wireless. Last year 12% of major U.S. brands, including McDonald's (MCD), Coca-Cola (COKE), and American Express (AXP), spent dollars on mobile-phone marketing and advertising, says mobile marketing agency ipsh, whose 200 clients include Discovery Channel. The number may triple this year.

A trickle of mobile-marketing dollars may soon become a flood, transforming the way wireless-service providers and their vendors do business.

U.S. spending on marketing and advertising over wireless networks may surge to $602.3 million in 2009, from $104.4 million last year, according to consultancy visiongain. And that's one of the more conservative estimates. RBC Capital figures the market will reach $1.5 billion by 2010. ipsh generated as much revenue in the month of February as it did in half of 2005, ipsh CEO Nihal Mehta. "While [mobile marketing] used to be part of companies' online budget, now it's become a separate budget line," he says. "The market has arrived."

PAY PER VIEW. John Stratton, chief marketing officer at Verizon Wireless, the leading U.S. wireless service provider after Cingular, recently told advertising execs he believes mobile advertising will eventually grab 25% to 30% of the approximately $100 billion spent on branding in the U.S. each year. Considering that U.S. wireless operators generate about $100 billion in service revenue annually, the industry is eyeing one of its biggest revenue opportunities in decades.

And as the industry matures, growth will become harder to come by. Cell-phone companies are on the lookout for new ways to generate sales. According to a new KPMG global survey of 3,576 consumers, about 40% say they're unwilling to spend more on wireless services than they do now. "Only a small portion of subscribers will be willing to pay much more," says Marcia Kaplan, an analyst with visiongain.

Even as per-minute wireless call prices drop, the cost of mobile advertising is rising. Prices for an average mobile ad campaign have been going up by a factor of five annually, says ipsh's Mehta, whose first campaign, back in 2001, cost only $1,000. Advertisers can pay per every SMS viewed, or every ad clicked.

WANT ADS WITH THAT? Mobile ads are highly effective (see BW Online, 3/20/06, "Wiser About the Web"). Last summer, when ipsh incorporated a special SMS code into 50 million McDonald's Big Mac packages (burger fans could dial a special SMS code on their mobiles for a chance to win concert tickets), the fast-food chain attributed a 3% sales increase to the push, Mehta says.

As mobile advertising takes hold, business models will change. Most wireless-service-related sales still come from voice phone calls. But the fastest growth is in the area of nonvoice data, from SMS to video to Web access. Wireless data sales surged 85%, to $3.7 billion, in the first six months of 2005 from a year earlier, according to CTIA-The Wireless Assn.

By 2008, about 10% of all data revenue may come from marketing and advertising, Kaplan estimates. Xero Mobile, which plans to offer free wireless service and instead rely on ads, is expected to debut this year.

JEEP ON THE HORN. Another revenue opportunity lies in the software that makes mobile ads tick. On Mar. 20, VeriSign (VRSN) shelled out $250 million for m-Qube, a maker of software that enables mobile commerce as well as cell-phone marketing. "We've seen tremendous growth in that part of our business," says Jeff Glass, CEO of m-Qube.

It's not alone: Sales of Enpocket, whose data-mining software allows advertisers to more accurately target cell-phone users, have risen 100% in the past year, due to strong U.S. demand, says CEO Mike Baker. The company plans to increase its 75-employee-strong staff by 33% in 2006, he says.

Content providers are jumping on the mobile advertising bandwagon as well. MobiTV, which provides video clips to subscribers of Sprint, Cingular, and Alltel (AT), launched an advertising platform last November. The software inserts three minutes of ads into each hour of MobiTV programming. Click an ad for Jeep, and you can go to a whole video channel dedicated to fun movies related to that car.

GOOGLE JOINS IN. So far, advertisers like DaimlerChrysler's (DCX) Jeep brand and American Express "have been very pleased," says Phillip Alvelda, MobiTV chairman and CEO. "The advertising's growth is very fast, it's moving in the right direction." MobiTV shares its ad revenue with its carrier partners.

And a slew of startups are trying to get in on the act, aiming to replicate the success of Google's AdSense, but in the mobile space. AdMob, which debuted in January, lets advertisers bid for posting ads on specialized mobile sites, offering free games and ringtones. Google (GOOG) is ramping up Web-search capabilities that will soon be available on cell phones from the likes of Motorola (MOT) (see BW Online, 03/02/06, "Why Google Is Going Mobile").

But operators need to guard against bombarding subscribers with ad-spam. SMS and airtime cost users money, so advertisers today must require consumers to opt in to receive their marketing messages, according to just-released guidelines from the Mobile Marketing Assn.

THANKS, BUT NO THANKS. The trick is finding the right incentives. A Jupiter Research survey of 2,200 consumers in May showed that 20% say they might be induced to receive promotions if it comes with free airtime, ringtones, games, or a free new cell phone. Discovery Channel has a different approach. It sends users trivia questions related to coming episodes of I Shouldn't Be Alive.

But 80% of mobile users are adamant about not wanting any ads at all. And it's that majority that will determine whether mobile marketing really lives.
Kharif is a reporter for BusinessWeek Online in Portland, Ore