Has the mobile internet reached a tipping point?

Mobile phone companies acquire so much data on their consumers as a matter of routine business, that they make celebrity paparazzi seem lazy and unenthusiastic. Operators know your date of birth, age, gender, address and approximate income (from your handset and call spend).

They also know your route to work, how many times you go on holiday every year and where you choose to go, and even how often you order takeaway pizza. Short of having an agency's planning department follow consumers around, it's hard to see what more buyers need to target an ad effectively.

And yet, according to Mark Slade, managing director of 4th Screen Advertising, which brokers deals on O2 Active, Tesco and Virgin Mobile's platforms and thus handles almost half of all ads placed on mobile internet sites, the medium currently takes less than 1% of the marketing budget of the select group of brands that use it. And this despite the mobile internet's 7.7 million UK users, according to a February report from M:Metrics.

"It's hard to get a true size of the market," says Slade. "This is partly because it depends how you define the mobile internet. I've seen analysts quoting figures of £30m for 2007, and I'm very sceptical about that. I suspect they're including outbound SMS ads in that figure, which is a separate industry really - mobile marketing."

Nonetheless, he's excited. 4th Screen has been operating in the mobile arena for two years and for most of that time it has been handling ads from gaming, ringtone and wallpaper providers. In the past six months however, Slade has seen an explosion of significant advertising from major brands. "We're seeing exponential growth at the moment," he claims.

"We're working with automotive, film, financial services and alcohol clients, as well as brands such as Coca-Cola and McDonald's. [The mobile internet] is basically a medium that has just got started."

Marking time
Given that some form of mobile internet has been available since the late 1990s, and that mobile operators have been engaged in this vast default consumer research programme since the late 1980s, why has it taken so long to reach this tipping point?

Martin Scott, analyst at Analysys Research, explains: "Partly it's the technology, partly it's the lack of investment and partly it has been the lack of interest on the part of the mobile companies themselves.

"Historically, mobile operators' motivation to develop advertising revenue streams has been limited, as voice services proved the quickest return on their network investment. The growth in voice revenue is tailing off in developed markets and will tail off in developing markets: we predict voice revenue will grow 2.3% between now and 2012, so ad revenue is suddenly becoming very interesting to mobile operators."

Even so, some advertisers are wary, since the mobile internet has seen many false dawns. Lucy Amortegui, head of digital at Red Bee Media, which handles online content for Camelot, ESPN and Endemol, says: "We had plenty of clients looking to put out content and short clips on the mobile internet 12 months ago, but we found the infrastructure wasn't really there."

She adds: "The UK doesn't have Digital Video Broadcasting Handheld, the European standard format for mobile TV. It also has a confusing payment structure, changing from operator to operator, meaning that we have seen clients migrate to free internet sites such as YouTube and MySpace."

Geraldine Wilson is vice-president and general manager of Yahoo Connected Life Europe, the battering ram at the forefront of Yahoo's battle to become the mobile internet search engine of choice. So far, the search engine has won exclusivity deals on Hutchison's 3, O2 (except iPhones) and T-Mobile. Wilson understands why media buyers may be wary, but believes four key factors will make the difference this time.

"Operators are tackling the cost of going online," she explains. "They are offering one price to surf as much as you want. Secondly, speed has increased massively, so that mobile internet access will soon be faster than fixed-line. Thirdly, operators used to make it hard to roam the internet, preferring to keep customers within their "walled garden" portals, but now they are letting in search engines such as Yahoo. Finally, the iPhone has shown what's possible: iPhone users are 10 times more likely than other 3G users to use the internet - more than 80% of iPhone owners go online."

With the number of mobile broadband connections rising tenfold in the past year and social networks such as Facebook and MySpace launching mobile sites in the past six months, Wilson predicts that, in 10 years' time, more people will access the net from mobile than  from PCs, and he believes that advertisers should start incorporating mobile spend into their budgets. "Our research shows a 25% increase in brand awareness and a 12% uplift in propensity to purchase where clients have used mobile internet," she explains.

One problem for buyers has been the lack of a trading currency. Without a Barb, National Readership Survey or Rajar, it's hard to evaluate campaigns or establish a fair price. In February, at the Barcelona Mobile World Congress, Vodafone, O2, T-Mobile, Orange and 3 came together for an initiative backed by the GSM Association (the global trade body  for the mobile industry) to define a common mobile ad audience measurement system.

Henry Stevens, director of media and entertainment at the GSMA, explains: "The aim is to make it a  s easy for advertisers to run campaigns on mobiles as it is across other media, such as TV and press. By offering, in essence, a single media pack for mobile, the operators hope to earn revenue from potentially every brand on the planet.

"Each operator uses different systems for collecting data. Once we have coordinated the differences and established our auditing process, we will be able to offer census-level data where all other media offer data based on sampling or surveys."

He adds: "We will be able to announce a significant development later this month, and I hope we will have a transparent and useable currency within 12 months."

Patrick Parodi, head of European operations and chief marketing officer at Amobee Media Systems, says: "Broadcasters, publishers and content developers will enable an inventory that advertisers can buy. Everything is in one handset: video, music, games and messaging. This is the Holy Grail of mobile media."

He adds: "We have a mission to make the mobile media industry a trillion-dollar business. Right now, it is essentially a 100% "user pays" model. If it's going to be a major media channel, advertising has to play a fundamental part.

"Operators hold the keys to advertising. They know their users and their users know them. That's the nice thing about having the ad server within the network, because the user data stays inside the operator and both parties can easily communicate."

Privacy issues
Of course, there are concerns about privacy. Matthew Kirk, director of portals at Orange, explains: "There is something of a paradox about user attitudes towards advertising on the mobile internet.

"According to our research, more than 50% of people are happy to see more advertising on mobiles, while 75% said they've stopped using a page and clicked through on an ad. The problem is, the more targeted the ad, the more interested they are - up to a point. If you go too far and consumers believe you know too much about them, they become extremely uncomfortable. For now, we are erring on the side of caution."

One way around this, according to research by Analysys, is for advertisers to subsidise customers who agree to watch commercials as part of break bumpers or inserted into games. Unusually, most mobile gamers are female.

The company found that 15% of Facebook users - admittedly a technology-savvy audience - would be willing to receive ads in exchange for cheaper calls, 20% for cheaper video content and 35% for cheaper games.

In addition, 21% of the respondents were even happy to have ads sent to the "sleep" screen of an idle phone if it offered discounts on pizzas, or entry to product launch parties.

This model has been proven in the US, where the Sugar Mama programme, launched to pre-pay Virgin Mobile customers in July 2006, allowed subscribers to opt in to receive SMS ads or to view online ads in exchange for a minute of voice credit.

At the end of August 2007, Virgin Mobile had given away more than 10 million free minutes - the equivalent of more than 10 million 45-second ad impressions. However, similar programmes offered by rivals Mobile ESPN and Amp'd have closed down.

"The key to success is not for clients to say ‘let's do mobile'," argues Steven Hess, chief executive of Weapon 7, which began as a digital agency, but now offers pan-media campaigns for clients such as Mercedes Benz, the COI and the Total Jobs Group. "It's about thinking ‘what part can mobile play in our overall planning strategy?'"

Hess cites two recent campaigns, the first of which is the launch of the Mercedes C Class, where the online campaign encouraged people to click through for a personal test drive.

"The advantage mobile offered is that people could watch the video when and where they wanted, rather than on their work PC," he explains.

The second was for the nicotine replace-ment brand Niquitin CQ, which used digital TV to encourage those giving up smoking to opt in for a text message campaign. People already giving up received encouraging texts on Friday evening, while those wanting to quit had similar messages on Monday morning.

"We received replies that showed people treated these messages as if they were a personal life coach," testifies Hess.

For 4th Screen's Slade, these are welcome but rare case studies. "Brands and operators are all experimenting with the mobile internet, but few will release the results," he complains. "We've been doing a lot of work with the games giant Electronic Arts, working out how to optimise campaigns' cost effectiveness.

"It's going to take others joining in and taking part transparently to really kick the mobile internet medium off. But if they do, then the sky's the limit."