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Playout Intelligence

Why Mobile Advertisement Itself Doesn’t Make Sense For Carriers

Average ad revenue in the US per subscriber per year will be…. tada: $4.86. And that’s in 2013. So even if Carriers would get 100% of this – which they won’t – 40 cents per month additional revenue is not really the biggest opportunity. But there’s more to the game.

The latest research for 2013 suggests about $1,500M in U.S. mobile ad revenue:

U.S. mobile users (million) 308.7 eMarketer
U.S. mobile ad revenues (millions) $ 1,500.00 Parks Associates
U.S. mobile local ad revenues (millions) $ 800.00 BIA/Kelsey Group

A simple average might not show the whole picture, so here are some ideas – of course based on the absurd idea that mobile carriers would get 100% of this mobile advertisement revenue:

per year per month
Average ad revenue per user $ 4.86 $ 0.40
If top 20% account for 80% of revenues $ 19.44 $ 1.62
if top 40% account for 80% of revenues $ 9.72 $ 0.81

So even if the top four carriers in the U.S. could realize these revenues right now, their revenue potential would look bleak compared to the current wins in App Stores, Machine-to-Machine (M2M), and voice and email services:

Verizon
Wireless		 AT&T
Mobility		 Sprint
Nextel		 T-Mobile
U.S.
89.7 79.6 48.8 33.5 Number of subscribers (millions)
$ 58,600.00 $ 42,700.00 $ 35,640.00 $ 17,000.00 Revenues 2008 (millions)
$ 653.29 $ 536.43 $ 730.33 $ 507.46 average revenue per subscriber per year
$ 36.32 $ 32.23 $ 19.76 $ 13.56 Revenue increase through mobile ads (millions)
0.06% 0.08% 0.06% 0.08% revenue increase through mobile ads (%)

I’m not saying that mobile advertisement per se is not a big opportunity for other players, as current application platforms level the playing field for smaller players such as myself. I also wouldn’t mind getting 0.1% of this revenue with a simple ad-sponsored application in addition to other business models. I also think that there are a lot of cool applications out there that I really like and would like to see growing. But for carriers simply selling one $0.99 application through existing application stores per month just to power users would outdo these numbers by far – and not only in 2013, but right now.

The bigger opportunity is of course the ecosystem around advertisement revenues, such as targeted advertisement platforms, peering (anonymized) information to data miners, adding converged solutions for other carrier channels that are more profitable, or managing spending behavior of subscribers (earn on the product advertised, not the advertisement). That again requires complex new platforms, billing and charging mechanisms, and has to satisfy regulatory and legal authorities. As these are still missing – or delayed in favor of other more revenue driving services – carriers have little incentive to invest into “innovative” fads.

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  • Jennifer Van Grove published a nice article on Foursquare vs. Twitter Local Advertisement (thanks!). She validates the point about smaller players and the "goldmine" of (local) mobile advertisement:
    As a San Diego resident and frequent Foursquare user, I believe that local businesses have an unbelievable opportunity to leverage the advertising program to connect with customers ready to buy. There’s a very dedicated core group of users ready and willing to make our check-ins count for something, and the best part is we’re also an active social bunch, so you could find your coffee shop, bar, hotel, or clothing store the talk of the town both on Foursquare and Twitter. Now that’s smart business.
  • Just a quick note: During the CTIA I got some new thoughts on the $4.86 per year:

    1/ The numbers for "mobile advertisment" I heard at the CTIA varied from $600M in 2012 to over $8 billion in 2013. Quite a range, so my research might be wide off.

    2/ $4.86 could be a lot more if the market is saturated - if (localized) ads at this point don't increase the churn rate.

    3/ $4.86 per year is a lot if the average subscriber revenue per year is $0. Point is: if a non mobile operator is looking for a business model for providing a mobile phone that is purely supported through "add-on" services, this might be one of them. Google could come out with a Google phone (as rumors have it) and have it "subsidized" through WiFi sharing, music, news, eReader, collaboration, cloud storage and backup, and advertisement... Advertising revenues made up 97% of Google revenues for the six months ended June 30, 2009 - about $11b, 53% of that comes from outside the US. If you believe http://www.alexa.com/siteinfo/google.com statistics, about 35% of all global Internet users visited Google last month, at about 9 pageviews per user per day, and about 141M US users visited Google last month (if you believe the estimates of http://www.quantcast.com/google.com). In effect, we're looking at an monthly US ARPU of $6.19 - without any one of us paying for it (other than through the costs of our goods that require Google advertisement to sell... nothing's for free). The resulting annual US ARPU at Google is about $74. we're getting there, with all the book stores and music stores announced...
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