On 1st December 2010 US ad network Millennial Media officially announced its expansion into Europe, entering into a fairly crowded mobile ad network space, which also includes Google (which acquired AdMob in 2010), Apple, Smaato, Yahoo, Microsoft, 4th Screen Advertising, Unanimis, Yoc, Sofialys, and DaDa among others. Strategy Analytics was invited to its launch presentation to hear more about its plans and ambitions. Globally, the Millennial Media mobile ad network is currently delivering 16 billion page impressions monthly, with Europe generating 2 billion (just 12.5%) of that. With Ofcom today indicating that 26%, 21% and 18% of cellular users in Italy, Spain and the UK respectively owns a smartphone, there is clearly still potential for growth in Europe, as more mobile phone owners substitute feature phones and expensive pay as you use data tariffs with smartphones tied to generous data plans. Indeed, Strategy Analytics also believes there is growth opportunity in Europe, and predicts strong growth in mobile display advertising with advertiser expenditure rising ten fold $600 million in 2010 to $6 billion 2015, as more users drive mobile web page impressions. So where does Millennial Media believe it will fit in to the existing mobile advertising market place? Well, it’s aiming to find the middle ground between premium ad networks like 4th Screen Advertising, and Orange owned Unanimis, which aim to maximise inventory return for premium publishers to get high CPMs, and blind ad networks aimed at filling large volumes of unsold inventory where its all about low CPMs and volumes (see figure above). Millennial Media does not intend to compete with the higher value mobile marketing campaigns from Blyk, Hipcricket or mobile operators like O2 Media. Personally, I’m a bit sceptical this gap really exists. So ultimately I do expect Millennial to fall into the blind ad network bucket over time. On the other hand in these tough economic times brand advertisers are increasingly looking for metrics to prove advertising ROI, in which case Millennial Media will be well positioned to grow. Either way, validating Millennial Media’s claim is something we hope to do as we continue to conduct more research into this area. Nitesh Patel

Words like ‘experimental,’ and ‘niche,’ are often used to describe the status of advertising on mobile phones. However, on 14th October 2010 Google announced that its mobile advertising business is currently operating at a $1 billion annual run rate, which I believe represents a significant milestone and proof point that advertisers are beginning to take mobile advertising much more seriously. Strategy Analytics estimates that globally advertiser spending on mobile will reach over $6.9 billion in 2010, which we estimate would give Google a 15% share of the total mobile advertising market. This compares to Google’s 35% share of the total digital advertising market. We are not surprised that Google’s share in mobile advertising is lower than its total digital share given that mobile advertising is more fragmented than the online advertising market. Our advertising estimates are built on assumptions about growing mobile media usage and the average price that advertisers pay media owners to display their adverts within their properties. Indeed, Google has confirmed this growth in usage is fuelling the rise in its mobile advertising revenue - the company claims that search queries conducted by mobile handsets has increased by 500% over the past two years, with search queries from Android devices playing a role in that growth. Search requests from Android phones increased 300% in 1H 2010. This evidence of improving usage will also have a positive impact on advertisers’ attitude towards allocating their budgets to mobile, with companies like Google, Apple, Microsoft, AOL, and Millenial Media positioned to benefit from this shifting sentiment. Although Apple is a one platform pony in the handset market it has shown how successful it can be at exploiting its niche. In June 2010 at its WWDC Apple stated that advertisers had already committed $60 million to its iAd platform. As online advertising networks Microsoft and Yahoo also continue to ramp up activity in mobile advertising, the next big question is – who will follow Google to be the next $1 billion mobile advertising company? Nitesh Patel

Dennis Crowley – Founder of Foursquare - may be right. Facebook Places is indeed boring. However, anyone – Crowley included -that thinks Facebook Places in its current iteration is the final step for Facebook into the location based social networking space is kidding themselves. Facebook Places will have long term ramifications on the location based social networking space in due time but for now there are more questions than answers:

· Will users be able to check in their friends on third party sites even if they are not members of that service?

· Fragmentation of various services still exist making checking in to Brightkite, Foursquare, Gowalla, and others time consuming. FB may allow for dual service check-in (ie. Foursquare and FB or Gowalla and FB but not all three).

· Will FB users find enough usefulness in third party networks to utilize them or will their growth be stunted?

The question about competition comes down to Facebook’s ambitions which is a desire to drive revenue through the creation of a comprehensive ad network. Places will allow FB to acquire more information on users, increase the frequency of user interaction with Facebook, and better understand the nature of relationships between individual users. This type of data is important and integral to advertising not only via mobile but also on the web. If Facebook knows who a user spends time with it creates compelling new advertising opportunities. Let alone knowing where people go. How frequently they are there. The intelligence and effectiveness of Facebook’s advertising platform could come to rival and quickly exceed that of Google.

Partnering with others gives FB a way to appease the market in the short term by not appearing anti-competitive but Places will thwart competitor’s long term growth. Even if it helps them in the short term by bringing awareness to the services. But think about this – if just 1% of Facebook users regularly uses Places – Facebook will have more than 5M users – double that of Foursquare. And 1% of users would be a failure by Facebook’s standards.

For now, competition can continue to abound as competitors will have the opportunity to differentiate. Foursquare can continue to offer mayorships and enticements. Gowalla can offer trips, pins, and other prizes. But in the long term - competitive services - will have to move well beyond the check-in in order to grow beyond their current user base. Booyah’s MyTown is an excellent example of how to accomplish this – by turning location – into a game.

The immediate effect will be on weaker competitors who don’t have the resources or the buzz to convince new users to sign up. Some of these services will likely wither away before the end of 2010 as others see growth stunted and plan exit strategies for 2011. A select few may continue to press on, but Facebook will be the biggest game in town by then. And with scale comes sponsors, advertisers, new business models, etc.

Competitors aren’t the only long term losers either as carriers – hoping smaller third party services – would emerge as a viable new revenue stream from local advertising may miss the boat as subscribers instead opt for Facebook’s service which is unlikely to share revenue with carrier partners.

Is there any benefit for Vodafone making its LBS software open source? I’m sure developers will love to get their hands on this code and use it to develop appealing location enhanced applications. But other than attracting developers to write compelling location services that can be distributed through Vodafone’s 360 application store, the move surely falls short of Vodafone’s initial intentions after gobbling up Wayfinder in December 2008 for $29 million. Up until this point, Vodafone had been the only carrier to have acquired a location based service application developer in an attempt to move into other parts of the LBS value-chain beyond providing user location and managing subscriber privacy. Vodafone decided to close down Wayfinder in March 2010, after Google and then Nokia launched free mobile navigation in December 2009 and February 2010 respectively, eroding Vodafone’s prospects of charging a premium for Vodafone Navigator, its turn-by-turn location application. Prior to this open source announcement, it seems likely that Vodafone would have attempted to sell the unit. However, given the shift to a free business model for navigation, I strongly suspect that interest would have been very low. Although maps will continue to work on Vodafone 360 Samsung H1 and M1 devices, its branded search application, Vodafone Locate, will be discontinued. Vodafone Locate is no longer available in the iTunes App Store or the 360 Apps Shop, nor has it been embedded in devices since Vodafone announced the intended closure of Wayfinder. Vodafone Navigation is also being phased out, with a final decision on when and how to be made. Vodafone Navigation is no longer available in the 360 Apps Shop, nor has it been embedded on any devices since Vodafone announced the intended closure of Wayfinder. Vodafone will now offer navigation through a partner, a more profitable approach to running their own navigation service, as highlighted in our report ‘Nokia & Google Shake Up $3.8 B Handset Navigation Market.’ This withdrawal by Vodaofne underlines the broader challenge that operators face in competing on services with internet giants like Google, whose business model is based on advertising and handset vendors, like Nokia, Apple and RIM that recognise the importance of delivering well integrated services in order to drive further growth in handset market share. Nitesh Patel

The great thing about sitting on an industry award judging panel is that now and again entrants provide data points or insights that we as analysts can use as assumptions or estimates. In this instance I was honoured to be sitting on the MEFFY judging panel for Technology Innovation, an award that was presented at the Meffys Gala Awards Ceremony on 21st June 2010. One entrant, a mobile ad company which shall not be named, provided stats about its interactive mobile video adverts, which made for interesting reading. Interactive video delivers the advert in a software player that can be customised and made interactive by the advertiser by adding menu options and links to websites or advertising micro portals. Client: Vehicle manufacturer Cost of campaign: €37,606 Number of impressions: 3,497,920 Click on the video: 55,735 (CTR 1.6%) Number of video advert views: 47,525 (eCPM €791) The first thing to note is that the effective CPM for interactive video, which is over €791 in this case, has some way to fall before we begin to see its widespread use and adoption by media brands. Our average CPM estimate for a mobile video ad (which is generated following discussions with mobile advertising companies) is around $7, significantly below the €791 premium for interactive video adverts. The second interesting point is that 15% of consumers that clicked to play the video advert did not watch it. We can speculate why these might be, (see below) but most of the likely problems could likely be solved if the advertising network worked alongside the operator for better device, network and user targeting: 1) The devices/lack of targeting: i.e. they didn't target the ad at people with video-capable devices, or they didn't create the video in all formats so it wouldn't play on some devices. Can operators can provide more detailed information about target handsets and restrict this failure rate? 2) The network: Failed download due to limited bandwidth or connectivity. Operators should be able to provide information to the service provider to adapt their video rate to the current capability of the network. 3) Users not on data plans: An operator could prevent the user running away screaming by zero-rating. While there is much innovation for advertising outside the carrier ecosystem, in my view operators can indeed play an important role in smoothing over any cracks and help enable a potentially lucrative mobile advertising industry for all parties. Nitesh Patel

The industry has long talked about operators evolving into smart pipes by exposing a variety of network based assets for developers to use in their services and applications. The pressure on carriers to do so is certainly mounting. Smartphone sales are blazing and the market for mobile phone applications and browsing is going gangbusters, yet other than revenue from selling data operators are not seeing a lot of the action, particularly as app sale growth is happening through OEM stores rather than carrier portals. Take Telecom Italia just as one example:

• For the first three months of 2009 it reported a 27% drop in content revenue over the same period the previous year from €343m to €250m. This compares to 13% growth in browsing revenue from €469m to €530m.

Therefore increasingly, operators are considering how they can enter the value-chain of applications and services delivered over the top of their networks by exposing network capabilities such as their charging platforms, user location, presence, and user profile information to developers via APIs. There certainly seems to be demand for it if the Mobile Entertainment Forum’s Smart Enablers web seminars have been anything to go by. During these presentations the BBC and Yellow Pages, among other content providers, clearly stated that they hope in future to be able to access carrier information such as network latency for video streaming and user location data.

The stumbling block remains how operators commercialize these assets in a way to make it worth their while, while not employing a model that discourages the developer community. Alcatel-Lucent (ALU), a company that usually sells equipment, has come up with what it believes is a solution. Its Open API service, which will be discussed in more detail in an up coming Insight titled, Commercial Model A Stumbling Block To Alcatel-Lucent's Open API Service, proposes a revenue share model to compensate operators for sharing network based data with developers.

ALU proposes developers take between 60%-75% of application revenue, operators between 7%-10%, 3% to ALU to cover costs and the remainder to any third-party API providers such as advertising networks.

ALU claims to have already signed up some operators to Open API, but my initial thought is that at 7%-10% carrier revenue share represents a significant discount on the 30-70% operators currently receive from billing. Although I believe this type of revenue sharing agreement and API aggregation model is the way forward, the big questions are whether operators see it that way, and importantly, whether or not they are prepared to lower their lucrative 30-70% revenue share?

Nitesh Patel

Forecasting can be a tricky business. Every so often, a truly paradigm shifting event occurs that requires a wholesale re-think of how emerging markets will develop. Such is the case with Facebook Zero – a stripped down version (no pictures, videos, etc.) of the social network offered to non-data subscribers in emerging markets for free at 0.facebook.com.

It has been reported, and our newly updated draft social networking forecast (to be published in July) confirms that about half of all page views on the mobile web are social networking related. Facebook Zero should tip the balance further in favor of social networking in emerging markets.

The impact of the 50 carrier, globally supported Facebook Zero will be huge for users, carriers, and competitors.

1. Locking users in. Using its size, Facebook has been able to negotiate deals with carriers that other social networks or start-ups will not be able to rival. As individuals, their friends, and their families sign up for the free service the network effect will take hold and position Facebook as the de facto social network.

2. Reach. According to Strategy Analytics’ Global Smartphone Sales Forecast by Country: Asia Pacific & Emerging Markets and the Worldwide Cellular User Forecasts, 2010-2015, the number of mobile users in India in 2009 was 389.9m with just under 6 million smartphone owners or 1.5% of the mobile population using a smartphone. While not all these non-smartphones millions more users will have access to Facebook now than in the past expanding Facebook’s reach exponentially. And India is just one of the dozens of countries being deployed to (see chart below for the rest).

3. Advertising. A key revenue driver will be advertising. Facebook will have a sticky user that relies exclusively on its service to share personal information and location data which is necessary for targeted advertising to hundreds of millions of users in emerging markets. However, if carriers are not sharing in the revenue opportunity they risk missing out on the more than $7b in browsing revenue associated with social networking in 2010, according to the Global Mobile Social Networking Forecast 2006-2013.

4. Data Upgrades. While many users in emerging regions may not be prepared to sign up for data services yet, enticing users by showing what the mobile web offers with a stripped down version of Facebook could be a sufficient appetizer to winning their business in the future.

5. Boxes out competitors. The very hot mobile social networking space, which we have analyzed Here, Here, and Here will be owned by Facebook in emerging markets if Facebook can effectively roll out its geo-location it has touted. Facebook has just went from the 800lb gorilla in mature markets to the 2 ton gorilla

The service is also important for Facebook which has recently been banned in Pakistan and faces competition from feature phone staple – text messaging which serves as a crude social network in some emerging regions. What this means for partners – be it carriers, content owners, advertising networks, or others – is that Facebook is the partner companies will need to work with to immediately reach into emerging markets.

It finally happened. After watching the press go agog over the millions of users and millions more check-ins through popular start-ups Foursquare, Gowalla, Gypsii, Brightkite, and others, a heavy hitter is getting into the game with their own local service.

Facebook - once a rumored paramour of Foursquare - the popular social network will in fact launch its own service. How it will work is still shrouded in mystery but its decision will have wide ranging ramifications for all start-ups in this space while ushering in the notion of mobile social networks to millions of more users.

Why is Facebook a threat?
400 million active users
500 billion minutes per month spent on Facebook
100 million active mobile users - nearly 100x more than Foursquare

Some companies may be safe while others are immediately put at risk:

Independent Mobile Social Networks. Companies like Foursquare, Gowalla, Brightkite, and others without any white label solution are in the most immediate risk. Current users are not likely to abandon their services of choice but winning over new users will become a challenge. Will Facebook users really want to create an entirely new social network? Probably not. The result will be slower growth and less hype. The result is a loss of mindshare and the innovative partnerships that come with it.

 

White label solutions. White label solutions are probably still safe since Facebook is unlikely to share revenues with carriers who want to collect a percentage of local mobile advertising dollars generated from mobile social networks. Therefore, companies such as Gypsii, who have partnered with China Unicom and Telefonica in Latin America are safe - for now. However, if users opt to not use these services instead choosing Facebook even this more sound business model will be at risk. And with Facebook working with 200 carrier partners globally this could be a very real scenario.

 

Games. Booyah's MyTown has grown to more than 2M users since December with a majority of users logging more than an hour of gameplay per day. The Monopoly-esque location based game is unlikely to be impacted by Facebook's decision and may be the forbearer of the next generation of location based social networks to crop up after the check-in phenomenon.

 

It would be irresponsible to say that Facebook's location play will quickly kill the location based market. However, Facebook cannot be ignored. The big mobile social networks may now have to start thinking about a short term exit strategy. Despite fears, Facebook can trip along the way giving hope to today’s players:

1. Implementation. Google Latitude has failed to catch fire and arguably Google has many more users than Facebook - so a failure to properly implement could de-rail the service.
2. Interaction with the rest of the service. Users are already frustrated with all the changes Facebook has made - will adding check-ins - to an already crowded news feed infuriate them further?
3. Partnerships. Facebook will need to create compelling partnerships with small business to large brands in order to build a buzz around the new product and get users excited about using it.
4. Privacy. Facebook will have to tread lightly around privacy concerns in regards to sharing location information. A failure to protect users will result in the mass market being turned off.

In the end however, Facebook's decision to launch a location product may be bad for competitors (despite what I’m sure are pending quips that a rising tide raises all ships) but it is good for mobile social networking, good for small business hoping to partner with a more powerful local advertiser, and good for carriers hoping to educate users on mobile social networking.

Today is the start of March Madness – the US tournament that will crown the college basketball champion. March Madness was also the underlying theme of my most recent report, March Gladness – which looks at how print media can leverage lessons from sports to succeed in the world of mobile media.

But there is also an important lesson for multimedia content owners; despite what you think consumers will in fact pay for content.

As of this morning the iPhone application, CBS Sports NCAA Madness on Demand, selling for $9.99 was number nine on the top ten paid apps list (and expected to rise) and the current highest grossing application. The popularity of the app demonstrates the willingness of sports fans to pay for ubiquitous access to events – even if it is otherwise available for free via broadcast or online. And we are simply at the tip of the proverbial iceberg – World Cup, the Masters – each of these events have already or are planning to drive users to pay for content on their mobile devices – a phenomenon not easily replicated online.

And it is a smart decision for a number of reasons:

1. Conditioning. By educating users that everything online would be ad-supported, content owners found it difficult if not impossible to then charge for content that had so long been provided gratis. While some sports such as Major League Baseball have successfully avoided this, others such as the NCAA have not.

2. Avoiding cannibalization. By not relying on advertising dollars, content owners can better protect existing revenue be it broadcast or online without risking advertisers simply shifting money from one medium to another without growing the total pie.

3. Value. By offering lite versions of applications, content owners are still putting information into the hands of consumers but are maintaining that live content has additional value and thus should be paid for.

Now, NCAA online once had a paid online service when it launched in 2003 which eventually evolved into the free service available today. So, could a similar trend be seen for mobile? It’s unlikely on a large scale. Charging for mobile content is becoming accepted (despite grumbles from users who expect everything to be free) and companies will learn the lessons of the internet by avoiding devaluing their content by giving it away. Paid content may not be for everyone but there are millions of users who will pay for a la carte content that appeals to them and when taken in aggregate could result in hundreds of millions of dollars in consumer spend within the next few years.

Mobile social networks: Loyalty, Publishing, and Revenue: Oh My! You may think that because we have ushered in the digital age there will be fundamental shifts in human behavior. You’d be wrong. Services such as Gowalla, Foursquare, Loopt, and even Yelp are finally at the tipping point of success because they tap into latent human desire. And then make acting on those desires simple. Much like the loyalty programs that offered a tenth sandwich after getting nine purchases punched on a card new social networks are offering benefits for loyalty firmly merging the physical and digital world. The aforementioned services are mobile social networks – allowing users to check-in to locations, earn badges for visiting pre-determined locales, and net loyalty rewards (such as free drinks) for particular achievements. The availability of smartphones and the opening up of mapping API’s will help these solutions succeed where other have failed. For greater insight see David MacQueen’s Insight Nokia Strides Forward in Online Location and Navigation. The most amazing part of these networks is the willingness of brick and mortar companies to participate. Becoming a Mayor (by visiting a place the most) on Foursquare and earning a free burger can only be achieved if the establishment opts in. And they are opting in. But free fare is just the beginning. In the last few weeks Foursquare has partnered with the American television network Bravo – allowing Blackberry users to earn special Bravo badges when they visit pre-determined locations, which one can assume will complement Bravo’s programming. Another Foursquare partnership with Canada’s Metro newspaper will provide location aware content from the newspaper’s nightlife section and eventually other sections as well. Finally, Foursquare most recently partnered with Zagat, allowing users to earn special Foodie badges at Zagat rated restaurants as well as offering restaurant tips. So, what does this all mean? Is it just a passing fad? In short, no. It seems like this is the new era in customer loyalty. While the social networking aspect of it remains new the ultimate goal is to drive user behavior. And open user’s wallets. While the players may change the fundamental merging of the physical and digital world is happening. Just this week OpenTable announced it had seated more than 2 million restaurateurs through its mobile applications. GyPSii is also building location based applications that offer location specific advertising such as coupons. While publishing companies will tout solutions such as the iPad as saving their businesses the truth is, services like location aware social networks could be the true path to salvation by driving consumer to spend identifiable real world dollars on real world goods.