Mobile (Wireless) Advertising

Implications: Plenty of otherwise smart people seem to be rushing toward some type of application that involves cellphones (do they even call them that anymore?). If it’s on your agenda, I’d suggest you be careful.

Analysis: Though we are asked about once a month, we are unable to provide advertising estimates on this segment because they have to reach the $150 million level before we can track anything … and not until they reach $1 billion (about 0.35% of all advertising expenditures) do they become accurately trackable. Local advertising on mobile devices is not even at the $150 million level yet.

Plenty of people have lost their shirts following the excitement of consumer uptake for a new medium without realizing that advertising absolutely always lags mass acceptance by about 10 years. It happened for radio, which struggled incredibly in the 1920s as hundreds of stations were started, then failed; it happened with local TV in the 1950s, which was subsidized heavily by local radio stations (which created most of the TV companies) until TV started generating profits in the early 1960s; it happened with Ted Turner's CNN and Landmark's Weather Channel, which by the late 1980s were losing $1 million per month each. (I witnessed the latter debacle firsthand.)

My biggest concern is that screens are too small to allow anything but "branding" advertising (no voice, just logos), and that the vast majority of branding advertising is national, not local. My other concern is that consumers, because of the current rate plans for data access, won't tolerate much, if any, advertising. Finally, while the consumer behavior on the Web indicates a quick-in-quick-out information quest, the behavior on smaller devices on which consumers are paying for time and data downloads will be even shorter. That limits the opportunity for advertising considerably.

I've long felt that the cellphone model follows the cable model. The flow of money for cellphones goes directly from the consumer to the provider. Thus, your dealings should be with the wireless provider. Providers have every incentive to promote access to more and more "content" because it drives consumer retention and dollars.

A good historical reference is The Weather Channel. In the 1980s it was losing $1 million a month because it relied solely on advertising. The audience wasn't quite there, and the costs of packaging and delivering a 24-hour weathercast outstripped the millions of dollars we were getting in advertising. I was with Landmark Communications, the parent company, at the time. Landmark was about to shut it down, but we came upon the idea that the local cable companies were benefiting greatly from The Weather Channel and should thus pay. We asked them if TWC helped them sell subscribers. (Yes, indeed, it did.) We told them we were about to shut it down. They urged Landmark not to shut it down because it was one of the most popular channels. They agreed to pay something like a nickel per subscriber per month. Overnight, it was profitable. And they continued to sell advertising.

If there's a way to mimic this model and sell exclusive content rights to a wireless provider, then I think you've got something that will hold you over for the next 10 years, until advertising becomes more viable for wireless devices.