Vodafone / Telefonica invest in mobile advertising: moving up the value chain

Implications: - the investment of both Vodafone and Telefonica in Amobee is another indication there are great expectations of mobile advertising - control of a technical partner however might hurt market growth - Microsoft before invested in Amobee competitor Screentonic

Analysis:

Analysts and market players expect the future might bring some radical changes to the wireless business model. The promise of mobile advertising is based on a few simple principles:
- advertisers are increasingly unwilling to waste advertising money on traditional channels which are not interactive, and to which consumers hardly pay attention. How many consumers drift away when confronted with irrelevant advertising?
- wireless operators have seen ARPU's drop despite the launch of numerous new (data) services the last few years
- consumers are fed up with spam and ubiquitous adverting, where most offers are not fit to their specific needs.

The mobile device with characteristics of tailoring, profiling, penetration, multiple uses per day, location and various channels of communication has the potential to solve the issues of advertisers, operators and consumers simultaneously.

Mobile advertising is relatively new, compared to where internet advertising was 7/8 years ago. But to assume that the mobile industry will grasp 5% of the total advertising spending in a few years time is not such a strange estimate.

A lot needs to be done to realise that: convince consumers to opt-in through giving them incentives; adjusting operator systems to enable advertising through channels as textmessaging and mobile internet; educate advertisers to use a new advertising channel; and tailor ad to the profiles of consumers.

This is were companies like Amobee, Screentonic and MADS come in. They provide ad servers in which mediaplanners can plan campaign through wireless operator channels; The ad server ensure the right ad is sent to the right customer. These companies often offer hosted solutions from which operators can profit through economies of scale.

By investing in Amobee, Vodafone and Telefonica indicate the believe in the future of mobile advertising. Simultaneously they can use Amobee's systems in muliple countries, probably against attractive conditions, and profit from the specific mobile advertising expertise of a specialised small company as Amobee. Also, they could profit from Amobee's deals with other operators. Indirectly Vodafone and Telefonica could earn money on the success of competitors like Orange and T-Mobile, if they choose to use Amobee's systems. However, it could limit Amobee's prospective business with these operators as well.