June 25, 2007

dual revenue streams: the opportunity for carriers and content companies

“What the Internet did to wireline phone companies must never happen to wireless” — if I’ve heard that comment once from mobile operators, I’ve heard it a thousand times. The Internet made telcos “dumb pipes.” In their effort to avoid such a fate, wireless carriers set out to control what went on their network and participate in its economic return. It is an understandable goal, but probably the wrong solution to the ultimate challenge of how wireless carriers can keep from being commoditized like their wireline brethren.

The problem with wireline carriers is that when the Web was young they allowed someone else to own the revenue stream. Wireless carriers are right to resist such a fate, however, there is a much cleaner solution for wireless carriers than walled gardens or controlling access to the home deck. But, the window on this opportunity is closing fast.

For precedent, look at how cable operators developed two revenue streams for their TV programming. Like wireless carriers, cable companies have subscription revenue but unlike wireless carriers, cable companies also sell advertising on the television content they deliver even though that content is owned by someone else. Sure CNN sells national ads, but cable operators insisted on the right to insert two minutes of ads they sell into every hour of network programming.

In the wired world, Web content companies like CNN own their entire advertising inventory. No wonder the telcos are called “dumb pipes;” they did not leverage their transmission capacity as creatively as the cable companies did for TV.

When cable began delivering Web content they couldn’t impose the dual revenue model; the “dumb pipe” model for wired distribution was so ensconced. But where is it written that the same mistake has to be made with wireless?

The opportunity for wireless carriers is the television model’s dual revenue stream. Let content companies like CNN sell 90 percent of their advertising inventory, but set aside 10 percent for the carrier to sell. It’s a revenue model that will work for both parties: the content company owns almost all the ad revenue opportunities, but a small portion of the ad spots are for the mobile company to generate their own revenue. A small percentage of a lot of content equals a large ad inventory (and large revenue potential) for carriers.

Suddenly the economic incentives for the wireless carrier switch from controlling access to content to open access. When lots of content providers make a little bit of their ad inventory available to the wireless carrier, the riches of the Long Tail come to mobile companies. Content companies would benefit under such a plan because of ready access to an open wireless network. Consumers would benefit as a result of all the new services. The economic pie would grow larger and the wireless carriers would enjoy a slice of that constantly growing pie. As an added benefit, all the talk of net neutrality and other government access sanctions on carriers would be rendered moot.

Question is, how would the wireless carrier pull this off? In my past posting, I wrote about how datacasting — the one-to-many delivery of data — changed the economics of advertising (and content) delivery. By marrying the efficiencies of datacasting with the economics of advertising, wireless carriers can transform their business with the Holy Grail of a dual revenue stream.

Think about it. Using datacasting, ads are sent to consumers’ handset where they are cached. Unlike the current one-to-one unicast delivery, such one-to-many makes the delivery of each ad almost costless. Once the ad is on the handset, the mobile carrier controls it. When the consumer calls down a piece of content from the wireless Web, the carrier simply inserts into it an appropriate piece of advertising on a pre-scheduled basis (e.g., a pre-agreement with the content provider that every tenth screen would have a carrier-sold ad).

The half life of this solution is short. Carriers need to take advantage of the idea now before everyone gets set in their ways. As wireless broadcasting networks using MediaFLO and DVB-H come on line, they open the door to this datacasting opportunity (at least for their handsets). In a rather simple and direct agreement, wireless carriers can say, “The walled garden and everything else I do to avoid being commoditized are gone for every content provider who gives me a chance to sell a few ads.”

Content providers get better exposure. Consumers get more content. The government has no reason to impose access regulation. Carriers make more money. It’s a win for everyone… why not?

June 1, 2007

mobile advertising: the hidden breakthrough

My last article discussed “phonepublishing” and how the print and cable television market segmentation model for content was coming to mobile. True, the content is coming, but we’ve got a way to go before mobile publishing has the same kind of revenue streams as do magazines and cable.

While magazines and cable TV have dual revenue streams — consumer subscription and advertising — the wireless industry still relies on monthly bills for its revenue. True, that bill is growing as ringtones and other downloads are added, but that’s not good enough. If wireless is to truly benefit from the publishing model it has to graduate to generating advertising dollars.

“Gee, Wheeler, what’s the insight here? Mobile advertising is one of today’s really hot topics. Why, even Microsoft (News - Alert) just bought a mobile advertising company.”

True, but there is a dirty little secret about mobile advertising that continues to differentiate it from its print and cable cousins: mobile advertising is a one-to-one operation, and as a result relatively costly to deliver. When a magazine publisher or a cable network distributes an advertisement, it sends the message once and a huge audience receives the commercial. The economics of such point-to-multipoint distribution elude mobile carriers because each mobile ad has to be sent to only one consumer at a time, occupying valuable channel space in the process. You don’t even have to fire up the spreadsheet to realize how a one-to-many multicast ad costs virtually nothing to deliver compared to the one-to-one unicast of mobile distribution.

This situation, however, exists only until broadcasting comes to mobile. Up to now technologies such as MediaFLO and DVB-H have only been thought of in terms of their ability to deliver video to mobile phones. The hidden breakthrough — the sleeper in these technologies — is their ability to deliver broadcast advertising on a virtually costless basis.

In addition to video, the mobile broadcasting technologies offer the potential for “datacasting,” the delivery on a one-to-many basis of a data stream containing information. The obvious example is a programming guide. There is a need for a guide to navigate the mobile TV offerings, as well as look to see what is on the home television. Yet it would be prohibitively inefficient and expensive to distribute each guide on a one-by-one basis, so a data stream that goes to all mobile video users carries the information once, the mobile device receives it and knows what to do with it. That’s datacasting — one data feed reaching multiple consumers simultaneously.

Now apply that concept to advertising. Instead of sending the McDonald’s ad one at a time to mobile subscribers, why not send it once to everyone, cache it on the phone, and then let the network call it out of the cache as appropriate to be inserted into the content? This is exactly the way the local cable system does its local advertising. At the appropriate time in the national network feed the locally stored ad is inserted and sent to all subscribers watching that channel. To make this work on mobile is a no-brainer with datacasting — it’s even possible once the ad is cached on the phone to insert the commercial which was delivered via MediaFLO or DVB-H into non-FLO or non-DVB-H programming.

But the greatest sleeper may be how datacasting of advertisements can solve the carriers’ concerns about being made into a commoditized “pipe.” More on that in the next article.