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I don’t know about you, but I have heard little positive news about mobile advertising. Most everybody agrees that it simply is not ready for primetime. One of the more philosophical reasons given is that as an industry we are trying to take a web-based model and make it work on mobile phones, which is kind of like putting banner ads on television - it simply doesn’t make sense. One of the more pragmatic reasons people sometimes give for a lackluster mobile advertising market is that it doesn’t work very well: Little banner ads that click off to little WAP pages (with the restrictions in the mobile space against porn, booze, tobacco, carrier competitors, etc.) just doesn’t generate response rates comparable to current expectations.

Intercasting Corp is not ad-driven, so I do not have a horse in this race other than a general curiosity and a belief that a vibrant mobile advertising industry is a future cornerstone to a more open mobile consumer experience. One thing is for sure, compared to the web, mobile consumers represent a roughly sixfold increase in market size; unlocking the potential of such a market will create the next (and bigger) Google.

I am no expert on the subject and therefore have no opinion. Someone who is an expert on the subject (and who has an opinion) is Paul Palmieri, CEO of Millennial Media, the leading mobile ad network.

His latest blog post, “Saying ‘Yes’ to Mobile in 2009″ offers great insight into the mobile ad market and offers some data that debunks some of the conventional wisdom. 2009 may be the start of something big in mobile advertising. Give it a read - it is definitely worth your time.

I haven’t felt very bloggy lately. Forgive me – it seems I have been living on an airplane for the past two months. I have been traveling around the world, visiting clients, planning for next year, etc., and I can tell you that next year is going to be awesome: There is a convergence of trends that we assumed would happen one day, and those trends are really starting to converge in a big way. Those trends are:

1) Social networking becomes a mainstream communication medium (check)
2) Mobile operators embrace the value of social networking in the mobile space (check)
3) Social communication becomes a feature of the native mobile device UI (soon)

That last one is the bit that is going to make 2009 so exciting for me. Underway now are the various projects at various carriers and OEMs to make mobile phones “social.” Derrick and I have been meeting with all of our clients to plan around their initiatives and our new functionality, and I have to say that what I see in general is really the most innovative thinking I have seen across the industry in some time.

Almost every carrier in the world has the following projects in various stages of development at this very moment:
- “Social address book”
- “One-click upload” camera
- Active UI
- Open app store

As a quick aside, I should note that most of the OEMs and some of the infrastructure providers also have the same projects defined, and it is going to be a zero-sum game among them; among large hardware companies, some move more swiftly than others. As the lines blur between hardware and software, everyone is swimming upstream. Who does the future belong to? Ask Verizon Wireless, soon to be the largest carrier in North America, how they plan to dominate their market. Then again, ask Nokia who they think the customer belongs to, as they continue to build their capabilities not just in handsets and infrastructure, but also in services now. Talk to companies like Alcatel Lucent, in the midst of a management upheaval, where they need to go to stay in the game. “Closer to the consumer,” is the answer for everyone. How to do it? PANDER to consumer whims as never before, give them what they want, and give it to them in the absolute best experience possible.

What do mobile consumers want? Ease of use, low cost and social interaction. And that is exactly what consumers are going to get starting in 2009. Imagine your cheap subsidized feature phone acting more like an iPhone, getting a simplified user interface that is easy and even fun to use, and wrap the word “social” around the most important features. Look forward to the following:

- Active UI: Get RSS feeds, friend feeds, alerts, notifications, messages and media delivered directly into your phone’s native UI. What is an inbox anyway? Can’t the idle screen work more like an active communication dashboard? Yes. And soon it will.

- More useful cameras: Why do only 10% of photos ever make their way off of the mobile device? Because it is really hard to send photos. And what is the incentive to send a photo via MMS anyway? Sharing? Is it more valuable to share with a million people versus one person? Yes. Tighter integration between camera phones and photo hosting and sharing providers is like wrapping “social” around your camera.

- Social address book: Communication is multimodal. You send emails, you use IM, you use Facebook, you send SMS, maybe you even use Twitter. All of your contacts are in different address books. Your mobile phone should be more multimodal than it is. Since it is the device that is with you more than any other, it makes sense that it should have a superset of all your contacts no matter where they originate, and no matter what mode of communication you wish to employ, your phone should be able to do it.

- App store for the rest of us: With all the hype around the smart phone market lately, you would think that everyone in the world had an iPhone. The truth is that Apple represents a small slice of the smart phone market, which amounted to no more than 120mm units shipped worldwide this year. Feature phones (the less expensive, lower-powered types) account for 1.13 BILLION units sold this year, and they are getting better every day. Those consumers will soon be able to pick and choose functionality and add applets that extend the value of their phones, and it won’t be a rev of the existing “download storefront” model. Look for something totally different and refreshingly simple.

As all of these initiatives make their way to market, consumers will end up winning big. The entire mobile communication experience is about to shift and just get…better. What it all adds up to is a personalized and frictionless communication experience. That is the power of “social.” It is a too-often used word that is ill-defined in the context of technology and communication, but nonetheless it is fueling a revolution in the way people communicate that is about to raise the bar in the mobile industry.

How is your portfolio looking today?

I suppose I understand as well as anyone at a macro level what is driving the global financial meltdown. I also understand what a lack of cash means to banks and what a lack of credit availability means to businesses and individuals. Perhaps most importantly, (to my business and our industry, anyway) I understand what all of these macro trends means to the typical mobile consumer: Nothing.

When it comes to the microeconomics of managing our business, I am keenly aware of even the slightest fluctuation in our daily stats. I can tell you when a carrier has done a promotion, put us in a “featured” category, changed a category, altered a naming convention, changed marketing language, had a problem with their storefront vendor, launched a new handset or, put simply, changed anything in any way whatsoever. This is because demand is constant for mobile content and communication, and it is other variables that affect consumption. I just looked at our daily new user stats, and yesterday we had more than 50% more new users than we did exactly 30 days ago. The global financial crisis evidently has little impact on purchasing behavior for products below the $5 mark.

Notice the line at Starbucks is as long as ever. Your triple grande latte is a low-price luxury good, and at the margin, cutting out your $3/day habit does not materially impact your ability to pay the rent. The perceived value of that latte is higher than the cost, because dammit, with the world crumbling around you, you deserve it. So it is with your $1.49 to access MySpace Mobile. (In fact, your barista will tell you that there is a statistically significant increase in demand for whip cream over the past month.)

There are few substitutions for mobile communication, and over the years, our industry has found the market-clearing price for most forms of mobile content. But price is not the most important variable because demand for mobile content and communication is inelastic: The percentage change in demand is smaller than the percentage change in price. This is why carriers increase the price of SMS even as volume increases – they know that increasing the price increases revenue at a higher rate than whatever drop off in demand the increased price might produce. Despite LNP, it is still a perceived high-cost proposition for consumers to switch carriers, even to a lower-cost alternative.

The greatest function of demand for content and 3rd-party communication services in the mobile space is not price – it is discoverability. If a carrier put a big red button on the home screen of every one of their phones tomorrow with a label that said “Press to pay $10,” and that was all the big red button did but it was the only thing on the home screen of everyone’s phone, they would have at least 50% of all subscribers push the big red button.

Preloading is a form of big red button: Where our interface is preloaded rather than offered as a downloadable app from a carrier’s deck, we see a minimum 20x increase in new users who have that handset vs. a comparable device in market. That is a significant multiple, and it has nothing to do with price – it is all about discoverability.

We have tested consumer price points from $10 to Free, and we have learned that all other variables being equal, Free does not increase adoption, and to some measurable extent, it increases churn because the consumer has made no investment in the experience. This is as true amid a global financial crisis as it was in more generally prosperous times. The most effective consumer offers for communication services are “finite day pass” and MRC.

The world is full of bad news, but at least one can take solace in the fact that the mobile consumer displays an attitude that rewards utility not just with usage, but with money.

Today Nokia announced that it is acquiring Oz, the mobile IM and email provider. First things first: Congratulations to Skuli and team. Secondly, one must pose the question: Is there no stopping Nokia? In the midst of a worldwide financial crisis that has all sources of cash completely ferklempt, and even as its own stock price takes a beating, Nokia brazenly forges ahead with non-trivial acquisitions, confident in its market position, its strategy and its fundamentals. And why shouldn’t they? NOK, like many telecom sector companies, (and one might even say all companies ex-financial sector) has strong fundamentals, and while the contagion of fear may certainly affect them as investors (who are all on some level speculators) run for the door, this is exactly the time when acting out of fear paralyzes companies. And so Nokia will probably pull farther out in front as its competitors succomb to fear at exactly the wrong moment.

But I digress - I am not a financial pundit, and what I really wanted to talk about is the Software and Services strategy in the mobile space and what the acquisition of Oz means for the incumbents competitive to Nokia.

Nokia bought Oz for an obvious reason: They have been sending out 200mm feature phones a year with no 3rd-party messaging capability. Baking consumer email and IM into those devices solves that problem, and serves well their Software and Services strategy. As devices become less “discreet hardware” and more “service-delivery platforms,” the importance of filling the void for consumers increases. Companies like Oz fill that void for IM and email very well.

In fact, there are a lot of platform companies that fill similar voids. One need only look at Nokia’s history of acquisitions to identify those voids:
Navteq – location services
Enpocket – ad serving
Plazes – social mapping
Loudeye – music
Twango – social networking
Avvenu – desktop sync

Now all they need is Search, Games, News, Weather, Sports, Photo Upload, VoIP and Contact Sync and they effectively become a mobile media company likely to rival, in the long run, AOL, Yahoo, MSN, etc.

I frankly expect to see no slowdown at Nokia and wouldn’t be surprised if they kept ticking off “need to have” verticals with more acquisitions. Of course, near and dear to my heart is the social networking vertical. Just as Nokia can now provide 3rd-party IM and email, so will they eventually provide 3rd-party social networking. (If consumer trends continue in this direction.) Twango became Nokia Share, which is not like “an Oz for social networking.”

But that means that everybody else has to continue, as well. Really interesting to me is what happens when Nokia makes an acquisition. There is a not-small universe of companies around Nokia that, to remain competitive, has to move in a certain direction whenever Nokia moves. Any competitor to their handset or infrastructure division has to now be looking at the Oz acquisition and planning a move into 3rd-party messaging, no? And which private companies are “Oz-like”? Certainly there are a slew of platform companies that provide vary types of similar services. It will be interesting to see what happens next.

Mostly, I am interested to see which companies rise to challenge Nokia during this generally fearful moment in history. I personally think Nokia is making bold moves and showing resolve to win at a time when other CEOs might be forced to pursue a more conservative approach.

My most recent RCR Wireless column is about mobile social networking business models. Here is a link to it on the RCR site, and since I think that link will eventually expire, the text is below. The point is that every participant in the mobile social networking ecosystem has a different strategy, and so there is no single business model that works for everyone.

I happen to be in London at the moment, then I’m off to Germany and some other fine countries, visiting customers, etc. Coming here is a good way to maintain perspective on business models, because the mobile consumer experience is so different compared to in the U.S. Flexibility is key when dealing with a worldwide customer base. One thing that remains constant across all of our customers around the world is the increasing importance of integrating 3rd-party communication service providers into the mobile communication experience.

Anyway, here is the text of the RCR article…

On social networking business models

I have a good vantage point of the mobile social networking opportunity: The largest social networking providers, wireless carriers, content providers and OEMs are using my company’s Anthem platform as the backbone of their mobile social networking strategies and roadmaps. I more or less know what everyone is planning in this space up to about 18 months out. Everyone is doing something similar, yet everyone is approaching it very differently, (if that makes sense) and the end result is going to be a very rich user experience.

Mobile social networking is one of the highest priorities among carriers, OEMs, social networking providers, and content providers because it essentially redefines the personal communication experience. It may be a bit difficult to envision, but as simply as you click on a friend in your address book or shoot off an SMS, the word “social” is being wrapped around the consumer experience in exciting ways. You will soon find that there is no “WAP site” or “application” per se in the mix. Rather, you will find access to your favorite social sites baked into the very UI of your device.

It makes perfect sense, of course, that wireless carriers would embrace what is essentially an evolution of their core business model, which is providing communication services. (And social networking is simply a communication service, on the same continuum as voice, SMS, email, IM and so forth.) It also makes sense that social networking providers would embrace the mobile consumer: Social networking was established and flourishes on the Web, which is limited to a 500-million-strong consumer base (roughly the number of PCs that are connected to the Internet). Compare this to the roughly 3 BILLION mobile consumers worldwide, and it’s no wonder the largest social networking providers in the world are rushing to the mobile space to grow their numbers.

But here arises the question of business model, which is the intended subject of this article. There is a natural tension between wireless carriers and social networking providers because the former has built a business around getting paid for providing communication services while the latter has built a business around providing communication services for free while advertisers subsidize the experience. That they are both basically in the same business of providing communication services, and are therefore on some level competitive, would only seem to add to the issue as the opportunity grows. However, the very size of the opportunity is the thing that is encouraging cooperation among all parties, and I am glad to see it. All that is left is the question of business model.

And here is where I am truly amazed at how differently everyone is viewing the future. The basic consumer-facing models being discussed are:

- Subscription.

- Day pass. (Typically for pre-paid carriers).

- Bundled with data package or tier.

- Paid via defined rate plan.

- Free and ad-supported.

- “Free” and indirectly monetized. (Such as through SMS and MMS).

- “Free” as part of an all-you-can-eat data plan.

There is no one consumer offering that will work across the board, because carriers worldwide operate under very different economic realities.

The presentation paradigms are:

- WAP.

- Downloadable application.

- Preloaded application.

- On-device portal (to the category).

- Integrated into the native UI.

On presentation, we are seeing a resurgence of focus on applications and on-device portal (ODP) supplanting the recent reliance on WAP. Ultimately, I expect for the paradigm to shift entirely to a device-integrated view of communication services, including social networking.

The dimensions that drive adoption are, in order of impact:

- Discoverability overall.

- Search marketing and slotting.

- Placement.

- Brand.

- Promotion (across the board, but cross-promotion in the store is most effective).

- Friction (lowering of).

- Functionality (more and more useful).

- Virality.

- Price.

In various combinations, the three lists above equal success or failure of the category. I would like to point out that contrary to popular belief, something that is free and ad-supported on the Web does not necessarily have to be free and ad-supported in the mobile space (IM is a good example of this). Remember that we are dealing with different consumers, (and 2.5 billion of them) many of whom have never seen MySpace on a PC because they don’t own a PC. For all they know, everything on the Internet costs a dollar. Be careful about your business model, because we have some carriers charging for the category but with superior discoverability that are outperforming others which provide it for free though it is impossible to find.

In the future, there will be one best presentation of social functionality, and it will pervade and extend the usefulness of the device. In many cases today, the carriers are essentially competing with themselves by offering two versions of a social networking site — a “free” WAP version and a paid-application version. For the moment, this is fine since the functionality differs significantly and appeals differently to various consumer segments. As active user interfaces evolve, we expect to see WAP fade in popularity because A) the interface will be transparent, and B) will offer far greater functionality than WAP ever will be able to. I can further predict that this pervasive functionality will drive the business model as well. All but the most cost-constrained MVNO will make social networking “feel” as “free” as SMS or even voice feels today — sure you know it is costing you something, but the thought of that cost does not stop you from sending the next SMS or making a call.

Lastly, let me say that while the advertising model in the mobile space certainly faces its challenges today, the basic dynamics of monetizing an audience have held true for centuries: Where there is a gathering crowd, there is a marketplace to sell them something. Carriers, OEMs, content providers and social networking providers are keenly aware of this fact, and with some hard work and cooperation, this space is going to flourish in a way that will satisfy all interested parties.