Firms to fight over phone ad billions

Google Inc, Microsoft Corp and Yahoo! Inc aim to generate billions of dollars in new revenue over the next decade by selling advertising on mobile phones.

Their biggest obstacle isn't each other. It's wireless carriers such as AT&T Inc and Verizon Wireless, which have kept mobile Internet rates high while defending other revenue sources that the advertising may undermine.

At stake is a market that may surge 10-fold to $16.2 billion globally by 2011, says EMarketer Inc, a research firm in New York. Google, based in Mountain View, California, sees as much as half of future sales coming from mobile phones. While the US accounts for about 50 percent of global revenue from promotions viewed on computers, the figure drops to 27 percent on phones and may rise to 29 percent by 2011.

"The carriers are too busy trying to protect the money they are making now to look at the next way to make money," said Chad Stoller, who heads the mobile practice at Organic, a San Francisco ad agency. Phone companies "want to control every aspect of the relationship between the consumer and the phone".

Even though they would share in the revenue, US phone companies haven't yet embraced ads because they're wary of giving up control of their networks, ad buyers and Internet companies say.

Phone companies say that while they are interested, they are moving cautiously to protect customers.

The top US wireless companies boost earnings by selling add-ons like ring tones and Web access. They don't offer cheap all-you-can-eat Internet plans, meaning just 13 percent of US subscribers surfed the Web on phones last quarter, said Nielsen Co in New York. More than half of Japanese mobile users access the Web, according to Tokyo's Video Research Interactive Inc.

And there are so many different networks, phones and programs that it's tough to create ads in the United States.

"It's a hairball," Scott Ferris, a senior vice president in Microsoft's Atlas ad unit, said. "There are no standards."

Google, Microsoft and Yahoo want to sell ads that appear as banners on mobile Web pages, link to on-the-go Internet searches, promote nearby attractions on driving directions and send coupons for products via text messages. Phone-service providers would get a cut of ad sales in exchange for participation.

Threat to revenue

Telecommunication companies worry that ad-funded Internet and phone services may jeopardize revenue from subscriptions, said Phil Asmundson, a vice chairman at Deloitte & Touche LLP in Stamford, Connecticut. Cheap Web access would make it easier for consumers to go directly to Google, bypassing the carriers' pages and services such as searches, driving directions and videos.

Ralph de la Vega, who runs the wireless unit at San Antonio-based AT&T, the biggest US mobile operator, said he's concerned users with less-powerful phones would have trouble viewing ads.

"We want to do this one right," de la Vega said in an interview. "It's too important."

Verizon Wireless, based in Basking Ridge, New Jersey, is "committed, but we're going to be methodical on how and when we implement our solution", said John Harrobin, vice-president of the No 2 US wireless company.

On top of the $40 to $50 the average customer pays each month for basic calling plans, AT&T, Verizon and Sprint Nextel Corp typically charge $30 to $40 for full Web browsing on handsets. Services that let people find shops near where they're using the phone can run an additional $10.

Google, the most popular Web search company, aims to generate half its revenue from mobile phones within 10 years, up from almost none today. Microsoft, the biggest software maker, wants a revenue source outside of personal computer programs. Mobile subscribers will outnumber PC users by 3 to 1 by 2008, says Credit Suisse Group.

Microsoft bought five companies with mobile-ad assets in the past two years, including Tellme Networks Inc and AQuantive Inc. Google's 2005 purchase of Android Inc became the basis for phone software code anyone can use, unveiled last month in a bid to break the control that mobile phone companies have over what programs work on which device.

Negotiations

Google is negotiating with carriers on ad projects, product management director Dilip Venkatachari said. The company isn't depending on the mobile operators, though. It plans to bid for wireless airwaves in January and is testing a free service that pinpoints users' locations on mobile maps, bypassing phone company charges.

Cosmetics maker L'Oreal SA, which gets up to 30 percent of its online sales in Japan from phones, has largely avoided mobile ads in the US.

Few American mobile users surf the Web, and the carriers have too many types of networks and phones, said Georges-Edouard Dias, the Paris company's e-business leader. In the United Kingdom, the company promotes mascara by distributing a 1-pound-off coupon through handsets.

Brian Arbogast, who runs Redmond, Washington-based Microsoft's mobile services, still expects wireless ads to be worth several billion dollars. How soon he doesn't know.

Bloomberg News

(China Daily 12/06/2007 page15)