Monday, October 09, 2006

12 business models in mobile

I was invited last week to speak at NMK's successful New Directions in Mobile event and I talked about business models to fund mobile content and services. And due to popular request, I'm writing up, more or less what I talked about here.

So just how do you get paid to do mobile stuff? Historically, media (TV, magazines, newspapers) has been paid for bya combination of advertising (who then pass the costs on to the consumer in terms of product pricing), licence fees (in the case of the BBC) and paid-for product (subscriptions or one-offs e.g. pay per view TV or your monthly cable TV or magazine subscription).

But the 'free' nature of the internet has changed consumers perceptions. The youth of today don't understand the economics behind making a TV programme or a videogame or a piece of music or a web service and do expect it to be free. A case in point, a teenage friend of mine was having trouble with her MSN spaces account - she couldn't upload her pictures. She emailed MSN several times and got no response. And she just couldn't understand why. I tried to explain to her that it was a free service so why would they prioritise her and that they had millions of customers worldwide and if there was a technical glitch, the chances are it was affecting a big chunk of their audience. She still didn't really get it. She felt that if they offered a service they should do it right. She has a point. But it still has to be paid for. So how do you do it...

1. Ad funded content

Recent Jupiter research on behalf of PitchTV tells us that:
  • Mobile advertising is set to reach £2bn in the UK by 2010. (Good news for Admob I'm sure but I'm not convinced by that figure. Analysts are often wrong.)
  • Almost half of the 16 to 25 y/os vs 32% of the over 25s were happy to accept adverts in return for free content
  • 30% of those then said they would be likely to respond to marketing messages
  • 25% of customers said they'd respond to mobile marketing - and this was equally split between the sexes.
A good example of ad-funded content in use is PitchTV. You get free ringtones, games, graphics and videos for life. I signed up when it launched a few weeks ago by texting PITCH to 87000 (UK only). In return you agree to accept up to 3 marketing SMS per week.

For this to work, you have to match your advertiser closely with the end user and the service you are offering. So I don't think this would work for pushing messages out about Persil as there's not much of a link between Persil and mobile content (well not that I can think of anyway). I hear it's doing well for mobile content advertisers anecdotally. That said, I've been signed up a while now and have never received any marketing messages from them at all. I guess I'm too old and female when they're more than likely looking for young men. It's early days though so watch this space as they say.

2. Mobile Advertising
Using a service like Admob (there are others out there - Admob's probably the biggest though), wapsite owners can generate income from offering pay per click advertising from their sites without having to search for the advertisers themselves.

If you're an advertiser, you can target by country, handset capability, genre of wapsite and set a budget and a maximum bid per click. Ads only get served 3 times to the same user and the ads are very simple - just a few words with a click thru to a landing page.

I've used it to support the distribution of a free java application during the World Cup. It worked better than any other media we tried including newspaper ads and editorial. We also found out that India and South Africa are mad for Wap!

3. Sponsored SMS
An example of this is 118118 who offers space at the end of their directory enquiries text messages at a low cpm (cost per thousand).

One of my clients tried this method (before they were a client of mine) and were disappointed with the results. I think there are some obvious reasons why this isn't quite working yet...
  • There was no click-thru to a wapsite so you couldn't act on impulse
  • No obvious targeting - you're just a 118118 customer who accepts text messages
  • There's not a lot you can get into the 40 or so characters you have to play with
  • When you've paid to receive the text message, do you also want a marketing message? Possibly not.
I don't know the 118118 team or any more details to the service, so if there's anyone out there reading this, please feel free to comment on any more insight regarding the service.

4. Selling your list
A lot of database owners I've met, when they're struggling for cash, cotton on to the idea of selling their database to any willing buyer. It's a mucky business. Rates for your data will vary from less than 1p per name to about 12p. But you'll be *very* lucky to get to the upper end of that range. Branded lists (Kiss, FHM, MTV) fare better when it comes to pricing and can attract cpm rates of £250. But the chances are you're not Emap or MTV.

If you are thinking of selling your list, there are lots of data protection hoops to jump through - and rightly so. It's unlikely that you'll be able to sell your list and just hand it over to a third party. The chances are, if you've structured your terms and conditions properly you'll have permission to send messages on behalf of third parties, but that the data can't leave your hands.

For this to work, there needs to be a close association with the brands of the list owner and the brand advertiser which isn't easy to achieve. And in my opinion, third party lists have been so badly abused in the past that they are suffering from the law of diminishing returns.

An example is that I still get text messages from Lakeside Shopping Centre. I signed up to ZagMe back in 2000 (I was working for them). When ZagMe went under, the database was sold to a third party who re-opted me in at the end of 2001. That company then changed its business model and the data, AFAIK, is now in the hands of Lakeside itself. Has anyone asked me to re opt-in? Am I able to unsubscribe? Do they send me anything remotely relevant to my interests and lifestyle? It's a resounding No to all three. Yet it would be so easy to get it right but that would suggest resource to do that when there are so many other things that they need to do. Mobile marketing is at the bottom of their priority list I suspect.

5. Branded content
Get a big name to put its name to your work. Examples include Coca Cola, Land Rover, Max Power, MTV, Disney. Using a trusted brand would imply greater sales potential but it's not necessarily so. Some of these content deals had the content creators paying the big brand a big licensing fee and or promise a minimum revenue for the privilege of using their brand name. There was supposed to be co-marketing going on, but it never happened because the brand's core business is not mobile content, it's selling drinks or cars or whatever and that's where their focus is. They also made their money on the licensing deal so have no need to do further marketing as they've made their cash from you already. So make sure you know what you're getting into when dealing with a big brand.

6. Sponsored content
Create useful/entertaining/must-have mobile media such as an application, game, mobile TV loop, news, gosspi, messaging or whatever. Then get access to a loyal customer base and get a big brand sponsor in to fund it. The World Cup Match Centre I worked on in the summer for The Sun, News of the World and The Times did just this. The application was your World Cup companion and meant that you could keep up with all the scores and news around the World Cup as it happened. It was promoted in the newspapers in print and online. And the sponsors' l0ogos, Betfair and Three, appeared in all the media promotion so the whole was greater than the sum of its parts in terms of media coverage.

I know it's a long post, but we're halfway there now. Bear with me!

7. Off the page promotion
This could be a revenue share deal or a bounty deal (where the content company pays the publisher for each customer acquired - pay per acquisition). A good example of this was the promotion that 82ASK did with IPC's Pick Me Up magazine. The promotion was co-branded. It was reinforced throughout the magazine in the following weeks and generated a high response rate.

8. Subscription model
This is where you offer customers either an all you can eat package or a limited weekly use package for a fixed fee per week or per month. These services are still advertised on television and were a big part of Crazy Frog's success - the adverts shown at the time didn't just advertise Crazy Frog. To get the Frog ringtone, you had to subscribe to a weekly or monthly service. This type of service has got itself a bad name with unscrupulous providers not being clear about costs and how to opt-out. If you're interested to find out more, just spend 10 minutes browsing Grumbletext which I co-founded back in 2003.

That said, if you get it right, it's a very profitable way to run a business - LoveFilm, BCA book club and many others find it a very successful model. But for it to work, you need a trusted brand image, squeaky clean operations, great customer service and strong customer focus.

Don't do this though.

advert for animated screensaver 4 ur mobi on C4

another dodgy subscription ad on C4

Both of these were seen advertised on weekend mornings on Channel 4's T4 programming strand. £9 a week for 3 animated screensavers or sounds. What *are* they thinking?!

9. User generated content
This is a neat model - get your customers to create their own content. Give them the ability to market, buy and download each others content. Reward the creators with a percentage of sales and only payout when they reach a certain amount (say £25). Examples of this are SeeMeTv, PeekabooTV (NSFW), LookAtMeTV (spot any similarities?!)

10. Wholesale
Syndicate your content to a network operator, media owner or content aggregator/s. There is a protracted value chain - not least the big chunk of money that the network operator takes for premium SMS payments - and this means limited margin. So what you're aiming for is multiple niche deals rather than one big deal, going for global makes sense, if you can. Some revenue may well be better than no revenue at all and if you do start selling content, it all adds to your sponsorship story and credibility for creating things that customers actually want.

Don't expect miracles though. There are 1000s of content providers out there and the chances of you hitting the jackpot will be slim. Don't rely solely on your partner's marketing - you may well need to do your own as well.

11. Retail
Go direct to consumer or d2c as it's called in the digital world. This means you have to build your brand and trust. You have to put effort into your own marketing and distribution.

The 5ps of mobile marketing are important here - product - what is it, easy to use/understand/download; place - where will customers find it? On some dodgy back of beyond website or your own branded lovely place to be?; price - you may need to play around with pricing models; promotion - how are you going to promote? You'll need to look at the whole marketing mix, online, offline, mobile; partnerships - getting revenue share deals with publishers will be really helpful so you share the risk and don't have to pay out advertising costs up front.

12. Don't have a business model
Hope you'll be the next big thing in mobile and someone will buy you for loadsa money... it could happen! I know it sounds mad, but there are plenty of internet business out there who didn't have a business model when they started up. So it could happen in mobile. I suspect, like the online world, the successes will be very few and the failures will be many.

Have I missed anything? Do you have any other examples to contribute? Comments and discussion very welcome.

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7 comments:

  1. Alex Craxton10:30 am GMT

    Hi Helen, a very interesting article, I have seen many of the business models you have listed succeed and many fail. It all goes back to how things differ between push and pull models. Where do you think Viral marketing fits into the 12 listed, there have been some very succesful campaigns lead in this way?

    Thanks

    Alex

    ReplyDelete
  2. Thanks for the feedback Alex. And I agree some will work and some will fail - it's about flexibility but also boils down to really understanding your consumers and your clients and matching them well together.

    Re viral marketing, it's not a business model per se, it's a method of marketing your content. So I guess that begs another article at some point.. how to market mobile content. Bit busy at the moment to think that one through but I'm sure I'll do it at some point!

    ReplyDelete
  3. Anonymous3:59 pm GMT

    Hey Helen, Damn good article.
    Have been musing two ideas in education and entertainment, and those models have given me much food for thought.

    Keep up the good work

    Dave

    ReplyDelete
  4. Thanks Dave. Glad you found it useful. You know where I am if you want to chat anything through...

    And keep up the good work yourself!

    ReplyDelete
  5. Anonymous4:29 am GMT

    Greetings from Canada Helen!

    You write in your reply comment to Alex, "...it's about flexibility but also boils down to really understanding your consumers and your clients and matching them well together."

    What a beautiful and powerful summation of reality for every business!

    ReplyDelete
  6. Harrisburg Real Estate

    Nice blog dear i have really learn a lot from this blog thanks. This blog is very informative for me. I became very pleasre to read it.

    ReplyDelete

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