New technology is disrupting traditional advertising. In its place new forms of advertising are evolving. Advertising spending in emerging online channels is growing fast. At the 2007 3GSM World Congress, the IBM Institute for Business Value unveiled “A Future in Content(ion).” The report predicted that revenues from in-game, mobile, online and interactive TV promotions will reach $60 billion a year — or 45 percent of the digital content market — by 2010. (See Figure 1.)
The emerging advertising channels leave marketers licking their chops. Marketers want more effective ways to optimize their expenditure. This new ad space allows them to target their ads in a highly personal way. The more growth that the targeted personal ad market sees, the less money is available for traditional advertising.
Everyone is fighting for the new media advertising revenue, and telcos are beginning to realize that advertising can become an important source of revenue — an irresistible opportunity.
Telcos' role in advertising
Although telecom operators have little presence in advertising today, advertising represents an emerging opportunity that operators are uniquely positioned to address. They have unique assets that advertisers value. First, they have a large customer base. Due to their authentication, authorization and accounting controls, telcos can determine who the customers are and what services and products they are buying. This proves useful not only for controlling where the ads go, but also for tracking advertising effectiveness.
Telcos have a direct relationship with customers. They collect vast quantities of customer data, which they can use to develop profiles of their subscribers, including demographic characteristics, personal attributes and preferences. Telcos may even have the analytical tools and capabilities to look at their customers' shopping habits and viewing patterns. They can combine these customer insights with their ability to identify where individual users are based and offer highly targeted, localized promotions. Moreover, many operators have already developed solid relationships with local advertisers through their directory businesses.
Telcos are also well placed to enable the advertising experience practically anywhere, on any device and at any time. They can, for example, manage the delivery of ads across the mobile, PC and TV, as well as over fixed, wireless and other networks. What's more, they also provide a direct interactive response channel for the customers and a feedback loop to advertisers to allow them to track advertising performance.
As telcos move into media — an industry that has historically been part funded through advertising — it will find that relying on subscriptions and pay-per-view models will be unsustainable in a world where consumers do not expect to pay for all content. Content is expensive to generate and offer to consumers, and advertising provides a means to offer richer content at a more reasonable cost. Many telcos are therefore experimenting with opt-in advertising plans to fund content. Perhaps this is the most significant benefit as it allows consumer access to richer content and media. Advertising may also provide consumers with access to content they previously were unaware of. Several operators have taken steps toward adding advertising on IPTV and cell phones. (See Figure 2.)
The bulk of advertising revenue still comes from television, but the traditional TV advertising model is becoming increasingly unsustainable. With the shift from analog to digital broadcasting, the number of TV channels has multiplied, and audiences are becoming more fragmented.
This reduces the efficacy of an approach reliant on centrally scheduled programs to deliver real-time advertising to a large, undifferentiated audience. It results in low effectiveness, as advertisers need to pay for a large audience even if they want to reach a small fraction of the viewers, making TV ads too expensive.
IPTV could provide the answer. IPTV presents the opportunity to combine the powerful brand-building effect of conventional TV-quality advertising with the strengths of online. This enables advertisers to target specific audiences and allows customers to easily pursue their interest in a product even to the point of purchase. (See Figure 3.)
IPTV is an advertiser's dream. It allows telcos to control where the ads go to, target the large or small groups, or even sets within a household. The ads can be fine-tuned to the people within a household who are most likely to be watching at a certain time.
When watching IPTV, users will be able to freeze the programming in order to interact with any advertising that attracts their attention, submit their details for further information on a brand or in some cases make online purchases. IPTV also provides a means to measure precisely how many people have seen a particular advertisement. Payment models can be geared to actual viewers watching, the number of red button presses, or perhaps a percentage of the sales.
With IPTV, the ways in which ads can be personalized are limitless. Different ads can be generated once an ad has been shown a specific number of times. It gives advertisers the benefit that their ads won't annoy irrelevant audiences or be shown too often and alienate their customers.
IPTV creates new opportunities to diversify ad formats. Ads can be placed when the set-top box boots up, on information screens, as a screensaver, as a buffer when a movie loads or dynamically in the video streams.
The ability to telescope out an advertisement could be possible using a click-through function for the consumer. There is also the possibility of search and recommendation, perhaps in partnership with an Internet search engine.
IPTV could provide a gateway to Internet advertising for sectors traditionally reluctant to embrace the medium. IPTV will attract local companies that would otherwise not have considered TV advertising as an option. Telecom Austria has already explored ultra-local TV advertising in the village of Engerwitzdorf and found out it especially attracted local companies for advertising.
In Europe, the France IPTV market is leading the pack in targeted advertising trials, but IPTV providers in other European countries are also experimenting with advertising. Examples include Telecom Austria and Tiscali TV (formerly known as Homechoice), which runs a dedicated Honda channel in the UK. BT is talking to both brands and agencies about offering (Vision) IPTV advertising.
In the United States, Verizon is currently deploying the technical tools that will allow it to insert local ads into its programming. On that foundation, the telco plans to introduce more targeted and interactive ads in its FiOS IPTV service. Although advanced ad deployments are still a ways off, AT&T (with its U-verse IPTV service) also sees the promise of an ad play that combines mobile phones, television and the Internet.
Highly targeted, addressable advertising will significantly increase advertising revenue per viewer while the viewer experience will be more personalized and well received. Several studies have confirmed that subscribers are more likely to respond favorably to advertisements if the topic is of interest to them.
This type of advertising, however, raises the issue of privacy. There are acts in both Europe and the United States to ensure that user-specific data is not used other than for providing the telecommunications service itself. “Opting in” may well be seen as the route to go and prove popular with consumers, as it will give them increasingly relevant ads. Here consumers allow their user-specific data to be used in return for being included in special offers.
Rob van den Dam is European Telecommunications Leader for the IBM Institute for Business Value
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