Blyk to launch free MVNO supported by advertising
Much of the debate around mobile advertising has focused on a central question: what are users prepared to tolerate in return for less expensive or free services? Many research studies have tried to quantify that in one way or another. Harris Interactive, for instance, published a report stating 26 percent of US users would be willing to watch advertisements in return for free content on their mobile device, while 7 percent would accept text message advertising. RBC Capital Markets found that 58 percent of users considered mobile advertising a ‘nuisance which should be prohibited’ and 20 percent would accept advertising if it lowered the cost of their services.
As with so many metrics, you can interpret those however you wish. Some executives I’ve heard quoted will wax lyrical that 7 percent of a 200 million POP market like the US represents a huge opportunity, others will point to the same figures as an indication mobile advertising will ultimately flop because of consumer privacy concerns.
I’ve always felt these research studies are misleading because they are trying to answer the wrong question. Rather than resigning itself to the fact that mobile advertising will always be seen as a burden on the users, the industry should be looking at ways to enhance the advertising experience so that it is beneficial to the customer. I’ve summarised some of these ideas in my previous article entitled ‘Advertising – mission or exploration?‘ and there was further debate of the topic at the last MEX conference, which hosted a panel discussion under the same title.
It was refreshing to hear similar sentiments expressed by the management of Blyk, a new virtual network operator which is planning to launch a pan-European service offering free voice and text as part of an advertising-funded service. The venture, founded by former Nokia President Pekka Ala-Pietila and marketing veteran Antti Ohrling, will target the 16 to 24 age group with the promise of free calls and messages.
When I met with Ala-Pietila and Ohrling recently, they were keen to stress that they see the customer relationship as a ‘productive dialogue’ and that mobile advertising should be something the user values and wants to receive, rather than something which is tolerated only because it lowers costs. Blyk believes they can monetise the additional value this kind of relationship represents by selling it to enthusiastic advertisers.
The company are not yet discussing the exact details of the service, but according to Ala-Pietila they are investing a disproportionate amount of resources in the user experience as they prepare for a UK launch in the middle of next year. He believes they can create an entirely new ‘mobile media’ where users receive targeted advertisements in a way which is non-intrusive, valued and adapted to their particular usage habits. To achieve this, Blyk will collect a range of opt-in data when customers subscribe for the service and will also analyse usage patterns.
Marko Ahtisaari, head of brand and design for Blyk, expanded a little on this description, telling me that there would be no ‘bills’ as such, because almost all elements of the service will be offered free, and that the advertising will be delivered in a range of formats – from video to text to browsing – whichever is the most effective way of communicating. Indeed, it is Blyk’s objective to transcend these technological definitions and instead provide a service focused on results for the advertisers and a compelling experience for the customers.
Ohrling, whose currently serves as head of an international advertising agency, is well positioned to understand the opportunity from the media perspective. He sees agencies and brands already geared up to explore the possibilities of mobile, but frustrated by the lack of effective channels. Many of these companies missed the emergence of the internet as a medium and this has made them adopt pre-emptive strategies to ensure mobile does not also pass them by.
A January 2006 study by Vanson Bourne for Airwide Solutions, a messaging solutions provider, seems to confirm this. According to a survey of 50 major European brands, 87 percent were planning to conduct mobile marketing campaigns by 2008. 52 percent said they would be allocating between 5 and 25 percent of their total advertising budgets to mobile within 5 years. However, 55 percent were unsure about how to reach their audience through mobile, 58 percent did not know how to deploy an SMS campaign (with the figure rising to 61 percent for MMS).
One of Blyk’s major challenges will be engaging effectively with these advertisers and much of their work is in building the campaign management tools which will allow advertisers to track results and maintain a dialogue with customers. According to Ohrling, they will be unique in providing an integrated feedback mechanism for advertisements, allowing the clients to quickly gauge how well customers are responding to particular promotions.
This will not just be limited to major brands either. Ala-Pietila sees a role for Blyk in opening the mobile advertising channel to everyone from small local businesses to multi-nationals. He hopes Blyk will be able to work with all of these companies to help them create effective mobile advertising.
Blyk’s whole message is one of inclusion. The ‘free voice and SMS’ offer will no doubt be the focus of much attention because of the competitive connotations. However, Ala-Pietila insists the potential disruption Blyk causes will have a net ‘value creating’ effect for the mobile industry by bringing in a new source of revenue – advertising – without cannibalising overall ARPU. The founders argue that Blyk will actually help grow mobile wallet share among 16 to 24 year olds, traditionally quite a low ARPU group, because advertisers will be more capable of paying their bills than the invididuals themselves.
I recognise that Blyk is acting as an MVNO and will need to buy its minutes from an incumbent – and presumably will be charged for doing so in a way which maintains profitability for the operator – but I still think the reality will be an increase in price competition.
I will also be intrigued to see if Blyk can differentiate on anything other than price. It is not that this an ineffective way of building an MVNO – indeed, most successful MVNOs have been built around price competition – it is just that it is very difficult to be unique in this way. What happens when an incumbent network operator decides to start offering free, advertising-supported services to its much larger customer base? Blyk’s management was tight-lipped about future plans, but Ala-Pietila did tell me that they have some unique community capabilities which he believes will be very hard to replicate.
I can also imagine the disruptive potential of a service like this increasing substantially if it were linked with a wireless VoIP offering in the future. This would certainly give existing network operators something to think about at a time when so many in the industry seem to think value is slipping away from them – for more on this topic, see the debate on my recent article entitled ‘Why value is slipping away from the operators‘.
Blyk is still in the pre-launch stages and, given the attention their offering is likely to attract, they an unsurprisingly cautious about sharing the exact details of their plan. As such, I’m left with two main questions, which I also see as pertinent to the mobile advertising market in general:
- Do the economics work? Some quick ‘back of the envelope’ calculations reveal that an operator like Vodafone has a gross margin of about 41 percent, meaning that with an average monthly ARPU of GBP 21, it is costing them around GBP 12.40 to provide voice and text services to their customers. In my mind, that means Blyk will need to be generating at least GBP 10 – 15 in advertising revenue per customer per month to make a profit. I also wonder about the return on capital, as this will likely be an extremely marketing intensive undertaking, requiring significant investment during the initial stages of subscriber acquisition. The private investors and French VC Sofinnova who are backing Blyk will need deep pockets and patience.
- Does demand for ‘mobile advertising’ per-say really exist or will customers demand something more akin to search and discovery, i.e. mission completion tools? If this is the case, other players – such as Google and Yahoo – may have a more effective strategy in the mobile environment. Does Blyk’s decision to become an MVNO rather than just a mobile marketing provider confer any benefits if this scenario emerges?
Despite my uncertaintity over these questions, I have no doubt Blyk will cause a stir when it debuts. It is the free voice and texts which will capture the headlines, something which will no doubt be construed as the final push towards complete commoditisation of the mobile business. However, the long-term success of the venture will ultimately be determined by Blyk’s ability to understand customers, translate that understanding for advertisers and deliver an effective end-user experience which balances cost and usability. In this way, it will be judged on its ability to design a new value chain rather than how quickly it tears up the old.
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