In previous blogs on Mobile Advertising, Frost & Sullivan has highlighted three distinct business models:
1) The Network Model
2) The Direct Sales Model
3) The Programmatic Model
The Programmatic Model is expected to become quite popular in the next 12-18 months and is based on mediation and real-time bidding (RTB) solutions. Mediation allows content owners and publishers to connect with a variety of ad sources to identify the most appropriate ad in real time. RTB further optimizes ad-delivery by enabling the ability to conduct real-time auction for the available inventory and target an “audience” in real-time. This delivers greater efficiency in the mobile advertising workflow. Frost & Sullivan’s research indicates a preference for performance campaigns in the mobile RTB model, with effective CPMs (eCPMs) generally used to measure the effectiveness of an ad campaign. Other innovations in this industry include creation of virtual location (“lat-lon”) exchanges, and the ability to create and manage multi-party private exchanges.
Trends in RTB Solutions
Mobile RTB solutions are generally focused on serving display ads within web and application inventory, though they also have the technical ability to support video advertising. Some industry participants have established strategic agreements with online demand side platform (DSP) providers to enable advertisers to access mobile and online inventory from the same platform. However, the fact remains that mobile-specific performance and branding display ad campaigns currently represent the majority of ad volumes on mobile RTBs. It is important to note that content publishers tend to use multiple options for mobile advertising– including working with ad exchanges, ad networks, or managing white-label ad platforms themselves. Thus, all three models are expected to continue to co-exist in the United States.
BrightRoll Mobile Video RTB Solution – A Unique Value Proposition
Frost & Sullivan was recently briefed by BrightRoll on its mobile video RTB solution. This is certainly a unique offering that can address several key challenges in mobile advertising. For example, by providing advertisers with the ability to bid on online and mobile inventory through a single platform, BrightRoll can deliver scale in a seamless and integrated manner across online and mobile ecosystems. The solution allows advertisers (buyers) to leverage the same 15 or 30 second spots from their broadcast campaigns across online and mobile – a key requirement in video advertising. Thus, by making a purposeful decision to allow video buyers to buy mobile on the BrightRoll Exchange (BRX) exactly how they buy web video today, BrightRoll has made the trafficking process (for advertisers) and the user experience as consistent as possible. Moreover, BrightRoll has a long history in digital video advertising – it currently operates one of the largest video ad networks in the world and has demonstrated an understanding of what it takes to optimize mobile video. The company committed to HTML5 early and has gone down this path with its publishers for their mobile initiatives. BrightRoll has also spent a considerable amount of time educating developers of native apps about the promise of HTML5 to deliver video seamlessly, which can help deliver a consistent video experience across a wide range of inventory types. All of these innovations will certainly help the company compete effectively in mobile advertising.
Evolution of Form Factors Creates New Challenges for Digital Advertisers
Penetration of next-generation Smartphones and connected tablets continues to increase at a rapid pace in the United States. Frost & Sullivan expects the total number of Smartphones in use to exceed 250 million by 2017 in the United States, while the number of tablet users is expected to approach 100 million by 2017. Virtually every connected display device – including Smartphones, tablets, e-Readers, portable gaming consoles, and in-car entertainment systems – is used regularly for a wide range of content and multimedia services. This “screen fragmentation” has important implications for digital advertisers who want to show the right ad to the right audience in the right context, and on the right screen. In most cases, advertisers want to leverage targeting and content presentation capabilities of each medium to enhance the ad experience and maximize the desired campaign results for a particular audience. By providing clients with easy-to-use, scalable, and transparent solutions to enable them to target an audience across the online, mobile, and perhaps the connected TV ecosystem in future, BrightRoll has certainly introduced a powerful offering to the market.
Special thanks to the BrightRoll team for its help with this blog.
In a recently released Frost & Sullivan report, “Efforts of Independent M2M Service Providers and M2M MVNOs” was highlighted as one of the key drivers in the North American M2M communications market. While it is true that leading mobile operators have committed a significant amount of resources (platforms, processes, and people) for M2M, they may find it difficult to do justice to each and every emerging opportunity. For example, small-to-mid sized business (SMB) customers often struggle to get the full attention of large mobile operators, which is why M2M solution providers have been successful in providing remote connectivity services to the SMB segment. This is not to say that M2M solution providers are working exclusively with smaller organizations. In many cases, they have started to emerge as the preferred connectivity providers within the large enterprise segment. One such M2M solution provider is Aeris Communications (Aeris). Based on discussions with Aeris, the following key success factors for leading M2M solution providers were identified:
Adopt a “Solutions Provider” approach instead of a “Services Provider” approach
M2M customers no longer want to use services of a provider that sells airtime only. M2M is a complex market. It is appropriate to describe it as an amalgam of multiple technologies. Customers need a partner that can help them with all stages of their deployments – whether it is the choice of hardware module, application design, or integration with existing infrastructure. Additionally, professional services and operational support tools should be available to deliver a compelling customer experience. All of these areas need a partnership approach.
Purpose Built Network
Successful M2M solution providers have built a “dedicated” network for M2M. Ownership of network platforms – such as Home Location Register (HLR), Short Messaging Service Center (SMSC), Rating and Charging/Billing systems and others – can help M2M solution providers deliver a unique and customized service experience to customers. Additionally, any change requests (or modifications) into service parameters - such as changes to a rate plan or even the desired quality-of-service (QoS) may be easier to accommodate for such solution providers. Adding on M2M capabilities on top of existing consumer services framework may work fine in the short run, however, long-term success is clearly going to be a result of the M2M solution providers’ ability to help customers in a timely and effective manner (which comes from ownership of strategic network elements).
Flexibility and Ease of Implementation
M2M applications are unique and often vary widely in their requirements. The ability to accommodate new business models through customized pricing is absolutely critical in this industry. This does not mean that M2M solution providers should look to support hundreds of different pricing models. In fact, there are certain standard plans that can work well in most cases. However, the ability to create explicit plans that match different M2M usage patterns is an important element of any successful competitive strategy. In addition to basic usage rating, these plans need to recognize the unique supply chain needs of M2M customers. Customers require rating solutions that allow them to build their products, test them over the air, and distribute them without recurring fees. This allows an M2M customer to defer costs until there is offsetting revenue.
Putting it all Together (Formula for Success)
The key to success in M2M is to: a) have as much access (and control) to the network control channels as possible, b) understand the unique customer needs and the specific requirements of the M2M applications, and c) merging it all together to create innovative solutions. It is also about execution – customers want to get their product to market as soon as they can. Any or all processes that are part of M2M service delivery should be automated lest scaling should become an issue for the M2M solution providers. Leveraging best practices in application design and development is one way to achieve this objective.
The importance of cloud-based M2M platforms cannot be overstated. The "Internet of Things" (IOT) will be comprised of billions of connected devices across numerous verticals. Cellular wide-area networks (WAN) will play an important role in providing connectivity "either directly or indirectly" to a good portion of the devices that make up the IOT. The IOT itself will be designed as a Network of Networks. Various short- and long-range technologies have to co-exist in order to facilitate data communication between these connected devices and the enterprise backend. The current IOT environment is in a state of near chaotic change, with new hardware, interfaces, network access technologies, application protocols and technologies, and other individual components added or deleted quite regularly. This creates massive complexities for the M2M solution providers, who have to take all this fragmentation into account when designing, implementing, and upgrading their solutions. Adding large amount of connected devices will also result in significant amount of data ("Big Data") that needs to be stored, analyzed, reported, and archived. The current state of the industry is comparable to the early days of the Smartphone revolution, where hundreds of thousands of application developers are testing new ideas to develop the next big application for the connected world. However, many of these efforts run the risk of not achieving commercial fruition, largely because of the fact the early innovators do not have the required expertise, resources, or time to address the industry fragmentation. Unlike the Smartphone or other types of connected display devices that have standardized around a few main operating platforms, the M2M space continues to grow rapidly, with each vertical having its own set of platforms and pre-defined (and sometimes rigid) way of implementing M2M solutions. However, all M2M deployments send data either proactively or in response to a specific command to an application over a public or a private network. Exceptional growth in M2M will lead to exponential increase in the amount of computing power required to effectively manage all that transactional data coming in from connected devices. These are some of the reasons why the M2M cloud providers - that can provide the necessary resources to application developers to help them get started with M2M application development and deployments with relative ease - are expected to see significant adoption for their services. A well-designed and appropriately priced M2M cloud platform can certainly provide a cost-effective way to introduce new M2M applications to the market. In the past, M2M application providers have had little choice but to develop and manage the entire communication system on their own. This was a very costly affair, and clearly was not a very scalable approach. Cross-vertical communication between M2M applications (such as an electric vehicle and the Smart Grid) is important to help derive maximum benefits from the connected devices revolution. Security and compliance requirement are also evolving rapidly, and this places an additional burden on M2M solution providers who have to ensure that their deployments are in line with the key expectations of their customer and the regulatory authorities. In many cases, ongoing audits and certification requirements can place additional economic burden on M2M deployments, especially those that are custom built to serve the need of a one particular customer, industry, or a vertical.
The application layer and the Infrastructure (or the platform) layer are the two main high-level components of M2M cloud platform deployments. M2M application developers should be able to focus on application development without having to spend too many resources on infrastructure. That is where the cloud-based M2M platforms come in. In many cases, M2M cloud platforms are designed to support hardware deployments of a particular module vendor (that may have a client agent pre-installed on M2M endpoints). However, in the long run, M2M cloud platform providers will have to extend their services to both in-house as well as to other industry participants’ modules by providing access to the necessary interfaces and on-device client software (if implemented as part of the connectivity architecture).
Here is a profile of a company (Axeda) that has been a pioneer in M2M and has helped address many of the M2M application development and deployment challenges.
Axeda provides the leading cloud-based service and software for managing connected products and implementing innovative M2M applications — taking the cost and complexity out of connecting and remotely servicing the products of the world’s leading companies. Axeda customers use its M2M cloud service to deliver innovative M2M solutions and optimize their business processes with data from their connected products. By relying on the Axeda M2M Cloud Service to power their connected products, companies are literally transforming their business by improving customer satisfaction, reducing costs, and generating new sources of revenue. The M2M solutions behind these connected products range from remote service, fleet management, usage-based insurance, asset tracking, mHealth, and more.
Key Offerings and Value Proposition
The Axeda M2M Cloud Service provides an advanced cloud-based software for managing connected products and assets and implementing innovative M2M applications. The service provides companies with a secure and scalable M2M data integration and application development platform, connectivity over wired or wireless networks, and out-of-the-box device and asset management applications to reduce the cost and complexity of implementing M2M solutions.
The Axeda M2M Cloud Service includes:
- Axeda® Platform, a secure and scalable data integration and application development platform with M2M application services and data management features for building and managing an M2M solution.
- Axeda M2M Connectivity, a family of software agents, libraries, toolkits and services for establishing connectivity between assets and the Axeda Platform, using a variety of communication methods (Internet, WiFi, satellite, and the AT&T network).
- Axeda Connected Product Management Applications, a suite of out-of-the-box web-based applications spanning remote service, remote access, and software and content distribution that enable companies to manage connected products and remotely identify, diagnose, and repair issues.
The Axeda Platform
The Axeda Platform is a complete M2M data integration and application development platform with infrastructure delivered as a cloud-based service. With the highest levels of scalability and security as well as powerful development tools and flexible APIs, companies can quickly build and deliver custom M2M applications for the most demanding requirements and integrate M2M data into key enterprise applications and systems.
The Axeda Platform includes:
- M2M Application Services – Allows developers to extend and customize the core platform functionality via a powerful embedded scripting engine and a rich set of Web Services for both SOAP and REST consumption.
- M2M Integration Framework – Accelerates integration with the Axeda Platform and enterprise systems with standards-based message queue technology.
- M2M Data Management – Processes and stores incoming M2M data; manages device and asset types, data items, locations, alarms, and files; and includes built-in security for managing users, roles, user groups, and device groups.
Axeda M2M Connectivity
The Axeda M2M Cloud Service includes M2M connectivity services, software agents, and toolkits that enable companies to establish connectivity between their devices or assets and the Axeda Platform, while allowing them to choose the communication method and hardware that best suits their needs. As a result, companies can connect to any product using any device, over any communication channel (cellular networks, the Internet, WiFi, or satellite), for any application.
Axeda M2M Connectivity Services includes three types of solutions depending on the class of device or asset that needs to be connected.
- Firewall-Friendly Agents - Software agents that run on Linux or Windows and install directly on assets or a networked gateway computer, connected to corporate assets.
- Wireless Agent Toolkits - A Java or ANSI C library for embedding Axeda connectivity into devices that can be compiled into a company’s own software and executed on a wide array of computing hardware and platforms.
- Device Protocol Adapter - A device communication server that connects to any M2M message protocol and can be extended with custom CODECs (coder/decoders) that translate the device’s native communication format into a form that the Axeda Platform can understand and process.
- Policy Server - A server-based software application residing on the customer’s network, Axeda Policy Server provides a comprehensive and granular set of permission settings that continuously governs Axeda Agent behavior for all devices at the customer location.
Axeda Cloud Service
As an advanced cloud-based software for managing connected products, the Axeda M2M Cloud Service is delivered as Software-as-a-Service (SaaS) via its ISO 27001: 2005-certified data centers, backed by complete security, scalability and infrastructure, and first-class operations and customer support.
With Axeda’s on-demand service, enterprises enjoy all the benefits of the Axeda M2M Cloud Service without the challenges and overhead of administering and implementing the technology and infrastructure.
Axeda’s on-demand service provides customers with a pay-as-you-go model that minimizes risk, and enables rapid deployment for faster ROI. Additional benefits include:
- Rapid and easy implementation - Reduce initial project implementation requirements as well as the struggle in gaining IT approval and ongoing support.
- Lower up-front costs and minimized risks - Take advantage of much lower upfront capital investment. An annual subscription fee enables companies to easily incorporate the on-going annual expense into planned budgets.
- Focused on the business, not IT infrastructure - Free organizations from supporting high-cost, time-consuming IT functions. These include purchasing, supporting, and maintaining the server infrastructure, equipment redundancy and housing, and the labor-intensive patch and upgrade process.
- Faster time-to-value - Reduce the time required to install licensed software and instead use Axeda’s first-class on-demand center that undergoes an annual SAS 70 examination to accelerate the solution deployment time.
- Greater end-customer acceptance - Enable end customers to preserve their own security policies and network protection. Security certified by a trusted third party, Axeda's cloud service gives the assurance needed to ease adoption of the solution by even the most security-focused customers.
- Enterprise security, availability, and scalability - Rely on Axeda’s secure and scalable infrastructure built on state-of-the-art hardware and software investments with its operational expertise. Ongoing management is performed by experts in the Axeda application, networking, security, hosting, data protection, and database administration.
- Custom application hosting – Companies can host the custom applications that they build and deploy on the Axeda Platform at Axeda’s on-demand center, simplifying the maintenance and administration of complete M2M solutions.
Key Customers and Partnerships
More than 150 of the world’s leading companies, including Abbott, Diebold, and EMC, rely on Axeda to get to market fast with their connected product solutions at the lowest total cost of ownership. A partial list of Axeda customers is available at http://www.axeda.com/community/customers/all/a
The Axeda Partner Ecosystem includes a wide range of device/module OEMs, Mobile Network Operators, System Integrators, Enterprise Application Providers, Logistics Solution Providers, and others. A partial list of Axeda’s partners is available at http://www.axeda.com/community/partners/find-partner
In January 2012 Axeda announced an exclusive multi-year U.S. reseller agreement with AT&T, which delivers the AT&T M2M Application Platform Powered by Axeda -- designed to help businesses and organizations get to market faster with innovative M2M applications.
By providing end-to-end application development, connectivity, and service and support capabilities, Axeda has emerged as a major industry participant. There is tremendous opportunity in M2M, and companies such as Axeda will continue to see good traction for their offerings.
In my previous blog, we talked about the history of mobile advertising, and how simple banner ads served on WAP phones gave way to rich media advertising served within mobile Internet, application and video environments in mobile. In this piece, I wanted to talk about Private Mobile Ad Exchanges(Private Exchanges), which are likely to become extremely important in the U.S. mobile advertising market over the next few years. Private Exchanges – as the name indicates – allow publishers to 1) specify who is able to see and bid on their inventory, and 2) exert greater control (such as pricing floors) over the types of ads that could be served on their digital properties. These exchanges are also “Transparent”, meaning that advertisers specify exactly where their ads should run and they can also see full detail of where they did run following a campaign. Demand for such exchanges is led by leading publishers, who want greater efficiency, quality, scale and overall control over the advertising experience delivered to their customers.
Companies such as Medialets and Nexage have launched Private Mobile Ad Exchanges in the United States. Medialets Private Marketplace is a fully transparent exchange – meaning advertisers know exactly where their ads will run, how many impressions will be delivered to each property and can verify this following a campaign as well. Both application and web inventory is available in the Medialets Private Marketplace across next-generation mobile and tablet devices. Publishers can granularly control impression levels and pricing in Medialets Private Marketplace, and two or more publishers may even combine their inventory to monetize it jointly. In short, Medialets hopes to offer greater flexibility, control and quality to both the buy and the sell side with its private exchange.
Existing mobile real-time bidding (RTB) solution providers offer additional value to users of private market exchanges by leveraging several other assets already at their disposal. For example, Nexage’s Private Exchange directly leverages its Public Exchange assets (RTB exchange and the mediation platform). In Nexage’s case, the Private Exchange provides for high value liquidity on top of the public exchange. Initially, publishers participating in the Private Exchange would send impressions to the Private Exchange against a set of pre-decided rules. If those impressions don’t sell, they roll over automatically into the Public Exchange and there they fall into the governance of a new set of rules. In this Public Exchange, the impressions will be tapping into the full liquidity of Demand-side Platforms (DSPs) and real time buyers that are integrated into the RTB. Finally, if these impressions did not sell there, it would then roll over the Nexage Mediation platform, where it may fall under a different pricing floor and be able to tap into the demands of the full ad networks that are tied into mediation. So, as Nexage launches a Private Exchange, it is accretive to liquidity since it provides a solution that has behind it the full power and liquidity of the Public Exchange.
Roadmap for Mobile Advertising
Looking at entire spectrum of mobile advertising, there are three main business models for inventory monetization. There is the Direct Sales model, where the publishers have direct sale teams and sell to advertisers directly. Then there is the Network business model which has ad networks such as Millennial Media and JumpTap (though they may also have other products as well) selling directly. Then there is the Programmatic Market, defined as mediation and RTB which is really going forward as RTB dominated space. Frost & Sullivan believes that the Private Exchange model logically complements the Direct Sales model for mobile advertising – especially since scaling the Direct Sales model can become an issue due to the requirement of adding sales people which comes at a cost. This is not the say that publishers participating in a Private Exchange will always get same price for their inventory – however they will likely command a CPM that is comparable to what they are able to get by going Direct. This could very well mean that Private Exchanges may end up taking some business away from ad networks – though ad networks themselves are working to build RTB bidders( or integrating with RTBs).
Let us summarize all this discussion into a few key points.
- The exchange concept is going to be increasingly important in the ultra-competitive (and complex) mobile advertising space. Overall, Frost & Sullivan expects the mobile DSP/RTB/Private Exchange ecosystem to emerge at a rapid pace and support a majority of rich media ads in future. While I won’t hazard a guess about how much would these platforms contribute to the total market (in terms of ad impression volume or revenue contribution). However, existing industry participants are already serving billions of ad impressions on their mobile exchanges, and it is not unreasonable to expect a double-digit revenue contribution to mobile advertising revenues from these platforms within the next 18 months.
- Publisher participation in Private Exchanges could come at a premium. Right now, this is done more on a qualitative basis where publishers that can command a premium appropriate for a Private Exchange participate in the marketplace.
- Both branding and performance campaigns are supported in the Private Exchange, though there is obviously some performance expectation even in branding ads. Additionally, a Private Exchange could also be positioned as a ‘liquidity enhancement’ service, where a tiered or a layered architecture helps to ensure that inventory is monetized well.
- A key challenge is to ensure end-to-end system performance – especially for rich media ads – and ensuring that the ad creative is rendered properly and the user experience is consistent with the advertisers’ expectations. Ongoing industry standardization initiatives will go a big way in helping address this issue.
A picture is worth a thousand words – hence my attempt to depict the evolution and roadmap for the U.S. mobile advertising space. Hopefully, this helps explain what’s going on with mobile advertising.
With the recent $321 million acquisition of Amobee by SingTel, mobile advertising has one again been in the news. Let’s explore the history a bit to understand how mobile advertising became a multi-billion dollar opportunity (and valuations of mobile advertising companies increased so dramatically). Frost & Sullivan has tracked the Global mobile advertising market since 2003, when mobile penetration rates were less than 50 percent; mobile Internet was still “WAP” (wireless Internet protocol), and mobile data revenues were only a tiny fraction of what they are today. There were hardly any mobile video services and mobile advertising was synonymous with application-to-peer (A2P) messaging. Clearly, we have come a long way since 2003. In this piece, I will discuss the evolution of mobile advertising while my next blog will focus on the emergence of Private Mobile Advertising Exchanges in the U.S. market.
Mobile Advertising – A Historical Perspective
Ad networks – such as Third Screen Media (acquired by AOL) , AdMob (acquired by Google) and GreyStripe (now a division of ValueClick) – and leading publishers were the early movers in mobile advertising. Display advertising was largely confined to mobile Internet (or WAP). There was some in-application advertising as well (thanks to efforts by industry participants such as GreyStripe); however, the app revolution did not truly materialize until Smartphones came along. In 2006 and 2007, Tier-I mobile operators such as Verizon Wireless and Sprint became early adopters of on-deck display mobile advertising. Operator inventory was sold at a premium, with hundreds of millions of ad impressions served every quarter in the on-deck WAP environment.
The mobile advertising industry – in its quest to maximize the revenue opportunity – also witnessed the emergence of ad network “aggregators” and ad mediation layers. These aggregators basically accumulated remnant (as well as some premium) inventory both from ad networks as well as individual publishers and in turn sold it - usually on a pay-per-click basis - to advertisers. Ad aggregators represented huge amounts of inventory – billions of ad impressions were served every month – yet that somehow did not consistently translate into high revenue streams due to certain limitations of the mobile channel – including absence of cookies and lack of third-party reporting and analytics. Some of these issues were addressed by the emergence of Smartphones. Devices such as the iPhone and various versions of Android devices started to generate strong usage of mobile data services. Suddenly, there was a glut of inventory – industry participants were struggling to generate high fill rates and mobile inventory was at a risk of losing its “premium” status. Industry fragmentation, lack of transparency, and inability to deliver a consistent advertising experience across different mobile data channels (with lack of aggregated reporting) were some additional reasons for this drop in ad rates.
Industry participants continued to seek ways to overcome some of these challenges by delivering a differentiated, richer advertising experience on mobile phones. Many industry participants started to work together to develop an ecosystem that leverages the best practices and strengths of each member to deliver an improved advertising experience. For example, Crisp Media (known earlier as Crisp Wireless) partnered with Jumptap in 2010 to deliver rich media ads ad campaigns across the Jumptap network. However, lack of true standardization in mobile advertising remained an issue, and In late 2010, leading mobile advertising industry participants such as Crisp Media, The Weather Channel, and TringAppsannounced the Open Rich Media Mobile Advertising (ORMMA) initiative to address the existing industry fragmentation challenges and simplify the serving of rich media ads into mobile apps by creating an open standard and a set of industry best practices.
Current State of the Industry
Today, mobile advertising solution providers are increasingly required to integrate with existing publisher-side ad servers. This is done to manage the communication between 1) first-party and third-party ad servers in online and mobile and, 2) ad networks, agencies, ad mediation layers, and other participants in the value chain. Over the past three years, the mobile advertising landscape has become relatively more complex due to the diminishing boundaries between online and mobile advertising. Eventually, the distinction between “online” and “mobile” advertising will cease to exist for most campaigns, and advertisers will be able to plan, execute, and measure results for their campaigns seamlessly across the online and mobile environments.
Demand side platforms (DSP), an important element in the online ad buying process, will increasingly be used for mobile buying as well. Similar to the online trend of DSPs being integrated into multiple ad networks and exchanges, mobile-only or mobile-enabled DSPs will be integrated with multiple ad networks and ad-bidding platforms for mobile. However, device and operating system fragmentation is a challenge here due to disparate technologies and ad serving protocols being used for rich media ads in mobile. Frost & Sullivan expects the mobile real-time bidding (RTB) ecosystem to evolve gradually and support a majority of rich media ads in future. For that to happen, the industry has to agree on a set of standards to enable rich media ads to be displayed across multiple ad destinations seamlessly. Only then should we expect the DSP and RTB side of the mobile advertising ecosystem to truly emerge as the key enablers of rich media advertising in mobile. With that said, existing industry participants (such as Nexage) that are focused on enabling a mobile real-time bidding platform continue to serve billions of impressions every month in the United States and are now compliant with standards such as ORMMA and Video Ad Serving Template (VAST) that allow them to deliver ad campaigns across different destinations in mobile.
In my next blog, I will talk about mobile private exchanges and how these exchanges will become important for the growth of mobile advertising. Here is the link to our most recent study on the U.S. mobile advertising market.
NFC-based contactless mobile payments is clearly one of the most exciting opportunities in the global mobile financial services markets. NFC-based mobile payment services (such as Google Wallet) have already been introduced in the United States, with several other initiatives (such as Isis) expected to roll out in 2012 and 2013. The mobile phone may not yet completely replace the leather wallet – however, in a few years the phone will replace our cards, our keys, our driver’s licenses, and various other types of credentials.
NFC need not be a “disruptive” model for the established financial ecosystem service providers. There are enough opportunities for different industry participants to extend their expertise into mobile to deliver NFC-based services. The roles of different types of industry participants for NFC payments are actually quite well defined. Telecommunication industry participants won’t become banks, and banks won’t be rolling out wireless networks to be able to deliver mobile payments. They will have to work with each other to deliver NFC and benefit from this exciting opportunity. In fact, NFC creates several opportunities for specialized solutions providers (such as a Trusted Service Manager, or TSM) to bring about this “dynamic collaboration” between different types of companies. This is actually a very simplistic representation of how NFC works –the key challenge in NFC is to satisfy the key expectations of all the stakeholders (banks, mobile operators, device OEMs, TSMs, chipset vendors, NFC middleware providers, and others) and ensure that each party achieves its business objectives – which could range from enhanced revenues to new customer acquisition.
Following diagram depicts the value chain for NFC-based mobile payments.
NFC 1.0 – Current Market Implementations
Google Wallet and Isis represent two different approaches for how the secure element (SE) should be installed in the handset. However, there are striking similarities in how the wallet experience is delivered to the consumer. For example, in Google Wallet, you have a Google Wallet application that accesses the Citi MasterCard (or the Google Prepaid Card that can be funded by other cards) that has been uploaded in a digital form on the Sprint Nexus S 4G devices. A similar architecture will be available in Isis, where a wallet/container application will be able to access and manage the secure credentials – stored in the UICC or the SIM card in this case – that are delivered and managed by Gemalto. The key point here is regarding access to secure credentials stored within the SE – consumers currently can access their payment cards only from within the Google Wallet or the Isis Wallet application. Enterprises wanting to deliver NFC-based payment services have to work with Google for inclusion in the Google Wallet. This is probably true for other wallet initiatives currently planned as well. That is the way things have been designed for these services, and that is what we call NFC 1.0.
So what is NFC “2.0”?
In the current scheme of things, only the approved wallet application can access these credentials directly. There is no way (yet) to allow third-party applications to access these credentials from outside the designated wallet. This is fine, as long as we are only talking about made-for-purpose mobile wallets( or “containers”) whose only purpose is to manage access to a very few cards stored in a digital form on the mobile handset. However, limiting access to a user’s credentials to only one wallet application could become an issue with consumers in the long run. For example, imagine a consumer using a merchant provided application to check in-store offers by using the GPS capabilities of their NFC-enabled devices. The same consumer may then have to open up the separate wallet application to use his credit card (or the merchant-provided coupon) at the retail POS for checkout. Another scenario could be related to a transit application. Users may use a transit application to check train schedules, and have no means to use the digital ticket from within that application to access the train station (for example). The same user will have to use a different application (the wallet) for payments since that is the only approved application to access the secure credentials stored on the mobile phone. NFC 2.0 services will be designed around providing access to secure credentials to multiple approved applications on the mobile phone. I would not go as far as saying that these credentials can be used from within the mobile web experience (for example), however it is only a matter of time before the industry participants start exploring different possibilities to deliver a unique ‘mobile-enhanced’ commerce experience. This “cross-application data sharing” is going to be an important part in defining what NFC 2.0 services will look like in future.
Roadmap and Path to NFC 2.0 Services
To be fair, the current implementations also have a roadmap for allowing multiple parties have access to the handset SE to allow a wide range of mobile payments, security, and other types of NFC applications. There is a desire to be “open”. As Drew Sievers, CEO of mFoundry (a leading provider of mobile banking and payments solutions in the United States) recently commented - "The same way that nature abhors a vacuum, the SE will yearn to be open." That is quite a lot said in a very few words. However, this open architecture may not be that easy to implement – there are various legal, operational and even technical issues that come into play for storing and sharing of sensitive financial data on the mobile phones. Additionally, there is only so much storage space on the handset SE – the challenge will be to manage multiple organizations expectations regarding access to the handset SE. Entities that own and manage the SE will have to design a set of best practices to manage the limited handset SE space in a judicious manner – especially as consumers start expecting an increased number of cards (and other security credentials) to be stored on their devices. It might be worthwhile to consider the option of “dynamic” storage allocation as well, in which high security credentials (payment and identity) can be stored within the SE and low security credentials (like coupons and loyalty cards) can be stored in secure virtual memory( the “Cloud”) and called into the SE for emulation purposes.
Providing access to on-device NFC resources to multiple applications in a secure manner; and, dynamic allocation of SE memory space are perhaps two very important trends that will emerge in future. Different types of organizations (such as banks, merchants, other service providers) want to provide commerce and security services to their internal and external customers on NFC phones. We already have branded cards in the physical commerce world – there is no reason for not emulating the same experience on the mobile phones. Think of all the applications that are built on top of the Apple iOS platform. Apple maintains end-to-end control over the type and quality of applications, yet, by providing access to various resources on Apple devices, Apple has successfully unleashed innovation in the mobile applications space. Consumers can now choose from hundreds of thousands of applications that are available in the app store and are the ultimate beneficiaries of this approach. The same “platform” approach is needed for NFC.
Key building Blocks for NFC 2.0 Services
So how can this multi-app management be provided in a secure manner? It is not only about providing access to the SE. There has to be a way for different organizations to upload (or provision) the handset SE as well, and then access their associated credentials on the mobile devices as and when needed. Apps should be able to access only their associated secure credentials and should have not have access to data not belonging to the app owners. In order to enable this, the software platform managing the SE has to be able to integrate with the existing TSMs that may be already used by the different organizations (for example, some banks may have their own internal issuance systems). Sequent Software is an example of a company that can provide the necessary middleware to enable multi-app management capabilities on the handset. In short, there are several financial and technical efficiencies that could be realized by a separation of the Credential Issuance and SE management roles – by focusing only on SE management, Sequent promises to help drive the industry toward realizing its vision of open NFC 2.0 services.
-Special thanks to Phill Armstrong at Sequent Software for providing insights into the Sequent Software offerings for NFC.
This year I visited several companies in the CTIA M2M zone, where we talked about some of the key developments in the machine to machine (M2M) space. M2M has been around for a long time – connected machines have been supported over 1G technologies such as Cellular Digital Packet Data (CDPD) in the United States for more than ten years now. However, I wanted to speak with the different industry participants to get their perspectives on the key market trends – challenges, opportunities, key requirements – and how they are helping support the rapid growth of the ‘Next Generation’ M2M ecosystem in the United States. Here is what came out of my discussions with some of the attendees:
- Pricing for Wireless Data: I was somewhat surprised to learn that the pricing for data connectivity for M2M devices has come down significantly compared to just 12 months ago. It is now possible to get pricing for unlimited data for as low as $30 per month over slower networks (such as GPRS). Of course, there is only so much data that you can transfer over the slower GPRS networks in a month, but regardless, this highlights the increased competition in the market and operators’ willingness to work with their customers to get more connected machines on their networks.
- Distinct Data Pricing for Different Speeds: This is somewhat related to the pricing aspect mentioned previously. There are indications that 3G data pricing (such as for CDMA2000 1xEVDO) could be cheaper than pricing for 2-2.5G networks (such as CDMA2000 1xRTT). It appears that since the 2-2.5G networks are used for voice traffic, the operators do not want to encourage high M2M data traffic on this type of network. This could also be a marketing strategy for promoting adoption of 3G data – particularly when pricing for 3G modules and modems remains noticeably higher than pricing for the hardware for the slower networks.
- Increasing Complexity of Application Development and Need for Enablement Platforms: Almost every solution provider I spoke with mentioned the ability to help with application development as one of their key differentiators. In most cases, these capabilities were offered in partnership with specialized application platform providers (or a cloud-based M2M operating system) that abstracted the network and communication protocol complexities to help M2M customers write to a simple, specific set of APIs for enterprise application development. The business model in these cases was based on the amount of traffic (or ‘transactions’) generated/supported by the application and I thought that this could be an attractive opportunity especially, given that the number of connected devices (and hence the number of transactions) are expected to grow exponentially in the coming few years.
- Ongoing Operator Consolidation: I asked the industry participants about their thoughts on the impact of the ongoing consolidation in the mobile operator space on the M2M market. One interesting aspect that was mentioned by a leading M2M service provider was the potential of cloud-based M2M network platforms to counter the increase in cost of providing access to M2M applications and services. In other words, data access rates could go up, however, cloud-based M2M platform that are independent of the access network could help in curtailing cost by taking a lot of value delivered to the M2M customers outside of the mobile operator environment. Although I am not convinced it will ultimately play out in that manner, there is some merit to this argument, and unless the mobile operators themselves start adding enough value to their M2M business, they could continue to see increased competition on the services side of their M2M businesses.
- Consumer vs. Enterprise M2M and Providing End to End Services: Smaller service providers did indicate their frustration with getting their larger partners (mobile operators) to move quickly enough to enhance their M2M ecosystem and provide a single source interface for both hardware and software services. One does get a sense that it may actually not be a bad thing for the mobile operators to just provide the connectivity and let their trusted service provider partners handle different parts of the M2M enablement business and benefit from this collaboration. However, each mobile operator has its own ideas on how they want their networks to be used, and sometimes this could become a challenge for the specialized M2M solution providers that have to wait for months to have M2M devices on and running on specific mobile networks for no apparent reason. I still believe that the mobile operators are working diligently to increase their connected devices manifold in the coming years, and each of these operators has its own set of technical, legal, marketing and operational challenges that are not that easy to address. Slowly, but surely the industry is getting to a point where it will take days and weeks – and no months – to get new M2M devices and service up and running on the nationwide networks. For example, there are talks of letting devices with certified modules be connected on the mobile networks with minimal testing (since the embedded module is already certified).
There were also many hardware vendors that announced several new hardware modules and modems for many different verticals such as Telematics, intelligent computing, and wireless health. In fact, there was a section dedicated to showcasing mHealth technologies on the show floor, and many tier-I mobile operators were also highlighting their mHealth initiatives either on the show floor or at their ‘invite-only’ events some of which, I had the chance to attend. I think it is fair to say that M2M represents the next big growth opportunity for the mobile ecosystem and the existing telecommunications solution providers(such as the OSS/BSS and billing solutions providers) are exploring ways to help their customers (the mobile operators) grow their M2M businesses. Overall, it was a very interesting show which had a good mix of applications and services, network infrastructure companies, mobile operators and device vendors.
Much has already been written about the Google-AdMob and Apple-Quattro Wireless deals and how they will accelerate the pace of innovation in mobile advertising. In both cases, a larger organization with relevant assets in mobile content and advertising has declared its intent to acquire a smaller, innovative mobile advertising company to 1) shorten time to market, and 2) to develop and enhance existing product offerings. Google, best known for the AdSense and AdWords offering in the online world, has been trying to extend these into mobile with some success. For example, Google’s AdSense for Mobile is universally available for high-end phones; and for feature phones in nearly 30 countries. Google also serves relevant ads within its own mobile products (such as search) and has tested in-application mobile advertising. According to Google, “though Google offers many forms of mobile advertising, [our] focus to date has been on mobile search ads, while AdMob's focus has been mobile display ads and in-application ads”. Assuming the Federal Trade Commission approves the deal, Google’s acquisition of AdMob would clearly make Google one of the largest global mobile advertising networks.
My personal view on the AdMob acquisition is a bit more cautious then most. Although I acknowledge the resources and technical expertise Google can bring to the mix, I have time and again seen smaller, innovative companies that have helped define a market opportunity enter into an alliance with larger mobile companies only to discover that it was perhaps not a good match. Google works hard to encourage creativity among its employees so that is something that should allow AdMob to continue the pace of innovation that it has come to be known for. If Google stays true to its guiding principles for advertising programs and practices (i.e. ‘you can make money without doing evil’), I am cautiously optimistic that this could be a ‘win-win’ scenario.
Apple seems to be taking lot of interest lately in mobile advertising. In the past, analysts had often wondered why Apple was sitting quietly and letting their app store and applications become a prime advertising destination without themselves participating in this opportunity (or at least demanding a revenue share). And lo and behold, Apple buys Quattro Wireless – a leading provider of premium and semi-premium ad inventory with a highly capable advertising platform and an impressive roster of clients – and is suddenly catapulted into the top tier of mobile advertising! The recent discussions around Apple commanding a CPM of anywhere from $4 to $20 and introducing million dollar advertising campaigns could prove to be true after all.
I sincerely hope that Apple does not implement the restrictive set of policies with respect to other ad networks delivering ads within the app store. If the past three years have taught us anything, it is that one single ad network is not going to be able to do justice to the entire inventory that is being generated. Of course, Apple could choose to treat as much inventory as it wants as remnant, however, that could defeat the entire objective of enhancing the value for the advertisers. Apple will also realize that it needs to draw a line somewhere regarding the amount of resources it is prepared to invest to draw premium advertisers to its network.
The larger question remains - will the world of mobile advertising be dominated by Microsoft, Yahoo!, Apple, and Google? What about the smaller companies – how should they differentiate their offerings? These are the companies that have worked hard to develop the mobile advertising ecosystem and have toiled to spread awareness about the potential of mobile advertising. One has to look at the recent partnership announcement by Jumptap, Crisp Wireless and Medialets as an example of how these industry participants can collaborate to differentiate their offerings (and pool their resources to compete with the larger organizations). These three companies have a unique set of offerings and deliver innovative ad formats across multiple mobile inventory types. However, brands and agencies have had to work individually with each of these networks to be able to leverage their ad unit type which is a lot of work and not a very scalable approach. Compare that with the current ad buying scenario in the online world- it is a single interface that allows agencies to buy across multiple properties, and there is an ongoing ‘collaborative communication’ (or daisy-chaining) happening in the backend that results in the ‘best’ ad being served – best being decided on several factors such as ad pricing, campaign objectives, type of inventory etc.
Clearly, there is a need to deliver a similar experience in mobile and the Jumptap-Crisp-Medialet agreement intends to do just that. So, an advertising agency could work exclusively with Jumptap (for example), choose from a wide range of ad formats and opt to deliver these across one or multiple device platforms across the mobile Internet or mobile application inventory. Jumptap has taken this a step further – its advertising platform allows any rich media technology vendor to plug into its ad network to deliver their own unique flavor of ad unit. In fact, the company is already in beta testing with other vendors to bring more choices to its customers. It is important to point out that companies such as Jumptap are doing much more beyond just multiple ad formats to support ‘openness’. Advertisers buy the ability to reach out to audiences; they are really trying to reach out to a proper set of target customers when planning inventory buys across different devices, applications, operators or data channels. Jumptap currently offers all these features to help achieve maximum distribution and good campaign results to its customers.
Overall, this is a smart move in which industry participants could join hands to take their offerings to the next-level (instead of trying to develop everything in-house), in a manner akin to what Apple achieved with the Quattro Wireless acquisition. The challenge here would be to evolve the business model and partnership agreements inline with the changing market conditions and continuously drive innovation to stay ahead of the pack. Additionally, all such efforts have to be handled smoothly in the backend with minimal changes required in the campaign planning and execution strategies and processes of the buy side (advertisers and agencies). This industry could see several such alignments and ultimately those delivering the best results in terms of reach, choices, reporting, simplicity and control will emerge as the preferred destination for mobile advertising spending. Some of these partnerships could be a precursor to a merger as well. Personally, I am a strong supporter of such industry initiatives and the saying ‘Alone we run faster but together we go farther’.
Over the past several years I have come across many mobile advertising industry participants commenting on the difficulty of monetizing mobile social networking inventory. Mobile advertising networks often find it difficult to achieve good fill rates for the inventory belonging to mobile social networks and quite frankly, the industry has struggled to generate good advertising revenues from mobile social networks. Cost per thousand (CPM) of under a dollar and Cost per click (CPC) less than a cent are not uncommon for mobile advertising campaigns run within mobile social networks. I think it is mainly due to the following three reasons:
1) of a large amount on inventory
2) Lack of proper targeting mechanisms
3) Concerns with spoiling the user experience
Remember, inventory is a function of parameters such as number of users visiting a particular mobile property, session times, page refresh rates and others. Accessing popular social networks on the mobile phones remains the prime browsing habit of mobile users, and the average session times are also longer for the mobile social networking users. This is quite inline with the trends in the PC world. Proliferation of advanced Smartphones and feature phones with better browsers and larger screen sizes ensures that the available inventory of mobile social networks continues to grow. In fact, Facebook recently announced(February 2010) that more than 100 million people actively using Facebook from their mobile devices every month – this comes less than six months after Facebook announced 65 million people on Facebook Mobile!
So where is the problem? We have a huge mobile social networking inventory in the form of billions of page impressions (and a large user base) available every month. Shouldn’t this large audience translate into advertisers and ad networks competing to establish a premium presence in these properties? Well, running successful mobile advertising campaigns requires more than just integrating an ad server tag in a particular mobile property. Ads have to be relevant, non-intrusive, and basically add enough value to achieve the campaign objective(s). Mobile social networks present some unique challenges that prevent them from being considered premium advertising destination. As I mentioned, it is difficult to monetize that entire inventory effectively- there hasn’t been enough demand – at least in the early stages of the industry. A social networking audience has to be treated differently than a set of mobile users visiting content sites. For example, mobile users visiting a sports website on their mobile phones can be targeted with ads for sporting goods.
Over the years, major content publishers have been able to draw accurate profiles of their audience base with aspects such as demographics, income levels, gender, location, and others known to them. These content providers share this information with their advertising partners who can then target their ads accordingly. Compare that with mobile social networking – you are there to connect with your friends, get updates from them, post status messages, share pictures, and basically have fun. If you were an ad network tasked with delivering ads within a social network, how would you target the ads? Social networks recognize the fact that their user base is there for a reason – to what extent would they like to expose their user base to third-party advertising without spoiling the customer experience? These are some key issues currently faced by the mobile advertising industry.
It is with this mindset that I approached a briefing with MocoSpace. MocoSpace is a leading mobile social network that has consistently ranked among the top ten visited mobile properties in North America. The company currently has more than 11 million registered members, and does more than 3 billion page views per month. I was pleasantly surprised to learn that MocoSpace is now a cash flow positive company and has achieved profitability. It has achieved this distinction by doing several interesting things – mostly around advertising – that have helped generate revenues. Based on my discussion with MocoSpace, here is what I think the company has done to monetize its customer base:
1) Build an internal ad-mediation layer – no single ad network can probably do justice to the billions of pages of mobile inventory generated by major social networking properties such as MocoSpace. MocoSpace had actually planned and built this ad-mediation platform much before other major ad-mediation companies came into being.
2) Leverage web and mobile properties to deliver integrated / crossover campaigns – MocoSpace has been good at leveraging both mobile and web properties for its advertising campaigns.
3) Fast to adapt to the changing market conditions – it would be wrong to assume that MocoSpace has been doing the right things all along. But, what really sets MocoSpace apart is its ability to try new things and quickly move on if these don’t help in achieving the business objective. For example, MocoSpace has worked with ringtone companies in the past to distribute music to its user base. However, it really did not find that as a financially compelling service and hence backed out. The company has since moved on to offering services such as sponsored music sessions or artists on site as well as offering virtual goods and services around a particular artist.
I also think that MocoSpace has taken a very pragmatic approach to developing new features. Quite often, small social networks introduce new, expensive features (such as third-party APIs) prematurely only to discover that they don’t have enough scale to continue to offer such features in a viable manner. I was glad to note that MocoSpace is not trying to do something similar and has a very low-risk strategy of starting with connected social games that will be opened to third-parties as and when enough scale is achieved.
I am sure there are enough lessons that the mobile social networking industry can learn from companies such as MocoSpace. We are still in the early stages of the mobile social networking and mobile advertising opportunity and there are a plenty of exciting services that can be introduced to overcome the industry challenges. I will continue writing about innovative organizations such as MocoSpace that continue to deliver value to their customers and partners.
Written By Vikrant Gandhi, Senior Analyst, Mobile and Wireless Communications
By Vikrant Gandhi, Senior Analyst, Mobile and Wireless Communications
I was at CTIA last month when I heard the news (actually the email from Amdocs came in at 6 AM on my BlackBerry) that Amdocs OpenMarket had acquired MX Telecom for approximately $104 million. Given mobile messaging is one of my core coverage areas, this was HUGE news for me and I could not wait to meet the OpenMarket team to learn more. I must admit that I was initially unable to comprehend the rationale of this acquisition from a strategic perspective, as OpenMarket is already a leader in the U.S. messaging/short code space and has well-established connectivity agreements with all the leading mobile operators. Moreover, OpenMarket carries a significant amount of the U.S. standard and premium rate messaging traffic, which continues to grow every year. As part of the Amdocs group, OpenMarket has several inherent advantages in terms of its ability to leverage other strategic assets (such as the Amdocs QPass digital commerce solution) and Amdocs's relationships with communication service providers to develop and deliver innovative merchant solutions. So, in the U.S., it is well positioned and does not really need another company to strengthen its market position. After learning more details at my briefing at CTIA, I quickly realized I was being very narrow in my initial thinking and the acquisition needed to be analyzed from several angles to understand its benefits.
OpenMarket is a leading provider of mobile messaging, payments and other emerging services. The company is the leading mobile transaction hub in the U.S. that enables brands, enterprises, advertisers and merchants to leverage the mobile channel for their communication, content, commerce and marketing initiatives. OpenMarket has more than 400 customers in the U.S and currently handles around 400 million messages every month.
MX Telecom is the largest messaging and payments aggregator in the UK and has a solid market presence in North America and other emerging markets. The company offers a unique set of messaging connectivity services and a compelling portfolio of value-added services such as mobile payments, web-based applications and others. The company started in Europe in 2000, entered the U.S. market in 2003 and slowly became a top five connection aggregator in the U.S. short code SMS space.
OpenMarket and MX Telecom
So why the acquisition? What benefits could accrue out of this? It is important to identify the core strengths of each company and then identify where exactly do the complimentary set of offerings exist that would make this a good match.
As shown in the figure, OpenMarket was doing extremely well in the U.S., while offering connectivity and personalized services in other regions through partnerships with other service providers. Somewhat of the opposite was true for MX Telecom - good set of solutions, great business in Europe and other regions while gaining momentum in the US, but still playing catch up to the top revenue-generating aggregators in OpenMarket, mBlox, and Mobile Messenger (previously VeriSign).
With huge messaging volumes generated worldwide from global brands and social networks such as Facebook, Twitter, and others, and a renewed interest from global businesses to further leverage the mobile channel for payments & messaging, there was a pressing need for OpenMarket to establish a direct set of capabilities to help its customers (and prospective customers) achieve global distribution through a single integrated mobile transaction hub. Imagine a scenario in which a leading brand wants to work with OpenMarket, but then realizes that it will probably have to work with a different messaging aggregator for connectivity in other regions. Additionally, OpenMarket has a strong reputation for quality of service, and extending the same level of service delivery assurance to its partners across different geographies could become a challenge.
Now, someone like an MX Telecom could offer both U.S. and international connectivity and OpenMarket could then lose out on that opportunity. Thinking competitively, there was nothing preventing MX Telecom from approaching any referral customers of OpenMarket with an offer to provide domestic AND international connectivity services perhaps at lower rates. However, strong reputation and customer support abilities of OpenMarket makes leading brands want to work with OpenMarket only. All these dynamics were likely to create friction in the marketplace which was not good for the industry – especially as the global off-deck messaging and payments space is poised to become the next growth driver for mobile services. Realizing this dynamic, OpenMarket acquired MX Telecom to take the first step towards becoming a global industry participant.
Overall, OpenMarket's acquisition of MX Telecom appears to be a good move for both companies. OpenMarket gets a global footprint, while MX Telecom brings its valuable platform and value added services to the service mix. Several services such as WAP billing, mobile payments, and others have been facilitated by operators and their partners in other regions such as Europe – MX Telecom brings a rich set of experience to the combined entity and will strengthen OpenMarket's market position in all these areas. When coupled with high-quality services and support philosophy of OpenMarket, along with a strong support of a leading telecommunication OSS and Customer Experience organization such as Amdocs, the combined entity will quite likely be a potent force in the global payments and messaging aggregation business.
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