The telcos strike back: Is it time to view mobile operators as serious contenders in digital advertising?

Ahead of this year’s Mobile World Congress expo in Spain, The Drum explores the resurging influence of mobile operators in the digital advertising game – a marked trend in 2015, after many had written them off as serious contenders in adland.

In the nascent days of mobile internet usage, mobile operators ruled the roost for any player looking to get into the mobile advertising game, as well as mobile content (remember the days of Crazy Frog?). Hence, mobile operator portals were the digital industry’s original ‘walled gardens’ – another phrase that is currently de rigeur in 2016’s digital industry.

As far back as 1998, BT Cellnet, a then dominant player in the market which ultimately became O2, was promising mobile users superfast download speeds via their mobile phones, but a lack of delivery in terms of performance speeds plus prohibitive pricing kept usage low.

Operators as the original walled gardens

It was in the first decade of the century that mobile operators, or telcos, then at the zenith of their powers over the mobile content landscape, began to deploy teams promoting mobile advertising opportunities, but a lack of audience scale failed to stimulate brand interest in significant amounts.

Since then, the ascendancy of Google (with its Android handset operating system) and Apple (with its iOS version) plus their respective distribution stores, and increasingly Facebook, has seen Silicon Valley’s largest names come to dominate the mobile advertising game.

According to eMarketer estimates, Facebook and Google control approximately three-quarters of the global mobile advertising market, and telcos wary of becoming ‘dumb pipes’ (ie subsidising the delivery of ads without gaining any incremental revenue) want a piece of this action.

The ultimate ad blocker

From 2015 onwards, it has become increasingly apparent that UK telcos EE and O2 are mulling a pairing with ad blockers – widely reputed to be Shine Technologies – to prevent ads being served at a network level, an opportunity that was already taken up by Caribbean telco DigiCel in 2015.

This means ads can be blocked even before reaching an ad blocker installed on a mobile device (such as Eyeo’s AdBlock Plus). One business case for telcos to pair with ad blockers is to use the prospect of a full implementation as a means of encouraging Google et al to volunteer some degree of revenue-share in exchange for ferrying this traffic. It does, however, raise issues around net neutrality (a protocol where telcos have to treat all traffic on their network equally) and is likely to be a key area of debate at this year’s Mobile World Congress.

Telcos acquiring interests

In the other dominant narrative of 2015’s digital advertising sector – the ongoing slew of M&A activity – it was US mobile operator Verizon Wireless that stood out with its $4.4bn purchase of AOL (arguably the original iconic brand of the internet era) in a move that signalled its intent to monetise audiences across screens.

Speaking with The Drum, Tim Mahlman, president of publisher platforms at Verizon-owned AOL, said his ambition for its publisher-focused unit was to leverage the newly acquired assets posed by its recently acquired Millennial Media to improve its mobile offering.

“In 2016 we’re going to be about the publisher,” he says, “and in particular we’re doubling down on mobile, with the Millennial assets and skillsets. And with Verizon coming on board we’re able to unify all our assets under one platform to provide value for publishers.”

The Drum attempted to contact Verizon Wireless directly to ascertain how digital advertising would play into its overall strategy, but while it was unable to respond by time of publication AOL chairman Bob Lord earlier told this publication how the telco business could help it monetise both at home and abroad.

Ad tech helping operators transcend borders

The addition of AOL’s online ad offering augments Verizon Wireless’ Fios TV set-top boxes, according to Lord, meaning it can help advertisers tell sequential stories to consumers across screens and, ultimately, scale their revenue streams outside of where they are licensed to operate as traditional telcos.

Meanwhile, discussing the potential for its mobile advertising business outside of its US base, Lord adds: “There’s another business Verizon owns, called VDMS, and it competes against Acaman and it delivers video content in some 50 countries.”

From here, AOL can tap into the VDMS data to help deliver ads to mobile devices and set-top boxes in addition to looking at what strategic partnerships Verizon has across the globe, says Lord.

However, while Verizon’s purchase of AOL may have been the costliest in terms of dollars, it certainly wasn’t the first, with deals previously witnessed in the Oceania region, such as Singapore’s Singtel buying Adconion and Kontera, as well as Australia-based Telstra purchasing video buying platform Videoplaza in 2014.

More recently Norway-based Telenor bought its way into the ad tech space with a 95 per cent stake in Tapad, a US-based outfit specialising in mobile advertising, in a deal reported to be worth $360m.

In addition, pan-European telco Telefonica, which also has extensive interests in Latin America, has pitched its hat into the mobile advertising ring by acquiring the distressed assets of Velti and launched its real-time ad exchange Axonix.

The challenge of cross-screen

For most operators acquiring ad tech, the challenge is to mine their vast swathes of mobile-centric data and then mesh it together with the audience intelligence and targeting capabilities gathered through their latest assets, according to Paolo Pescatore, an analyst specialising in the mobile content sector at research house CCS Insight.

Such a technique is commonly referred to as building a “device graph” using deterministic data (ie verified logged-in user data) that can help advertisers more accurately target audiences across screens.

This is something that has helped Facebook in particular take great strides in mobile advertising, so much so that in its latest quarterly earnings the social network reported that 80 per cent of its advertising revenues for the period where generated by ads served on mobile devices.

Data mining

However, while mobile operators may have masses of data at their disposal, the historic difficulties in making all of this actionable have stemmed from being able to mine it in real-time, plus nervousness over the potential infringement of regulations over the disclosure of personally identifiable information (PII) to third parties, according to Bill Fisher, an analyst at eMarketer.

Scale, scale, scale

The challenges of building sufficient scale are, of course, still at the core of mobile operators’ challenges when it comes to making significant dents in the mobile advertising sector. One such mooted attempt to address this problem (one borrowed from the publisher consortium model) has been for operators to pool their resources.

A prime example was Weve in the UK, where O2, EE and Vodafone all joined forces to prove a point of difference in the market (although this combined approached only last 18 months and the operation was soon taken within O2’s ranks).

One source with knowledge of the internal workings at Weve told The Drum the ambitious project was always going to be a challenge from the beginning, given that each partner found it difficult to work collaboratively when it came to data-sharing, etc.

In recent times, Weve’s operations have been scaled back significantly, amid an ongoing round of consolidation in the UK telco market which saw BT buy the largest mobile operator EE, and Three owner Hutchison Whampoa undertake a similar endeavour with its purchase of O2.

The story of Weve, which merged with O2 last May, demonstrates the difficulties in operators building their own propositions in the advertising game, suggesting the way forward may be for them to buy their way into the market.

As the ad tech sector is expected to undergo further consolidation, the prospect of telcos buying the likes of Yahoo are likely to be a commonly held discussion at this year’s MWC.

This feature was first published in The Drum's 10 February issue.

Ronan Shields

I cover digital media trading and martech for The Drum magazine, plus I write my own opinion pieces, I don't really commission them.

All by Ronan