Telefonica sees partnerships as key to accelerating growth in its advertising business

​Telefonica wants to become a force in the $100bn mobile advertising market, and while it has not ruled out acquiring adtech in the future, it has talked up the importance of leveraging the richness of its first party data via partnerships.

It might sound counterintuitive for a business like Telefonica to downplay how adtech could help it profit from its biggest asset – its one-to-one transactional relationship with users – and yet it thinks its ad exchange Axonix is enough (for now).

This is a slight departure from the earlier aggressive efforts of its UK entity, which has made a sustained effort to carve out a chunk in the mobile advertising market there since the turn of the decade in the guise of O2 Media, which later evolved into Weve, an entity it took 100% ownership of in 2015.

Will Telefonica buy further in adtech?

True, a larger adtech operation would allow Telefonica to introduce more targeting and cross-device matching capabilities for advertisers, but why should it bankroll a costly acquisition spree when there are companies like AOL willing to unite to outflank the walled gardens of Facebook and Google?

Furthermore, operators cannot get scale by building their own adtech stack. The industry is riddled with failed partnerships and short-lived joint ventures between mobile operators – as embodied by Weve’s brief guise as a co-owned entity between EE, O2 and Vodafone – as they struggle to build the right technology and need external support.

“I don’t think anyone would say there’s a shortage of adtech in the market,” says Telefonica’s global director of advertising Dan Rosen of why Axonix will remain its route into advertising.

“The fact is when you look at the billions of ad requests that go into Axonix daily and the market penetration, and scaleability that gives us then we have a situation where we can access that [advertising] ecosystem as we need to. We don’t feel the need to push beyond that.”

Unlike Verizon in the US, with the sprawling adtech stack it has amassed with its near-$9bn shopping spree over the last 18 months, Telefonica’s charge for advertising budgets rests on how its ad exchange sharpens demographic, behavioural, and location targeting via partnerships. Partnerships that will be closer to the one O2’s Weve has with AOL in the UK, whereby the telco benefits from the adtech and media from other companies but still controls the infrastructure around delivery of the ads.

Can 'open relationships' topple 'walled gardens'?

These “open relationships” are what AOL boss Tim Armstrong expects will be key to his own business cracking the Google/Facebook duopoly. And when O2 bought Weve two years ago from the joint venture with EE and Vodafone it was offers like the AOL alliance that it wanted to offer programmatic display advertising from what it calls “the biggest first-party data set on mobile” in the UK.

“Are we going to be creating more partnerships [like AOL]? Yes I expect so,” teases Rosen. “But it’s not something that we’re looking to just dial up and secure loads of similar deals. Our view – especially when it comes to something as valuable as our data – is [that] we want to see how this partnership performs and then move on from it. A company like Telefonica with the level of data that we have, partnerships aren’t something we rush into. “We’re definitely looking for other strategic partners and we’ll definitely have other discussions but likewise we don’t want to form them just for the sake of it.”

One partner is Datami, the data specialists which will allow Telefonica's A2P business to offer sponsored data beyond Latam. Pitched as a way for people to actively engage with brands in return for more data, Rosen views it as a “real opportunity” for them to get better increased engagement.

While momentum is gathering behind Telefonica’s advertising proposition, observers shouldn’t expect it to push the business into direct deals with advertisers and agencies anytime soon. Rosen neither confirms nor denies that the telco could strike deals with either group, conceding that “you can never say where you’ll end up”.

To further clarify Telefonica’s stance, he assures that “we are focused on what we’re doing”, yet “in the future who knows how the market will evolve?” This is especially the case given the ongoing disruption in the advertising space.

Size matters

“Mobile advertising is largely a global open ecosystem well-served by [supply-side platforms] SSPs, exchanges, [demand-side platforms] DSPs, cross-device vendors, and marketing cloud companies,” says Tobin Ireland, co-founder and chief executive at telco data monetisation platform, Smartpipe Solutions.

“There are over 100 mobile operators in the largest-25 mobile advertising markets that represent the vast majority of mobile ad spend. Scale matters in the business and it’s unlikely a single operator – even large ones like Verizon and Telefonica – could ever build a mobile advertising business to replace this complex ecosystem and unleash the full potential of mobile operator data,” he adds.

Mindful of just how much is changing, Rosen believes the industry needs to be greater than the sum of its parts to advertisers. Pointing to how online media’s gatekeepers – Google and Facebook – talk to the market, Telefonica’s advertising boss notes the “one voice” they share, contrasts to the scattered voices of mobile operators.

Telefonica's priorities at Mobile World Congress 2017

It’s why at Mobile World Congress next week (27 February-to-2 March), he will meet with “like-minded characters” at other carriers to try and craft the beginnings of a “common story”. More like an unofficial club than a weighty co-op, the group would ideally learn from each other’s’ advertising strategies, an admission that carriers have poorly articulated the potential scale of their advertising propositions to date. “Now it matters more than ever that we [the telecoms industry] have one voice,” he says.

“Often, people in the adtech world understand or are starting to understand what we do, but I’m not so sure about how great that awareness is within the wider CMO [chief marketing officer] community … that telcos are one of the few global partners that can provide them with the sort of audience insights that they need to really power their advertising. Just by doing that I think it would shift the needle in terms of how the telcos could be used by CMOs.”

Helping the CMO and telco build trust

The recent furore around brands such as Mercedes-Benz and Thomson Reuters inadvertently funding terrorism through programmatic advertising only exacerbates that need. The promise of online advertising was that it would be more accountable and precise than the worlds of print and broadcasting. However, the advent of programmatic has clouded that promise in a fog of wasted budgets and fake views.

“The situation as it is now where advertisers are saying they’re not happy [with the media supply chain] is one where I think telco data – or data which is authenticated by the billing relationship – becomes even more valuable in a world where transparency and trust is at a premium and is something marketers want,” explains Rosen.

“Working with brands like O2 to buy our data, we think that will be attractive to brands because they know what they’re getting into. We’re very supportive of the ecosystem looking in the mirror and cleaning itself up.”

Trust starts with privacy-compliance

There is a lot of marketer interest in that information because it is tied to actual individuals. For the same reason, however, there is potential for resistance from privacy advocates, especially ahead of sweeping data reforms across Europe next year, as data protection regulators impose The General Data Protection Regulations (GDPR). While he declined to reveal exactly how, Rosen says it was “planning” for Europe’s imminent privacy regime, one that will prevent companies from using an individual’s data unless they have direct consent from the consumer. Although one harbinger would be how Telefonica's startup programme Wayra has taken a six-figure investment in data privacy specialists

“We want to be in a situation where advertising is communicating with real people and understanding them in a way that’s reflective of their actual life experiences,” Rosen says.

It’s a long-held view shared by his peers at rival firms, all of them much too-aware that voice and data packages can’t deliver the growth they require, a scenario often referred to as the 'dumb pipe'.

“Now that we’ve passed this inflection point to mobile usage to desktop usage you’d think this would have a transformative effect on the creative and media agency worlds but I’m not sure that’s necessarily following through yet,” Rosen concluded.

Daniel Rosen will is scheduled to appear twice on stage next week at Mobile World Congress, check here for further details

This story was updated on 21 February to clarify Telefonica's stance on acquiring more adtech.