Mobile is the new internet battleground

By Gideon Spanier


First there was the broadband bonanza. Now, the technology world is betting that, after several false starts, using the internet via a mobile phone will become their next cash-cow.

The partnership between O2 and Yahoo!, announced with great fanfare this week, is the latest move in a rush to explore this potentially lucrative market. Growth in voice calls is slowing so mobile phone companies are keen to find revenue from a burgeoning new area: putting adverts on your mobile phone screen.

Of course, web search giants Google and Yahoo! already dominate the online PC market. 'Paid-for-search' - where advertisers pay to be included in search engine listings - accounted for 57% (£762m) of online ad revenues in the UK for the first half of 2007. So mobile companies want a slice of the action.

In practical terms, 02's deal means its customers will now have a Yahoo! search box as part of their phone's main display. Others have formed similar alliances, such as Vodafone with Google.

But the mobile advertising market is still in its infancy. 'In comparison to online via a PC, it's a fraction of the volumes,' says Mark Slade, managing director of mobile specialist 4th Screen Advertising. 'Most mobile search advertising is for providers of ringtones, games and adult video clips. Traditional online spenders such as financial services companies aren't spending on mobile yet. Because consumers aren't asking for insurance via their phone, such companies haven't been investing in mobile internet sites.'

This scenario sounds familiar to those who watched the rise of internet advertising on PCs. Once the pioneers got the technology right, Tesco and Marks & Spencer followed. The same should happen with mobiles.

But do the public really want to be bombarded with adverts on their phones? Probably not. We all know spam and pop-up ads are the most irritating things about going online on the PC at home or at work.

No surprise, then, that advertisers have been wary. The key lies in developing technology that will target ads carefully at the right people - the Holy Grail of online marketeers.

Many in the industry believe the quality of images that can be viewed on the handset is key. Remember all those billions mobile companies spent on buying '3G' or third generation licences in 2000? They spent £22.5bn in the UK alone. The problem was, hardly anybody bought the phones. Even today, little more than 12% of mobiles in western Europe are 3G. This is way short of the kind of critical mass of broadband.

But 3G is coming, albeit slowly. And with the extra wizardry it can bring, so mobile ads are becoming more sophisticated. Phone screens are also improving and tariffs are getting cheaper. Thanks largely to the buzz surrounding the recent launch of Apple's iPhone, interest is finally starting to rise. As the graph above shows, estimates suggest more than 80% of mobiles in western Europe and America will be 3G by 2011.

Companies involved in mobile advertising are bullish. But some industry watchers are still cautious. Are there enough people out there who really want their phone to be more than just a, well ... phone? And will advertisers find a way of creating online ads that don't just turn people off?

The truth is, nobody knows. But one thing is certain: the phone companies that spent billions on 3G licences will have to wait a long while until they get their money back.