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Technology Giants View Cell Phone Ads As Moneymaker

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By DINA BASS and CRAYTON HARRISON, Bloomberg News

Published: December 11, 2007

Google, Microsoft and Yahoo aim to generate billions of dollars in revenue over the next decade by selling advertising on mobile phones.

Their biggest obstacle isn't one another. It's wireless carriers such as AT&T and Verizon Wireless, which have kept mobile Internet rates high while defending other revenue sources that the advertising may undermine.

At stake is a market that may surge tenfold to $16.2 billion globally by 2011, says EMarketer, a research firm in New York. Google, based in Mountain View, Calif., sees as much as half of future sales coming from mobile phones. Although the United States accounts for about 50 percent of global revenue from promotions viewed on computers, the figure drops to 27 percent on phones and may rise to 29 percent by 2011.

"The carriers are too busy trying to protect the money they are making now to look at the next way to make money," said Chad Stoller, who heads the mobile practice at Organic, a San Francisco ad agency. Phone companies "want to control every aspect of the relationship between the consumer and the phone."

Even though they would share in the revenue, U.S. phone companies haven't yet embraced ads because they're wary of giving up control of their networks, ad buyers and Internet companies say. Phone companies say that while they are interested, they are moving cautiously to protect customers.

The top U.S. wireless companies boost earnings by selling add-ons such as ring tones and Web access. They don't offer cheap all-you-can-eat Internet plans, meaning just 13 percent of U.S. subscribers surfed the Web on phones last quarter, said Nielsen Co. in New York. More than half of Japanese mobile users access the Web, according to Tokyo's Video Research Interactive.

Lack Of Standards Is An Obstacle

There are so many different networks, phones and programs that it's tough to create ads in the United States.

"It's a hairball," said Scott Ferris, a senior vice president in Microsoft's Atlas ad unit. "There are no standards."

Google, Microsoft and Yahoo want to sell ads that appear as banners on mobile Web pages, link to on-the-go Internet searches, promote nearby attractions on driving directions and send coupons for products through text messages. Phone-service providers would get a cut of ad sales in exchange for participation.

Telecommunications companies worry that ad-funded Internet and phone services may jeopardize revenue from subscriptions, said Phil Asmundson, a vice chairman at Deloitte & Touche LLP in Stamford, Conn. Cheap Web access would make it easier for consumers to go directly to Google, bypassing the carriers' services such as searches, driving directions and videos.

Ralph de la Vega, who runs the wireless unit at San Antonio, Texas- based AT&T, the biggest U.S. mobile operator, said he is concerned that users with less-powerful phones would have trouble viewing ads.

"We want to do this one right," de la Vega said in an interview. "It's too important."

Verizon Wireless, based in Basking Ridge, N.J., is "committed, but we're going to be methodical on how and when we implement our solution," said John Harrobin, vice president of the No. 2 U.S. wireless company.

On top of the $40 to $50 the average customer pays each month for basic calling plans, AT&T, Verizon and Sprint Nextel Corp. typically charge $30 to $40 for full Web browsing on handsets. Services that let people find shops nearby can run an additional $10.

Tech Companies Moving Forward

Google, the most popular Web search company, aims to generate half its revenue from mobile phones within 10 years, up from almost none today. Microsoft, the biggest software maker, wants a revenue source outside of personal computer programs. Mobile subscribers will outnumber PC users by 3 to 1 by 2008, says Credit Suisse Group.

Microsoft bought five companies with mobile-ad assets in the past two years, including Tellme Networks and AQuantive. Google's 2005 purchase of Android became the basis for phone software code anyone can use, unveiled last month in a bid to break the control that mobile phone companies have over what programs work on which device.
Google is negotiating with carriers on ad projects, product management director Dilip Venkatachari said. The company isn't depending on the mobile operators, though. It plans to bid for wireless airwaves in January and is testing a free service that pinpoints users' locations on mobile maps, bypassing phone company charges.

Cosmetics maker L'Oreal SA, which gets up to 30 percent of its online sales in Japan from phones, has largely avoided mobile ads in the United States.

Few American mobile users surf the Web, and the carriers have too many types of networks and phones, said Georges-Edouard Dias, the Paris company's e-business leader. In the Britain, the company promotes mascara by distributing a 1-pound-off ($2 off) coupon through handsets.

Brian Arbogast, who runs Redmond, Wash.-based Microsoft's mobile services, still expects wireless ads to be worth several billion dollars. How soon, he doesn't know.

"The biggest determinant is really going to be the willingness of the network operators to experiment," he said.

Apple's iPhone, with a $20 monthly Internet plan, is spurring interest among U.S. consumers in mobile Web surfing and may force telecom changes, ad executive Stoller said.

In September, Microsoft struck a deal with Sprint for the first U.S. service that lets users speak a search term like "carwash" into their phones to view nearby matches.

"Once you already have a customer spending a lot of money with you every month, it's hard to get them to spend another $10 or another $5 or another $1," Arbogast said. "The incremental dollar in advertising revenue might be a lot easier to get."

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