Cashing In on Mobility: Real Money in Advertising, Content
While most UC&C vendors have stumbled through the money-losing boondoggle of mobilizing UC, a few have caught on to where the real money is to be made.
Those of us who work in enterprise networking are imbued with practicality. We make things work, we organize complex implementations, we have backup and recovery plans, we test them (well, sometimes), we optimize our configurations -- we get the job done. So, when UC&C came along, we naturally focused on developing reliable ways of extending those marvelous capabilities to mobile devices.
In so doing, we used the mobile network's data capability as an out-of-band signaling channel that would scoot business calls from the mobile network, through the UC or IP-PBX platform, and on to their destinations with a jim-dandy mobile app. However, nobody used the apps, none of the vendors made any money, and we all moved on.
Worst Case Comes Calling
The consumer mobile business follows a completely different, and what has turned out to be, a far more lucrative model. The focus there is on discovering either useful things for helping people accomplish practical tasks and keep in touch or totally goofy things people use to entertain themselves (Pokemon Go, anyone?). The best part is, you can get almost any of these apps without risk because the vendors are giving them away for free.
This model brought to fruition the mobile operators' dreaded worst-case scenario: As the use case changed from voice calling convenience to text-, data-, and GPS-driven environments, the mobile network would become the dumb pipe for someone else's highly profitable service. Of course that is exactly what has happened, and along the way consumer electronics has launched into the new millennium and we've seen delivery of services and capabilities that I for one would never have imagined possible (not to mention the making of countless creative geeks into multi-millionaires).
Of course calling these services "free" is a misnomer; these new-generation tech companies have found a way to monetize the value of exposure in our consumer-driven economy. In a nutshell, the new mobile entrepreneurs borrowed a script from broadcast TV. Give people great entertainment (I'm talking Lucille Ball, Jackie Gleason, and Carol Burnett, not "Naked and Afraid") for free, but make them sit through about eight minutes of advertising during a 30-minute program. Survival in a mass market environment required exposure, so advertisers underwrote the entire broadcast TV enterprise, which fortunately included a great news division.
Digital Ads Where You Live
The Internet took that "pay for eyeballs" model to a new level by increasing the accuracy of targeted messaging by orders of magnitude. An entire science grew up around how best to analyze a person's Web activity to determine what he or she is interested in buying. Compare that to the blunderbuss approach of national advertising on broadcast TV. Marketers recognized the advantage immediately, and started shifting their ad spends from broadcast to digital. Now marketing research firm eMarketer predicts digital ad spending will surpass TV in 2017.
In the U.S. alone, digital ads raked in roughly $60 billion in 2015, a 20.4% increase over the previous year, and mobile-directed advertising increased 66%, the Interactive Advertising Board has found. Meantime, Facebook attributed 84% of its $6.2 billion in quarterly ad revenues to mobile ads; mobile ads represented 11% of ad revenues in 2012, as reported in the Wall Street Journal article, "Tech Sector's Profits Are Fueled by Mobile, Cloud." The same holds true for Google where roughly two-thirds of its $21.5 billion in quarterly ad revenue is tied to mobile ads, as WSJ reported.
While some UC&C vendors use a freemium pricing model for their new social collaboration platforms, the "give away the goods and charge for the eyeballs" idea doesn't fit their traditional business models. However, some are starting to transition to that sort of model.
In mid-2015, AT&T acquired satellite TV provider DirecTV for $49 billion. When you add AT&T's roughly five million U-Verse customers to the DirecTV base, media and communications research firm SNL Kagen estimates that the combined 26 million subscribers makes AT&T the largest pay TV provider in the U.S., beating out Comcast by roughly four million subscribers.
While AT&T is going for content distribution, Verizon is emulating the Google model and leveraging search and Internet advertising. In 2015, Verizon bought AOL for $4.4 billion, but its big catch was the Yahoo! core business, which it picked up last month for $4.8 billion. Yahoo! boasts one billion visitors a month. That's still relatively small stakes in the $60 billion U.S. digital advertising market, where Google captures 39% of the revenues followed by Facebook with 15%; Yahoo! pulled in 3% of ad revenues last year.
For AT&T and Verizon, pay TV and Internet search are radically new areas of investment. Their mobile businesses are still duking it out over bundled plans, pre- versus post-paid subscribers, and "net new adds," so we will have to see if the more freewheeling spirit of these industries has any impact on the companies' traditional "telephone" cultures.
By far, the most interesting crossover comes from Microsoft and the $26.2 billion acquisition of LinkedIn it announced in June. This one is interesting because it sticks closer to Microsoft's enterprise roots, but could potentially put the company in place to cash in on some of that advertising lucre.
The immediate, widely recognized allure is that Microsoft can turn its analytics engines loose on the biggest digital Rolodex in the world, with 450 million users worldwide (128 million of those in the U.S.), it now owns. The best part is that the users do the grunt work of keeping their own profiles up to date. Salespeople routinely do a LinkedIn search on every new prospect, but the ability to see the big picture created by applying analytics would clearly add value.
LinkedIn has been something of a laggard in terms of generating ad revenues, garnering only $454 million, or 0.7% of total ad revenues, in 2015. It will be interesting to see if Microsoft can reverse its record in capitalizing on acquisitions and turn that advertising opportunity into something meaningful.
Free Trumps All
The tech economy has transitioned into a new world with the advent of advertising-sponsored services. People can get free email, news/sports/weather, directions, voice and video calls, entertainment, and instant access to virtually any piece of information almost instantaneously from devices in their pockets. In the meantime, the carriers whose services make all of that possible are engaged in a fight to zero -- delivering more and more competitive data plans while investing heavily in their networks to keep even with each other. AT&T and Verizon are now investing to get into the profitable part of that revolution.
If absorbing the business model of new-generation tech businesses is a stretch for carriers, then it's a gargantuan leap for traditional UC&C hardware suppliers. From a strategic standpoint, I look at their efforts to move to software and transition to the cloud as baby steps. I also see the new business model as one of the drivers for enterprise users gravitating toward those same consumer services -- "free is a hard price to beat," and what they're getting is pretty darn good. Fueled by the unbelievably lucrative advertising profits, new-generation tech companies can simply outspend the old-line hardware manufacturers on R&D. (Note that Apple remains a unique exception.)
For years we've tried to divide the tech business between consumer and enterprise, but the consumerization of IT is eating away at that distinction. In the end, it's all about money, and unless our traditional enterprise hardware and network suppliers can figure out how to get into the new value stream, their futures might not extend beyond the door of the wiring closet.