The future of mobile marketing in the Middle East: trends and opportunities

Direct marketing techniques range from simple direct mail campaigns to more sophisticated relationship-based web promotions. In the United States and Europe, total expenditure on direct marketing can be as much as 20% of total advertising budgets. However, according to a recent Booz Allen Hamilton survey, direct marketing represents a mere 2% of total advertising spend in the Middle East. A key impediment to direct marketing in the region is the lack of reliable and efficient residential postal service delivery. In addition, the relatively low Internet penetrations in many Middle Eastern countries are limiting advertisers' appetites for on-line advertising. In 2003, total Internet advertising spend in the Middle East, excluding non-cash barter deals, did not exceed US$6 million.

The convergence of the telecom and media industries is leading to new opportunities in infotainment-related value added services, including mobile marketing. This development could prove to be an effective way to invigorate the historically underdeveloped direct marketing industry in the region and open an attractive new option for advertisers.

The rise of the mobile value-added services industry is already evident from the proliferation of mobile ringtones and logos and the emergence of services such as SMS breaking news from Al Jazeera TV. Figure 2 shows how a wide range of media, technology and telecom players are involved at the various stages of the value-added services value chain in order for content to eventually reach the mobile phone screen. Content supplied by the likes of Disney and Rotana is delivered by service providers using specialized IT applications via mobile operator networks to be displayed and manipulated on mobile devices.

"The current market for value-added services in the Middle East is estimated at around US$350 million, which is distributed across the various players along the value chain according to a web of content fees and revenue sharing agreements," said Karim Sabbagh, Partner and Vice President with the communications, media, and technology practice at Booz Allen Hamilton, based in the firm's Riyadh and Dubai offices. "Half of the current market value is in the form of mobile personalization services such as ringtones, logos, wallpapers, etc. Operators, media owners, and independent value-added services providers are already tapping into this market. As a result, future growth is expected to come from value-added services categories such as general entertainment, interactive media services, gaming, and information, bringing the total market to over US$1.7 billion by 2010."

Gabriel Chahine, Principal with Booz Allen Hamilton and a member of the Global Communications, Media, and Technology group based in Dubai, said, "Augmenting the mobile value-added services industry with the classical direct marketing activities of customer database management, creative, and campaign services management instantly creates an altogether new industry for mobile marketing. Mobile marketing seems to be one of the most attractive options for advertisers."

The upside potential and unique nature of mobile marketing at the intersection of media, telecom, and advertising is attracting four types of players with varying business models.

1. Telecom operators are attempting to leverage existing application and service provisioning to build direct marketing capabilities. Operators' key advantage lies in their existing mobile portals, billing relationships, large customer databases, and their position on the value chain as the gatekeeper to customer access. However, operators are not advertising agencies and have no experience in designing and running campaigns. Therefore, many have been content to focus on simple format, high volume consumer campaigns, such as TV voting or selling SMS in bulk to corporate clients. Notwithstanding the above, some operators have created new mobile marketing divisions such as O2 Interactive and Vodafone Target. Similarly, NTT DoCoMo created D2 Communications as a wireless advertising subsidiary to deliver advertising on i-Mode.

2. Advertising Agencies are extending their traditional media services offerings into the mobile marketing space. The key strategic objective is to complement traditional media campaigns with mobile marketing vehicles such as SMS in order to differentiate their offerings to existing clients and attract new brand relationships. Most agencies, such as Carat Interactive and Oglivy One, are partnering with content and application service providers to secure technology and delivery capabilities. Some new entrant players, such as 12Snap, aim to position themselves as new media agencies specialized in interactive mobile marketing by focusing on mobile marketing creative services and partnering with application service providers such as Lucent and NeoMedia for mobile software and patented technologies, such as PaperClick - an application to capture bar codes and ISDN product codes through a Nokia mobile camera and retrieve product information including the retail price in alternative outlets.

3. Operator Partner Companies are spin offs from mobile operators in order to prevent the momentum of the much larger core business from subduing the creativity and entrepreneurial spirit of their new mobile marketing ventures. Mindmatics, a mobile marketing market leader in Germany, has T-Venture (the venture capital arm of T-Mobile) as one of its main investors. Mindmatics has built up extensive in-house marketing and creative services capabilities, as well as a wide range of mobile applications as part of its core portfolio. At the same time, a strategic alliance with T-Mobile allowed Mindmatics to co-develop a 6-million-profile database in the UK along 100 different selection criteria and to leverage T-Mobile's pan-European network connectivity while maintaining enough independence to work with all mobile operators in any given market.

4. Independent Players are greenfield entrants offering specialized mobile marketing applications, content, and services including integrated creative and campaign management services. For example, Flytxt is developing multiple proprietary application platforms and offering business strategy, marketing, and technology consulting services as shown in figure 4 below. Players such as 12Snap are more focused on creative services and aim to position themselves as new media agencies specialized in interactive mobile marketing. In the Middle East, players such as Spot Cell are starting to build their own consumer databases, develop creative services capabilities, and procure sophisticated marketing applications from international vendors.

These different players are gearing up to win future mobile marketing campaigns that are becoming increasingly sophisticated and integrated in nature. Rudimentary mobile marketing campaigns such as branded ringtones/logos and mass SMS for event marketing are unlikely to persist in the future. More elaborate and integrated mobile marketing is already emerging in the form of mobile promotion coupons, branded multi-level games and CRM marketing that includes personalized information alerts (customer retention), loyalty schemes, and mobile community marketing. A good example is when Mobileway and Adreact created a campaign for Dunkin Donuts in Rome, Italy, which was designed to increase footfall in the Dunkin Donuts stores and raise awareness of the brand. The lead was in the form of four billboards, two-week radio plugs, 1,500 leaflets dropped among students, and posters in all eight of the Rome outlets. Donut lovers were invited to enter a prize draw using SMS, receiving in return a money-off or free coffee voucher sent back to the consumer's handset for redemption in stores. Further interaction was encouraged with options to text to obtain addresses of the franchise outlets, statistics regarding Dunkin Donuts, or employment information. Redemption of the SMS coupon in-store and purchase of a donut automatically entered users into a draw for a free Piaggio scooter.

Ahmed Galal Ismail, Associate with Booz Allen Hamilton based in the firm's Dubai office, commented that, "The key success factors of mobile marketing hinge on multimedia creative services, access to advanced technology, and elaborate permission-based customer databases. The emerging players are challenged to build a sustainable operating model with the required core capabilities. Prime mover advantage is also likely to be a winning strategy for players needing to build capabilities, relationships, and market shares ahead of multiple new entrants in this exciting new market."

Recent forecasts based on actual revenues to date are projecting mobile marketing revenues in Western Europe to grow by 97% annually, reaching US$560 million in 2006. This tremendous growth is primarily driven by an estimated 71% of direct marketers adopting SMS as a marketing media over the next two years.

The rising penetration of mobile phones in the Middle East due to increased competition and falling prices - coupled with the overall underdeveloped state of direct marketing in the Middle East - underscores the potential of mobile marketing. In addition, current and potential heavy users of mobile marketing in Europe, such as consumer goods and automotive companies, are already well represented in the region with significant annual advertising budgets. As such, regional mobile marketing revenues are projected to grow by 52% annually reaching over US$50 million by 2010.

A potential inhibitor of mobile marketing growth is SMS spamming. Unlike email spam, SMS spamming is unlikely to persist in the long term. Advertising SMS messages are usually charged a flat price - fixed for each SMS sent, independent of its effectiveness. Spam SMS response rates tend to decrease over time as the novelty effect wears off for recipients who get increasingly annoyed by the intrusive messages. Consequently, the cost of responded advertising SMS messages increases significantly, making SMS spamming cost ineffective in the long term. It is in the best interest of market players to avoid the temptation of short-term gains from SMS spam and focus their efforts on creating a sustainable mobile marketing offering.

Looking forward, mobile marketing could rejuvenate the vastly underdeveloped direct marketing industry in the Middle East. A sustainable business model for any mobile marketing service provider would have to rely on a mix of in-house and partner capabilities along an emerging value chain that mixes elements from the advertising, media, and telecom industries. A handful of independent players are already starting to shape the market across the region, but many operators and agencies have been less engaged. Overall, the potential size of the mobile marketing prize in the region is significant. However, the market will only realize its full potential if players actively and cooperatively invest in developing the market and respect consumer privacy, instead of focusing on unsustainable short-term gains.