Digital Republic issues report on Middle East Mobile Advertising Ecosystem: The Challenges and Opportunity

Introduction and Objective of this Report

This report aims to provide a summary of the mobile advertising ecosystem in the Middle East, providing insights into the challenges and opportunities provided by mobile advertising, and offer strategic/ directional insights in order for interested stakeholders to best evaluate and identify their ambitions in relation to the mobile advertising value chain.

In the Middle East mobile advertising is at an embryonic stage, and the industry has only over the last 4 years embarked on defining industry standards, developing business models and providing limited information about the consumers to ensure a targeted user experience which delivers value.

There is however clear signs that the potential is vast, and this is underpinned by major global players like Apple and Google taking active steps to heavily invest in this field over recent years.

What are Agencies thinking about mobile?

In general, from a mobile advertising point of view, brands/advertisers are yet to come to the party in full swing. Within their budget for advertising there is no separate line item for mobile. It is dependent on the individual advertiser (or their media agency) as to whether they are innovative and daring enough to utilise some of the online internet budget and divert that to mobile advertising.

When predicting the future for a developing mobile market much can be predicted from markets that export the original hardware and supporting applications. Hence a study in the US by Media Post's Center For Media Research and digital research firm Insight Express found that more than half of agencies interviewed (57%) had been involved in mobile campaigns in some form or other, 44% none, and 17%, in four campaigns or more. The majority of agencies needed three or more weeks to develop and execute a mobile campaign, with 37% taking more than four weeks. 21% percent took only two weeks.

Internal departments most heavily involved in mobile efforts include creative (78%), account services (69%), media services (67%) and strategy (67%). Least involved were operations (19%) and sales (21%).

Agencies typically looked for outside help in areas including technology (52%), mobile expertise (23%) and production (21%). Two-thirds of ad firms developed completely new creative, while half have also adapted existing online creative for mobile.

Of agencies that have not run a mobile campaign, the majority (71%) expect to do so in the next 12 months, and 22% in the next three months. But 29% don't see mobile becoming part of their business for the foreseeable future.

Now compare this with the Middle East; total digital spend is, according to PARC, around 3% of total marketing budgets yet there has been a 50% growth in Smartphone impressions in the Middle East mobile market but the largest disparity is between consumer usage of a mobile and ad spend. According to mobile advertising network inMobi, consumers with heavy feature mobile phones or smartphones spend on average 27% of their time on the web through mobile handsets. In fact consumers are now spending more time using mobile internet than watching TV.

What are clients thinking about mobile advertising?

Branded apps are what clients find most intriguing about this emerging ad category. However SMS messaging remains the most popular and most 'effective' medium of mobile marketing, particularly in emerging markets such as the Middle East. Indeed, and according to Aegis Media as a result of its CCS study, 20% of consumers in the UAE take note of advertising on the mobile, namely SMS marketing. Hence direct mobile marketing campaigns such as 'text and win' campaigns remain ever popular.

However, as mobile web content and apps continue to aggressively increase, mobile ad impressions on these networks are set to boom.

Spurred by interest in new formats offered through smartphones and mobile apps, an overwhelming majority of brands, agencies and other companies plan to boost mobile ad budgets in 2013.

Given the enthusiasm for mobile advertising unleashed by the iPhone and the accompanying App Store, it's not surprising that branded apps are what a lot of brands find most intriguing about this emerging media. Android and other platforms are now also a major driving force in this space.

Along with apps and mobile web content, other areas considered as intriguing by clients are, location based advertising, mobile video, mobile social media, and mobile coupons. When it came to rating return on investment, however, the less glamorous formats are considered more interesting such as SMS, basic banners and mobile coupons.

Mobile Advertising Channels

Below are the mobile advertising technologies that are currently available.

The following may be categorized as higher penetration, less rich mobile media - "Push" Advertising:
• SMS/MMS Push
• Voice SMS
• USSD
• Mobile coupons

The following may be categorized as lower penetration, rich /multi-media - "Pull" Advertising:

• Mobile ad banners (on and off operator portals)
• Ringback tone ads
• Search advertising
• Notification message ads (eg. "please call me", or balance transfer notifications)
• In application
• in game ads
• Idle screen ads
• Mobile Social media ads
• Augmented reality
• Location based ads

The difference between simply a mobile ad, and a mobile ad campaign is that the latter is the effective use and interlinking of one or more of these channels and technologies together, in order to provide a complete advertising experience on mobile (often also linked with offline and online components).

In terms of emerging channels going forward, Digital Republic believes location based mobile advertising, mobile social media ads, augmented reality, mobile coupons, in app advertising (the latter enabled by technologies such as rich media formats on smartphones/tablets) as the "next big things". Likewise, Mobile Social advertising is becoming increasingly significant for brands going forward particularly in view of Facebook planned activities in this area. I see continued growth in mobile coupons, offering value and reward, particularly when linked with location of the recipient.

Mobile Advertising vs. Mobile Marketing

Mobile Advertising can be categorized as a form of advertising where 'space' on mobile media properties or assets are purchased for the purposes of advertising. The various mobile advertising channels that would fall under this category would be mobile ad banners, in-app ad banners, in-game ads, mobile augmented reality, idle screen ads, notification message advertising (eg 'please call me'), voice/ringback tone ads, location based mobile ads, search ads and mobile TV/ video ads/interstitials on mobile. Predominately these channels are all forms of 'pull' advertising whereby the consumer has the power to choose or even demand the information that suits their purpose.

Mobile Marketing on the other hand can be considered as a direct marketing channel. Essentially it is a sales and promotion technique in which the promotional material is delivered individually to customers via the mobile device. Examples of mobile direct marketing include the sending of SMS, MMS or WAP messages, Bluetooth messaging and other 'push' based mobile channels, whereby messages are typically delivered directly and often en-mass. Typical mobile marketing solutions such as "text and Win" promotions use SMS messaging and backend software systems that trigger responses to a user once they have initiated the process by sending a message to a designated shortcode.

These types of promotions are popular and highly active in a number of markets in the Middle East and around the world. A strong advantage of such a method is the simple interlinking with offline media, where the user is triggered to interact based on seeing an above-the-line ad. For example, and according to Aegis Media's CCS 2012 report, 26% of UAE consumers regularly search for information via the internet immediately upon seeing something on TV. Other forms of mobile marketing include CRM and loyalty related marketing solutions - predominantly using messaging.

Very importantly:
• Mobile Advertising does not require permission and can be considered 'pull' advertising
• Mobile Marketing requires permission and can be considered 'push' advertising, except legislation surrounding data privacy and 'opt-in' is a grey area in the Middle East, hence brands often purchase data from 3rd party suppliers and target prospects without permission. It is our opinion that public pressure followed by industry intervention will prevent such practice before any legislation is enforced.

Key success factors of a mobile advertising campaign

I. Targeting and Relevance
II. Interactivity
III. Rewarding and Entertaining
IV. Creative and Interlinked
V. Technology Selection - Know your target
VI. Measurable and metrics

I. Targeting and Relevance
The first question brands will ask is: "how many people have you got, and who are they?" It is the most important, and yet the most complex as well least developed factor in mobile advertising. Although mobile operators working in this space will claim a degree of profiling on their databases, experience has shown that the profiling is crude, and work in this area is needed.

Enhancement of targeting capabilities lies with the mobile operators and mobile ad networks. In terms of Operators, those who are active are working on segmenting their databases accordingly, while others are developing Opt-in mechanisms where participants provide certain information about themselves. (The latter need not be a mobile operator, however, initiation of the dialogue with the end-customer still needs to have the operators permission). This particular point is highly sensitive in a world where data privacy issues are growing, and 'SPAM' is an increasing factor in our day to day lives. In terms of mobil ad networks, their technologies are offering behavioral targeting, location based advertisements and other formats to enhance performance.

II. Interactivity
One of the key strengths of mobile advertising (as per online advertising), is the interactivity element that allows brands to engage with the customer, building a relationship with them and enhancing loyalty. This interactivity allows for data collection, as well as a dialogue between the brand and end user. In particular, mobile has the advantage over online in that mobile devices are very close to the hearts of their owners - they are highly personal items, and therefore if a brand is able to effectively penetrate this personal space, without 'intruding', then an extremely valuable brand experience can be delivered. New rich media formats, driven by Smartphone and tablet uptake will be a key driver in creativity and interactivity.

III. Rewarding and Relevant
Our experience has shown that an "I scratch-your back if you'll scratch mine" is key to the successful mobile advertising proposition. Being rewarded for providing personal data is a key philosophy that will shape the future of mobile (and online) advertising and the underlying relevance of the campaign. This is particularly valid and can be further clarified through the example of location based mobile advertising: where users may be rewarded for allowing the brand to know where they are, hence providing a highly targeted and relevant experience.

In terms of the actual campaign from the end users perspective, interaction and take up will be significantly increased if the users are encouraged to engage through some form of incentive. Sometimes, the incentive can be as simple as offering pure fun and entertainment in return for engagement with the brand.

IV. Creative and Interlinked
Particularly in view of the new mobile ad formats now available through smartphones, tablets and apps, creativity and entertainment is key to the success of the mobile campaign. In particular when engaging young, tech savvy audiences. In addition to mobile rich media formats, a major component of offering creativity through mobile can be achieved by effectively interlinking and adapting the offline part of the campaign with the mobile and online component - a well interlinked mobile/offline campaign is more effective than either in isolation.

V. Format selection- know your audience
Since mobile advertising inherently leverages technology at the end user side, selection of the format and type of mobile ad technology is key when planning a mobile advertising campaign. Knowing your target audience is critical - offering a mobile ad campaign to a young tech savvy target audience through mobile apps and other cutting edge technology will have a chance of success, using the same technology on older or less-educated (eg rural populations in emerging markets), is doomed to fail. The latter should be engaged through the technologies they know and use in their everyday lives, eg SMS. Planners in a mobile advertising agency therefore need to have a strong understanding of technology as well as advertising know how.

VI. Measurability and metrics
Hesitation by advertisers to fully participate in mobile advertising is partly due to the lack of measurement and metrics to prove the effectiveness of a campaign. For mobile advertising to deliver on its promise, it is essential that advertisers can be provided with reassurance of real metrics; not only in terms of selecting the most relevant and responsive target audience, but also measuring the effectiveness of the campaign itself.

In a nascent media market such as mobile, demonstrating accurate metrics and effective reporting is critical in gaining the confidence of our clients and consequently growing the business. Currently, there remains a degree of fragmentation of tools, systems and platforms in this space, and standardization remains at its early stages. However, various global bodies are currently working on this area to enhance and standardize the capabilities, inlcusing the Middle East which now has a chapter belonging to the Mobile Marketing Association.

Opt in / Opt Out and Mobile Operator Dependence

The evolution of preference management will resolve this issue over time. But currently, this varies across the world. Some countries require individuals to opt-in to receive mobile advertising and others have the opposite view that unless people opt-out, advertisements will be sent (eg Egypt). It is Digital Republic's prediction that the opt-in model will prevail globally.

It is through the agreement to receive advertisements that the extra information needed to make the advertisements more relevant and targeted can be achieved because the opt-in scheme provides individuals with more possibility to control their mobile advertising experience.
To Opt-in, the initial interaction with the user often depends on the Mobile Operator (who 'own' the subscriber mobile number), hence in effect, for non-handset based mobile advertising solutions, the operator owns the inventory. Therefore partnership with operators is critical to 'own' the inventory of mobile subscribers - particularly for mobile marketing/ mobile 'push' advertising. Going hand-in-hand with operator alliances, is the technology / ad serving platform alliances, where ad serving technologies are integrated to the operator 'inventory' to serve the ads to the mobile customer.

As far as operator agnostic mobile advertising solutions go, it is predominantly 'pull' advertising through mobile ad networks and with device centric solutions such as apps and mobile content, the provider can engage and interact with the user without operator dependence - This is a key factor in driving the market forward as operators have proven in some cases to be bottlenecks in this space. This is evident from the rise in players like Google and Apple, (and other independent mobile ad networks), who are investing heavily to own this space through devices (including their own handsets), applications and publisher networks - independent of mobile operators. Partnership with operators will however remain key in driving the ecosystem forward, especially considering the lack of competition between such operators in the Middle East

Mobile Ad Networks (Content and Apps)

Mobile ad networks are becoming increasingly prominent in the eco system. They offer an inventory of'pull-based' advertising options, they link well with multiple exchanges as well as other ad networks, and provide ad serving technologies that facilitate the availability, management and performance of mobile advertising for brands and agencies. The systems they use support self management and planning of ad campaigns and cover regions as well as multiple publishers - whether they be app developers or other mobile content providers and publishers. Their systems offer enhanced features and technologies for improved targeting and performance, whether it be rich media solutions, or location and behavioral based targeting. In our opinion these factors will lead to the Mobile Ad networks becoming major game changers in the mobile advertising space, perhaps even leaders.

With these capabilities and services, we advise clients that budding (and established) mobile ad networks will take the lead in the ecosystem and by working closely with Operators they will consolidate their inventory with push-based advertising. Agencies and brands would subsequently find mobile advertising simplified significantly if they can manage, plan, execute and leverage the high performance options a mobile ad network could offer, particularly if it is consolidated with operator mobile advertising services. In short, mobile ad networks must take the lead, but with affiliation with Operators.

Mobile ad banners (in app or out) warrant a particular discussion because they are currently the 'hype' in the more advance mobile advertising markets. Google making an acquisition of Admob for $750m and Apple acquiring Quattrro Wireless for $450m as well as a recent surge in independent mobile ad networks is testament to this.

So what is it all about? Admob and Quattro Wireless manage the inventory of a vast network of mobile content and mobile applications, each enabled to support banner ads. Enhanced business models offering revenue split of 70/30 in favour of the content providers is one of the factors driving the recent boom of mobile apps. These ad networks offer individuals and agencies capabilities to plan and execute mobile campaigns on their networks. Publishers also can enroll their content, and the ad network systems offer enhanced performance through rich media and other formats.

It is however, worth noting that mobile content in the Middle East remains a nascent market, however mobile app downloads and content is growing in-line with the increase in Smartphone and tablet penetration. Recently, a number of independent mobile ad networks have either launched or are seeking expansion into the Middle East to leverage this trend.

The Operators

Currently from a mobile operator perspective mobile advertising offers the promise of a new revenue stream. However, it is still a relatively new phenomenon and some mobile operators are entering the market with mainly single channel solutions focusing on portal WAP banners or SMS/MMS push campaigns. There are still many operators for whom mobile advertising is not on their radar screen. This is particularly the case for operators in emerging markets where they are still experiencing fast core services growth, hence their priorities lie elsewhere. On the other hand, for other operators who are facing declining ARPU in countries where mobile penetration is saturated or approaching saturation, there is an increased focus on ways to generate revenue from new streams such as mobile advertising.

As well as the promise of providing a new revenue stream it was touted that mobile advertising would allow operators to offer new services for free to their subscribers, with advertising subsidizing that cost. Although this may happen in a limited number of cases, it is more likely that the future of mobile advertising will allow for ad-supported models instead of completely ad-funded scenarios. Currently mobile advertising revenue compared with the core services revenue for operators is not significant enough for them to delve heavily into ad funded services at this stage. However, as the mobile ad market grows, the Operators will certainly increase their investments in this space and ad-funded models could become the norm.

Operators must forge alliances with mobile ad networks to drive their mobile advertising service into a model that can justify their investments with limited cannibalization on their core services.

Inventory

In order to secure any mobile advertising revenue, operators and ad networks need to be able to provide inventory to the brands and media agencies. For advertisers to be able to select the target audience, the operators need to provide information about their subscribers (inventory), and ad networks need to provide the tools to facilitate agencies and brands to execute effective end to end mobile ad campaigns.

However, for effective targeting to be possible, especially relating to pre-paid subscribers this additional information will need to be supplemented. This can be obtained through operator portals, opt-in schemes or through dialogues to gain information about preferences.

Information collated across a country would be more valuable than having data from each of the individual national operators separately. Presently, media agencies have to negotiate deals with each of the operators instead of having just a single access to all the mobile users in that particular country or region.

Digital Republic expects to see consolidation of inventories between mobile operators and mobile ad networks. Global and Regional operators such as Vodafone and Etisalat should be able to collate their inventory data easily. Therefore we believe it is when the mobile operators within a particular country or region are able to consolidate their inventory across their entire subscriber base that the revenue from mobile advertising will increase. An independent - operator agnostic agency could play this role. Mobile ad networks on the other hand must lead the process and ecosystem to secure consolidation of their inventory with the operators.

Rich media and Performance Enhancing Technologies

Rich media and other technologies that enhance the performance of a mobile ad campaign are now finally starting to come to fruition. Whether it be through the advent of HTML5, or other technologies, including behavioral and location targeting, these technologies will be a driving force behind the mobile advertising industry as agencies and brands see their campaigns 'come to life'. The barrier, to some degree, is currently that of cost. However mobile ad networks and other technology providers are increasingly offering the tools and formats to enable performance enhancing solutions at a more cost effective rate, thereby justifying the ROI for a brand.

Global Associations and Committees

It is paramount that we engage with the global forums that are shaping the standards and ecosystem of mobile advertising, These are the GSMA and MMA (Mobile Marketing Association). Their role in shaping and driving the eco system is crucial. All stakeholders must engage proactively and positively in these industry bodies to ensure the success of the mobile advertising industry.

Conclusions and Summary

- Mobile advertising remains a nascent yet high growth area. Brands, clients and agencies are showing an increased interest in this new media, and growth in mobile and social advertising are currently the fastest growing media. Case in point: The bellwether for mobile advertising is Facebook; its shares nosedived when investors were worried about its ability to build a mobile friendly platform for advertisers. Except in Q3, and only within 5 months of listing, Facebook has posted 13% growth in mobile advertising with a share price that is climbing up towards its entry price.

- Mobile advertising is not simply an extension of other media plans - it requires a different mindset, a distinct process and new metrics.

- Rises in web enabled smartphones, and the consequent boom in mobile applications, are expected to be key drivers in the growth of mobile advertising.

- Rich media and other performance enhancing technologies will be one of the key drivers for mobile advertising in the near future. The tools coming online to cater for this are becoming increasingly cost effective.

- Other channels to watch out for include mobile social media, augmented reality, location based mobile advertising and mobile couponing which are likely to drive growth over and above the current popular channels of WAP banners and SMS push messages.

- There are a number of mobile advertising channels, and these can be categorized as either 'pull' or 'push' advertising channels.

- In Digital Republic's opinion, the operators and mobile ad networks are most likely to be the main drivers behind the mobile advertising boom as they are key players in the value chain, and owners of the inventory and technology. As mobile ad revenues become more significant, and decline of core operator service revenues approaches, operators will increase their focus on mobile advertising. Operator alliances must be considered in any mobile advertising strategy - with particular consideration to operator - mobile ad network partnerships.

- Mobile content ad networks are growing fast, and are backed by major players like Apple and Google. This is likely to become the 'long tail' of mobile advertising, and should be considered part of any mobile advertising strategy.

- Mobile ad networks are becoming increasingly prominent in the eco system. They offer a wide array of 'pull' inventory, link with multiple exchanges as well as other ad networks, and provide ad serving technologies that greatly facilitate the availability, management as well provide enhanced performance of mobile advertising. Mobile ad networks must lead the ecosystem, but must do so in partnership with Operators through consolidation of their respective inventory and technologies.

- Several factors contribute to the success of a mobile campaign, and these factors must be all considered when planning a mobile campaign. It is particularly important that in order to increase consumer loyalty that campaigns focus upon creativity and relevancy as much as the technology. Rewarding the end user for maintaining their profiles will also increase the value of the inventory as well as ensuring their user experience is enriched.

- Opt-in and preference management remain key factors in the future and current shaping of the mobile advertising industry, and it is likely that an opt-in model will prevail globally.

- Advertising agencies, media agencies, technology providers, Ad networks and Mobile operators all contribute significant roles in the mobile advertising value chain. However, services and roles are currently fragmented across these players, mainly according to their expertise and ownership of their respective assets. Consolidation and alliance in certain areas, with clear differentiation of roles is crucial to move this high potential industry forward.

- Engagement with global standards bodies and organizations is crucial in driving the industry forward, particularly in terms of de-fragmentation of this complex ecosystem, and ensuring standardization in relation to metrics, technologies and formats.