Google looks like it’s facing more anti-trust angst; the FTC is reported to be launching an investigation into Google’s advertising and search business, and former and current CEOs Schmidt and Page have decided they don’t want to appear before a Senate Committee hearing on roughly the same topic. All of this comes as Google, the largest of the large in terms of OTTs, faces a combination of competition from Apple (bleeding through its iPhone and iPad successes) and increasing difficulties in creating sources of new revenue.
Advertising online is coming under more pressure for a number of reasons. First, as I’ve noted in past blogs, advertisers are interested in it only to the extent that targeting could reduce their overall costs by reducing “overspray”. It’s clear that their ideal approach would be to show ads only to those who would then buy based on them. That has focused online advertising on “interdiction” approaches; get into the track of the buyer between the decision to buy and the execution on that decision. Search ads can work for this, but the trouble is that companies normally first try to game natural results with optimization strategies. In any case, it’s clear that the search ad business is mature at this point. Banner or in-video ads have been problematic from the first; my own research has shown that buyers have almost no recall of these ads in banner or site-pre-roll form and that they have limited recall of even in-video ads. The latter appears to be caused by the unique buyer ability to tune out dross while on a computer; run the same videos on a TV and they see the ads fine. These pressures generate a pressure on the industry to increase their “value”, and that can lead to even more problems.
A recent report suggests that the behavioral targeting practices of the industry, for example, are leading participants to a place where they risk becoming “adware” and generating consumer and possibly regulatory backlash. The irony is that BT is a refinement on targeting, which is a refinement on a process whose goal is to REDUCE spending. Thus, the industry could be said to be eating itself on one hand while risking regulatory wrath on the other.
The simple truth is that ads can’t sponsor everything; they can’t even sponsor very much. The total global adspend wouldn’t pay the total global capex of providers, and of course online ads won’t get that total adspend and the providers don’t get much of online ad revenues. This is why many operators see “monetization” as important. They have one major asset; a market where people pay for something. Maybe they don’t pay enough or with the right model (usage versus unlimited, for example) but they pay. Monetization strategies are strategies to present something that people are willing to pay for. In Netwatcher in June we offered a content monetization architecture; a mobile one is coming in July. The goal here is to demonstrate that it’s possible to build a service structure that can earn revenue. If broadband access is a conduit for delivering paying services that the operator can offer, then it’s OK for it have a minimal ROI.
Verizon has decided to keep its cloud offerings under the Terremark brand, which I think is a good idea because the cloud and cloud-hosted services fall outside the traditional structure of a telco. Operations in telecom providers means the network, and science and technology is not typically involved in monetization projects. While internal IT (OSS/BSS) has IT expertise, most operators for now are seeing their internal IT and cloud IT separate, until they’re sure that the two can share an infrastructure without creating security or performance issues for either one.
Cloud monetization is the third pillar of operator profit-building (after content and mobile). Operators here are envisioning a rather convoluted evolution, with service feature technology (the evolution of the stuff hosted today on SDPs), OSS/BSS, and cloud services all being relatively independent at first and then converging over time. One likely instrument of this convergence is the “feature cloud”. Managed security services and other services offered from a cloud platform are little different from content or mobile service features hosted on a cloud, and over time the difference will likely disappear.