The IP Development Network Blog

People don't like adverts. Ofcom's Communications Market Report states that 28% of people who record a programme on their DVR do so, at least in part, to fast forward through the adverts. Meanwhile YouTube adverts have been highly unpopular and have been pulled because users found a way to disable them.

This is a problem because the content needs to be funded. It is better because of technology, but that same technology can and is being used to find ways around the things that users don't like about a service - like paying for it.

Advertising can be very intrusive, but if it is to be a viable source of funding for networks, as described in the previous article in this series, we need to get over that problem. The solution, it is argued, is to make adverts personal to you and entertaining to you but in order to achieve this they need to know who you are.

Understanding the Audience
Knowing who you are and where you live will tell advertisers what products to pitch to you because your demographics tell them a lot about what you will and won't buy. Geo-demographics is already a highly refined part of the retail business. Technology offers people who want to sell to you the opportunity to reach out to you through your TV and internet experience.

The benefits to the retailer are clear - reach the customers you want, with a message that talks to them. Eliminate wastage by avoiding customers you can't reach with your stores and fill that airtime with stuff that is of interest to them. Not just brands, but products within brands - the A4, not the A8.

Let’s look briefly at geo-demographics. With data from one of the geo-demographic specialists, anyone can make a very good guess at what the visitor might want from them. How old? Status? Kids? House price? Finance? Loans? Newspapers? Mail order? Attitude to technology

Beyond Basic Demographics
Consider also the loyalty schemes like Clubcard and Nectar. These build up an incredible record of your buying habits and are already used by their owners in product promotions, but consider the opportunity to tie this in too.

Not just refined targeting of the brand, the opportunity is also there to target different products within the brand. Just like the vouchers you get today, consider the opportunity for Clubcard based ads on IPTV.

They will know that my family shop is normally on a Tuesday, so Monday night they can slot in a Tesco advert talking about Finest yogurts or some other luxury that we sometimes afford ourselves. A little gentle persuasion at the right time and bingo! Everyone is happy.

If their records show that we didn't shop today, they can quickly launch into a customer save by reminding me of how good their offer is and what we'd be missing if we went to Waitrose - you see, they also know that my options are limited by geography.

Full Data Sharing
Last week's article argued that by selling your identity and allowing advertisers to know who you are, you can pay, indirectly, for the networks needed to carry the next generation of content. Wastage can be eliminated and a share of the gains could go towards funding the construction of fibre.

Mobile operators are in even better shape when it comes to Mobile TV. They know the user within that household and can therefore be even more specific with what they promote - if we let them.

There is a slightly precarious changeover period as contracts would need to be redesigned and prices remodelled, but leaving that aside for the minute - could we triple revenue per viewer per hour and pay for Fibre to the Home for everyone?

A Controversial Conclusion
This subject has been in the back of my mind since the Telco 2.0 event in March. I was speaking to Chris Barraclough who had just completed his 'Telcos Role in the Advertising Value Chain' report. I was struck by slide 9 which showed the telecoms market to be worth more than 4 times as much as the Global Ad market.

The clear message was that operators should not bet on ads substituting their core revenues from voice, messaging and ringtones. Yes, online advertising will more than double between 2006 and 2010 but so what?

Consider it another way: online advertising will grow by $31bn in that time while core services will grow by $490bn. Even if the entire global ad market went online before 2010, it would only account for 18% of the total market at that point. The danger of dealing in percentages...

Based on these numbers, Chris' conclusion is the only sound one to draw. Even so, ever since then I have mentally challenged the conclusion on the basis that it does not feel right. It feels to me like it should be more equal than that and my perception has been enforced by the number of times I have read of Google's success.

The Danger of Thinking Too Big
I wonder whether or not we lose the trees for the wood in Chris' conclusion. "All" we need it to find £25bn or so of new money to fund the next generation network build. That's certainly more than most of us have in savings, but in comparison to the UK advertising market as a whole (£19bn in 2005, of which £4.8bn went to TV according to one source, although Ofcom's Communications Market Report says this is only £3.5bn) perhaps £25bn is not so frightening.

My thesis in a nutshell is as follows: targeting adverts means that less airtime is wasted and so advertisers will be prepared to pay more. I believe that properly used, we could see TV advertising revenue triple in an undefined period of time. Half of the benefit will go back to advertisers, the TV content producers and the rest, while the other half will generate the new revenue to back up the new investment in fibre to every home. There will be a 7 year ROI.

So we need £10bn a year of new ad revenues and we are there. Fibre for everyone! If we are prepared to sell our privacy...

The Heart of the Problem
I fear that the problem will come from the same people who believe that networks should be open and that content should be freely able to use them as they wish. I fear that the same lobby groups that do not want ISPs to charge extra for premium capacity, will similarly baulk at the prostitution of our identities.

There needs to be a logical debate about how to pay for networks. So far, it seems that people are still on whether to pay for them. It still amazes me that both industry propagates the unlimited* broadband myth. New money is required to pay for new consumption - it is as simple as that - and yet we still see the launch of video ads spun as a value added feature. One of the comments on YouTube's launch summed it up for me.

"To me this is more about honesty and fairness. It would have been fairer if you had said, 'we are doing this because we are in it to make money'. Or not done it at all."

Ethical Concerns
Ethically, the advertising solution is nowhere near as simple as I describe because in it I make no mention of protection against abuse of the data. Maybe this is 1984 after all, for we would be followed everywhere we went online and would have retailers peering through our virtual windows at the first opportunity. It might be happening anyway through the back door as applications like Facebook brazenly use your profile to target you.

At least today we are cloaked by our IP address or can choose not to use an application that may use "private information". We have to have a choice in this because we are selling who we are in the process.

Perhaps tying the IP address to our physical life is such a risk that the concept is a non-starter, but my guess is that if you offer people a discount if they opt-in, cash will win over ethics for most. I wonder though whether privacy can be effectively protected.

It is also possible of course that the bogeyman mentality will take over this argument as it did in debates over Network Neutrality.

Wrap Up
Somehow, we need to pay for the next generation network. Advertising is one option and it comes with the benefit that it can create genuinely new economic value. There is no substitution in anything I have described - the value comes from making markets more efficient and eliminating advertising waste.

But, and it is a very big but, we need to make sacrifices in order to realise the benefits. This is true in any model, but here the sacrifices are very much more complicated than simply paying more for the service.

By revealing who we are and allowing people who want to sell to us to reach us on a one to one basis, we are paying in kind for the services that we are consuming. This means you have to sell your identity. Are you prepared to do that?

Labels: IPTV advertising, targeted ads

# posted by Jeremy Penston @ 9/10/2007 10:34:00 AM

Monday, 10 September 2007

Selling Yourself