DIGITAL - FEATURED STORY

Should Telcos Dive Into Ad Tech?


April 17, 2017
By Special Guest
Oscar Wall, GM of EMEA, Ooyala

By 2020, IHS Markit forecasts that more than 6 billion smartphones will be in use globally – a staggering 50 percent growth from 2016. This serves as further evidence of the ubiquitous adoption of smartphones as the central hub for everyday communication, entertainment, business, shopping and more.

In the midst of this revolution, traditional methods of marketing and advertising are evolving to apply data in targeting any consumer on every screen, anywhere – in turn helping Facebook and Google to control approximately three-quarters of the global mobile advertising market.

One group is poised to compete viably against the Facebooks and Googles of the world. And they’re already sitting on a gold mine of user data that could be leveraged for advertising. I’m talking about mobile service providers.

But how exactly can telcos monetize their data streams and win the struggle against Silicon Valley’s biggest names? And, more pointedly, should they even try?

Why Telcos Need Change:

Telcos have seen their core telephony revenue plateau due to intense competition and market saturation. A recent report by research firm Ovum outlines the phenomenon of triple-cord cutting (when consumers sever their broadband, TV and voice services) and the threat it poses to both US and regional telco operators.  Additionally, the ascendancy of Silicon Valley giants has accelerated the “dumb pipe” scenario wherein wireless operators are unable to monetize their networks even though it’s their pipes that are transferring bits and bytes between the customer’s device and the internet.  While telcos facilitate the advertising transaction, they are deprived of incremental revenue.

In response, telco operators are diversifying their businesses, moving away from core services toward the digital future, with digital advertising seen as a potential growth engine. 

All About the Data

Telcos have two significant advantages. Their access and reach, and their wealth of customer data. Much of Facebook’s revenue growth can be attributed to its incredible amount of deterministic user data. But Facebook doesn’t own the mobile pipes nor does it have a one-to-one, transactional relationship with its users. This is where telcos can gain advantage. With advertisers looking to take their campaigns across screens, the telco’s ownership of the mobile network infrastructure offers huge revenue potential.  Telcos have several choices for how to best leverage their data.  But getting it right won’t be easy.

Turning Data Into Revenue: Telcos’ Options

Telcos have incredibly lucrative first-person, customer-behavior data, but it remains relatively unexploited.   The easiest, least risky and more obvious option for telcos is to sell the data to advertising companies. While this may lead to a quick injection of cash, they’ll be siphoning away potential revenue, ceding their data for another company’s benefit.

On the opposing, and most risky, end of the spectrum is for telcos to side-step their core business and become ad-tech providers, going all-in to monetize their own data.  This implies actively building, maintaining and supporting the ad sales process. Building an ad-tech service from the ground is a tall order, and the risk is much higher as the company’s core principles may be compromised in the process.

So what’s the middle ground? One option is for telcos to partner up, pooling their data to sell an aggregate data set to advertisers. The most significant example of this was Weve, a joint endeavor between EE, Vodafone, and O2 that launched in 2013 as a mobile marketing venture, boasting a combined customer database of 20 million and representing an impressive 80 percent of total market share. The venture ultimately didn’t last as EE and Vodafone bowed out of the partnership in May 2015, with Weve continuing as an O2 subsidiary. This option, building a telco conglomerate, boils down to a problem of scale. Without large-scale, multi-national networks, telcos contemplating the ad-tech business don’t stand a chance against the likes of Google, especially now that Google is developing its own pipes and even smartphones.

The appeal is understandable, though. By engaging in international expansion through partnerships with other operators, telcos can expand their client base.  However, even gaining the necessary scale through expansion doesn’t necessarily give telcos the required technical expertise and experience they need to succeed in the advertising sector; and jumping enthusiastically, yet naively, into a new industry could prove too big a challenge – as in the case of Weve.

Finding the Best Way Forward

Some telcos have turned to acquiring ad-tech firms. We've seen this with RTL and SpotX, Comcast and StickyAds – and even Ooyala, a part of Telstra, acquired Videoplaza.

Verizon has shifted its core mobile business toward monetizing mobile content by using an ad-funded model and acquiring AOL’s ad sales expertise.  Verizon claims to reach 70% of all the digital traffic from the world’s 1.5 billion connected devices. With the right technology and expertise, Verizon can pull off the holy grail of digital marketing: delivering the right ad to the right person at the right time. In Europe, we’ve seen a similar move by Telenor, one of Norway’s leading telcos, who acquired ad tech firm Tapad last year for $360 million. 

From a cost and organizational perspective, multi-million dollar acquisitions are not always possible, nor the most cost- and time-effective strategy.  Telcos can otherwise consider partnering with companies who provide bespoke ad-tech solutions. A platform with a holistic approach to video advertising sales gives businesses the ability to manage and optimize campaigns across direct and programmatic channels in one platform, including ad decisioning, audience targeting and real time forecasting – essentially, all the tools needed to understand and enhance campaigns. By using a holistic ad-tech platform, telcos can benefit from a cost-effective, smart technology that allows them to capitalize on new opportunities while maintaining control of their data and most importantly, the direction of their business.

This is the ideal time for telcos to gain back control of their data. Before shedding out millions to acquire specialist ad-tech technology, we’d suggest telcos consider their options carefully. There’s no question, the time is now for telcos to monetize their data, but they should do this without compromising the integrity of the company’s core business as they attempt to break into an unfamiliar market.  Telcos of all sizes, working alongside companies that can offer affordable, scalable ad tech solutions, have huge potential to succeed in the growing mobile-advertising industry.

About the Author

Oscar Wall is Ooyala's General Manager for EMEA. Oscar has more than 10 years experience championing video success and driving monetization for large broadcasters, publishers and media companies throughout Europe. Most recently serving as the Senior Director of Customer Services in EMEA for Ooyala, and prior to that as the Chief Operating Officer for Retrieve Technology, he is now responsible for overseeing company growth in the region, delivering customer-first services and managing all Ooyala operations in Europe.




Edited by Alicia Young

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