Free mobile services set to take off

Jennifer L. Schenker
28 Sep 2007

Just when you thought your kids already spend too much time on the phone, along comes a new service that offers free mobile-phone calls and text messages for 16-to-24-year-olds who agree to accept advertising delivered onto their handsets. On Sept. 24, the hotly anticipated startup Blyk made its debut in Britain. Mobile carriers and Internet companies around the globe will be watching its development closely.

Though still nascent today, the introduction of advertising onto mobile phones could hugely disrupt the current business models of mobile operators, which are built on charging for airtime, text messages, and other services. If a significant number of consumers opt instead for free, ad-supported wireless, billions in revenues could shift from traditional subscriptions to advertising. Though currently worth only about $1 billion worldwide, mobile advertising is expected to grow to as much as $19 billion within the next five years.

The stampede to the phone

To be sure, Blyk is starting small (BusinessWeek, 11/3/06), aiming initially only at Britain. But, says Shaun Collins, a mobile analyst at mobile consulting firm CCS Insight, 'If Blyk's model is successful and a significant number of 16-to-24-year-olds engage with this powerful new channel, it would put a very big chink in mobile operators' armor.' Collins says such a shift would leave 'revenue and handsets outside of mobile operators' control.'

The Web world has already taken notice of the potential. Internet and computer giants such as MySpace (NWS), Google (GOOG), Yahoo! (YHOO), and Microsoft (MSFT) all are trying to extend their franchises to mobile. MySpace announced Sept. 24 that it is launching a free, advertising-supported mobile version of its popular social networking Web site that will work via all U.S. wireless carriers and allow users to send and receive messages, comment on pictures, post bulletins, update blogs, and find and search for friends.

Yahoo has a strategic alliance to develop mobile advertising with Vodafone (VOD), the world's largest international mobile-phone company, and in August bought Actionality, a Munich-based company that specializes in inserting ads in mobile games. Microsoft, whose mobile operating system already resides in some phones, purchased ScreenTonic, a French mobile advertising company, in May. And the global mobile industry is abuzz with rumors (BusinessWeek, 9/6/07) about how search giant Google is expected to roll out its own 'gPhone' or a specification that would allow others to create one. The expectation is that it will try to transplant its successful advertising model to mobile phones.

Operators' advantages

Advertising on the Internet, especially pay-per-click ads alongside search results, quickly erupted into a multibillion-dollar industry, and online companies hope mobile phones will follow a similar trajectory. It is no surprise, then, that not only established Internet players but newcomers are getting into the game. London-based startup Trutap Limited, for instance, announced on Sept. 24 that it had raised a new round of funding to launch a free advertising-supported service aimed at 18-to-24 year olds.

The Trutap service lets users do instant messaging, send group messages, upload text and pictures to blogs, and send pictures via mobile. A beta-release version of the service, which will be launched later this year, will offer service in more than 200 countries on over 150 phone models, says Chief Executive Doug Richard.

While there are dire predictions about Web companies moving in on the mobile sector, incumbent mobile operators retain serious advantages that could be hard for upstarts to match.

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