Nokia Growth Partners, Nokia's VC arm, has invested in Madhouse, a Shanghai-based mobile advertising specialist. The terms of the deal have not been disclosed. It nonetheless strikes us as a shrewd move based on the potential of mobile advertising in China and what we can gather about Madhouse, which makes it look like a company that is going places.
The first thing that makes China attractive is the huge size of the addressable market for mobile advertising. China has largest number of mobile connections in the world, at 531 million at the end of 2007, presenting a penetration rate of 40% which means there is clearly still plenty of room for growth. China is also one of Nokia's strongest growing markets along with India, in contrast to slowing demand in developed markets like Europe that has hit Nokia's performance.
Another factor to note is that China's fixed internet penetration is some way behind its mobile penetration. It is a similar story in other emerging markets, and, although internet penetration will increase, mobile will remain the predominant way to go online for many people.
This will be by default for people in rural areas, where the spread of fixed broadband will be slow at best or simply not viable. However, there will also be a "mobile first" scenario by choice for other segments, such as young urbanites. The majority of this group will only have access to PCs through Internet cafes, college or work. This is intermittent usage, which means they will gravitate towards mobile where they can be always connected.
Emerging markets also tend to be very price-sensitive, which means that the ability to pay for many mobile services, particularly content services, is low. In this context advertising has an important role to play because it can help subsidize services and make them affordable to a wider audience. Operators in many developing markets are already experimenting with this model.
The flipside to this is that in most emerging markets there is also a small but growing, affluent segment with decent disposable income and aspirations more common with developed markets. This is an attractive demographic for brands.
Madhouse is a privately-held company and has released no details on its financial performance. However, it does appear to be a company in the ascendant, and Nokia has a good track record in picking smart players, particularly in mobile advertising where its last acquisition was European leader Enpocket.
Nokia has also worked with Madhouse and so knows firsthand what it is buying into. Madhouse has managed several mobile advertising campaigns for Nokia during the past year, as part of a wider push by Nokia to expand its software and services initiative in China. Besides Nokia, the other investors in Madhouse are TDF Capital, Gobi Ventures, JAFCO Asia and D2 Communications.
Madhouse has developed its own ad serving and campaign management platform and runs a mobile advertising network that comprises over 1,100 publisher sites, which the company says represents over 75% of total mobile internet traffic in China.
Nokia has likewise developed its own mobile advertising network, comprising 150 predominantly European publishers plus many of its own properties such as nokia.mobi and the Mosh content community.