U.S. Online Advertising Grows One Percent a Year

The Internet’s share of total media ad spending is rising by at least one percentage point every year, partly because marketers are spending more on Internet ads, and less on ads in traditional media.

As often is the case for businesses with a key technology component, productivity improvements are not captured accurately by retail prices or spending.

Online advertising works better than offline media, so campaigns sometimes, perhaps most of the time, can be run for less money than has been the case in the past. As the shift to online media continues, overall advertising spending by brands can decline even as effectiveness increases.

In the United States, eMarketer projects that the online share of ad dollars will grow from nearly 10 percent this year to slightly more than 15 percemt in 2013.

16,000 More Cell Sites Needed for Ubiquitous Mobile Broadband

About 23.2 million U.S. residents live in areas where 3G wireless broadband service has not yet been deployed and that about 43 percent of roads lack such coverage, says CTIA.

It will require an additional investment of about $22 billion to reach those areas with a dual-mode network.

The study says about 16,000 new cell sites, including towers, will need to be constructed and 55,000 existing sites will need to be upgraded to create a ubiquitousnational mobile broadband network.

Mobile Broadband: New Business Models Needed?

The good news is that mobile broadband--using PC dongles or cards or mobile handsets--is growing fast. The bad news is that all that new data traffic is straining mobile networks.

Irish regulator ComReg, for example, notes that there were 1.27 million broadband subscribers at the end of March, up 28 percent from a year earlier and up six percent from the previous quarter.

But this has been driven mainly by mobile broadband subscriptions, which have almost doubled over a year with 90.6 percent growth.

And Ericsson predicts that mobile broadband connections will surpass fixed broadband connections as soon as 2010 (click image for a larger view).

Originally "dimensioned" to cope with small-screen devices used occasionally, 3G networks are having to cope with laptop-sized video downloads, hours-long social networking sessions and rich Web 2.0 sites which download content "in the background".

In some cases, says researchers at Telco 2.0, the revenues from mobile broadband services are not even covering the costs of delivering data to the users.

That suggests mobile operators may have to revisit their pricing and packaging plans.

Today, most mobile broadband subscribers buy traditional monthly contracts, typically over 12 to 24 month periods. The problem is the perceived value versus price, if an increasing number of mobile broadband devices are put into service and most of those devices use little data.

Broadband connectivity costs are evaluated one way when a single connection at home can be shared among many users, and when usage is fairly frequent. Broadband costs will be looked at quite differently when each user must buy multiple connections on a device-by-device basis.

That suggests an eventual need for pricing mechanisms of all sorts, most based on ways to better match usage to cost. Session-based access, similar to the familiar WiFi hotspot model, is one option. Temporary access is yet another possibility.

Bundling of mobile broadband with other services such as fixed broadband or mobile voice services, or creation of broadband family plans, are other options.

Ad-supported access is conceivable, though the model has not worked all that well for communications services, at least so far.

Prepaid and casual use models also likely will be needed. Perhaps most users will be comfortable paying for a home fixed broadband connection and then mobile broadband for their smart phones.

But as game players, music players, cameras or other devices start to benefit from broadband connectivity, episodic use plans at relatively low prices seem inevitable.

Sprint Drops Bombshell

Sprint has decided to outsource all of its network operations to Ericsson as part of a seven-year deal that indicates Sprint no longer considers network operations a core function, or something that allows it to create customer-facing value.

Network operators have been outsourcing some operations and functions for years. But no tier-one carrier has gone this far. Sprint will continue to own its network and make investment and equipment purchase decisions.

Sprint personnel will maintain first-line, customer-facing operations. But Sprint no longer considers the day-to-day management of its network a core source of market differentiation.

The move does not indicate any change in the perceived value of network ownership. But the devaluation of routine network management is shocking for an industry where most employees once worked in network operations.

Apple iPhone Proves Disruptive

Apple and Nokia are on radically different trajectories, at least where it comes to smart phone market share, say analysts at Generator Research. The firm believes Nokia will tumble from about 40 percent share today to just 20 percent in 2013.

Apple's share, meanwhile, should accelerate and hit 33 percent of the market at the same point.

Apple would match Nokia's share sometime in 2011 and ship as many as 77 million phones that year.

Observers rightly point out that the mobile handset is a complicated business with lots of subtle angles. It also appears to be a business where new attackers can dislodge global incumbents.

Will New Unlimited Plans Tap New Market for Bill "Predictability"?

Ready Wireless, a provider of prepaid wireless services. Based in Hiawatha, Iowa, has launched two unlimited usage prepaid plans. The first provides three days of calling and a bundle of text messages for $10. The other plan provides seven days worth of calling for $15.

The plans are aimed at casual users who prefer unlimited calling, but have only sporadic use, or want to manage cash outlays closely. That's one potential new market segment for prepaid or postpaid.

The other market is any consumer that simply wants payment predictability.

Recently there have been new offers launched in the industry by prepaid wireless providers offering monthly plans costing $45 to $50. And amidst a bit of a shift from postpaid to prepaid plans, some speculate that another shift from traditional prepaid products to "unlimited" plans could occur.

John Hodulik, UBS analyst says 12 million of 50 million total U.S. prepaid subscribers are on an unlimited plan. But those numbers could grow very fast if a price war breaks out, and resets pric ing expectations.

Unlimited plans might be creating a new value proposition: "pay to avoid limits and overage charges" that might challenge the "pay only for what you use" value proposition.

In principle, those value propositions should hold either for prepay or postpaid plans.

Most customers still remain in the middle, paying for a bucket of minutes on a "use it or lose it" basis. But there always is an element of bill unpredictability with such plans.

You might think heavy talkers are the prime candidates for an unlimited plan, but I'd be willing to bet that the bigger market, ultimately, will be the typical consumer that simply values predictability.

As the prices of unlimited plans fall, they reach a level that appeals not only to heavy callers, but virtually any consumer that simply wants payment predictability, with no surprises. That's going to be the bigger market.

Shift to Online, Mobile, Social Marketing Will Slam Traditional Media

Forrester Research predicts that interactive marketing in the United States will near $55 billion and represent 21 percent of all marketing spend by 2014 (click on image for larger view).

Search marketing, display advertising, email marketing, social media, and mobile marketing are the categories that will benefit.

More significantly however, overall advertising in traditional media will continue to decline in favor of less expensive, more effective interactive tools and services. With dollars moving out of traditional media toward less expensive and more efficient interactive tools, marketers will actually need less money to accomplish their current advertising goals.

The majority of current online budgets appear to be earmarked for search marketing, even though the search landscape is rapidly evolving to include real-time updates and also social, community and micro networks.

Mobile marketing spending will grow at a 27 percent rate over the next five years, reaching $1,274 million in 2014.

Social media marketing will increase to $3,113 million in 2014 from $716 million in 2009, with a 34 percent growth rate.

Owned social media assets (like internal blogs, community sites) are really the only emerging media getting traction in today's economic climate, Forrester says.