Why We’ll See The First Ad-Supported Phone In 2014

russell"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Russell Glass, CEO at Bizo.

Smartphones are dominating the mobile market.

With 1.4 billion predicted to be in consumer hands by the end of 2013, the most valuable digital real estate in the world is no longer the homepage of an online search engine like Google.com, but the home screen of a smartphone. However, no one has figured out a way to monetize it yet.

When Facebook came out with Facebook Home earlier this year, most missed the potential importance of this innovation. I believe Facebook was demonstrating that it understands the value of this underutilized real estate, and it is learning how to successfully build value in the guts of the Android platform.

It’s only a matter of time before someone will make a play for this real estate and develop the first completely advertising- and content-supported phone. Why?

On average, consumers check their phone 110 times a day. That means they see their lock screen 110 times a day. Do a little math and on average the home screen can deliver north of 3,000 “impressions” a month per person – turning the home screen into the most valuable advertising real estate we have ever seen in terms of per user economics.

The benefits to the market are endless. First, the cost of manufacturing a mobile device is relatively low compared to the value of this volume of rich, digital user impressions. With some simple math, you could see how a company could profitably fund a person’s device and supporting services just via serving home-screen advertisements.

Second, the opportunities for creating tremendous brand experiences are enormous because of the interactive nature of the mobile device screen. Third, in exchange for a free service and/or device, consumers would happily exchange information about their location, purchases, behaviors and other insights to allow marketers to hypertarget ads, as well as easily drive them directly to a relevant app or website.

So who is going to be the first on the market with a free service? Facebook seems like the most logical player, but I suspect they won't be first to market, as they’ll want to get the user experience right first. Microsoft is a contender and has the most to gain and least to lose given their distant sub-5% market share for Windows Mobile. It would be a hugely interesting play for them to try and disrupt the existing ecosystem with a free advertising supported phone.

Google has its Google Now product, which begins to touch on the home-screen value proposition, but it has to be very careful not to squelch Android competition for the home screen and potentially set off government antitrust alarms like Microsoft did by having its IE browsers shipping by default with the Windows operating system.

But I think what is most likely to happen is a team of ex-Google or ex-Facebook engineers will take the VC-backed startup route to develop the model. And I believe they will fail the first go-around. It is going to take a while to get the economics right; phone costs will drag the company under water because it won’t have mastered the consumer experience. But once the formula for an incredible mobile user experience is refined, the future of mobile advertising will change as we know it, and many smartphones on the market will be completely free to the user, in exchange for highly targeted and opt-in advertising on the home screen.

Follow Bizo (@bizo), Russell Glass (@glassruss) and AdExchanger (@adexchanger) on Twitter.

5 Comments

  1. I remember talk of free PCs in the late 90s. Companies like PeoplePC offered "free" systems (for $25 a month Internet connection fee). That concept (along with free ad-supported Internet access) didn't really take off. It's worth taking a look at coverage from the time (this story from the Heritage Foundation is particularly interesting - "with the 'free PC' era now in full swing" ) to help inform how we think about the possibility of free devices today. While it's certainly possible we'll see free, ad-supported phones some time in the future, the fact that we haven't seen free, ad-supported televisions or radios in the past says maybe we won't.

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  2. It is inevitable we will see free phones augmented with advertising. Scratch Wireless is basically free service (not phone) wifi only free talk and text. Radio and TV never knew anything about who you were/are , not interactive. Mobile phones just the opposite so advertisers will be better targeted, synergistic and in some cases helpful to the consumer.

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  3. This sort of thing *kind of* already exists-- Locket is a company that pays its users 1 cent for every ad shown on the users' lock screen. While there seems to be at least a small market for this type of interaction, I don't think enough people would trade the cost of owning and using a phone for an unending stream of advertising on their lock screen to make this a scalable product for a company like Google, Facebook, or Microsoft. Or perhaps I'm just naive.

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  4. I couldn't agree more. Computers, TV's, Radio's are either not portable or don't even touch the Total Cost of Ownership of a 2013 phone. Cell phone monthly charges can rack up quickly, and while a veteran business person wouldn't be caught dead with a "free" phone(for now), I believe the demographic that will trade their information in return for free hardware and x minutes a month, are students. Facebook also wrote the book on the Network effect within one community, before expanding to the larger global community.

    The pay-as-you-go market is primed for a free phone by Google, Microsoft or Facebook, and with Android's success, my money is on Google. I thought it would have happened by now, but I think the PII environment right now is over-empahsised and needs to right size a little for this to take off.

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  5. The trouble with free, ad-funded X is typically that it attracts consumers who are much more interested in the free than the ad-funded (and who can blame them?). Blyk is a high profile UK example of such a failure. For a service like this to be successful, the consumer proposition needs to focus much less on the free-ness and more on lifestyle targeting.

    A service (phone or MVNO) that is able to make subscriber data segments targetable via a mobile DSP should be a compelling proposition, given significant enough scale. That's the sort of thing our platform was built for.

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