Telcos Take Different Routes To Ad Tech Revenue

All telcos acquire ad tech to drive revenue, but not all telcos think alike on how to make that happen.

Operators divide into four primary schools of thought when it comes to activating their ad tech assets: open ecosystem, closed ecosystem, internal promotion and content distribution.

Singaporean SingTel, for example, is willing to partner with other operators for scale, while Verizon is looking to build a scaled alternative to Google and Facebook.

Norwegian telco Telenor is being far more cautious, at least for the moment, only willing to use its newly acquired ad tech asset to power internal marketing efforts.

AT&T’s Time Warner deal will bring content distribution under the same umbrella as content supply.

But it makes sense that different telcos will take different tacks. Media and advertising is a brave new world for operators, said Gareth Davies, CEO of cross-device vendor Adbrain.

“How do they adapt to the fast-moving world of ad tech when their core business hasn’t changed substantially in years?” Davies said. “It’s an entirely different culture, mindset and management approach that needs to be taken. That is not trivial to achieve.”

Telcos across the world also operate in very different regulatory environments, from the United States, where the Federal Communications Commission’s ISP privacy rules are one signature away from hitting the cutting room floor, to Europe, where the stringent General Data Protection Regulation is set to take effect next year.

“A fear of consumer backlash plus privacy legislation, now in tatters in the US, means that they can’t just flip a switch,” Davies said.

It’s also worth noting that not every telco ad tech acquisition is created equal. While Verizon is aggressively building an ad stack, others are acquiring functions or features.

The Third Garden

Verizon is arguably the most ambitious in its vision, having spent a combined nearly $9 billion to acquire AOL and Yahoo.

Together, the trio has access to an enormous amount of deterministic, consumer interest and behavioral data under one roof. Verizon plans to activate its audience using its network of 1.5 billion devices and AOL’s programmatic tech. Scooping up Yahoo’s 1 billion monthly users will bring more of the scale AOL craves.

In other words, Verizon is gunning to be the third walled garden.

“The operator ecosystem has been on the sidelines, seeing over $990 billion of market cap being created by Google and Facebook with their unique data,” said Drawbridge CEO Kamakshi Sivaramakrishnan, at Mobile World Congress in Barcelona in March. “Operators have access to the same level of data.”

Netherlands-based telco Altice also wants its piece of that nearly trillion-dollar pie. The carrier, which bought Cablevision for $17.7 billion last year, plunked down $307 million in March to acquire outstream video company Teads.

“Teads and Altice really clicked because we shared the goal of providing a media and analysis solution competitive to Google,” said Teads co-founder and executive chairman Pierre Chappaz during a press conference announcing the deal.

But scale will continue to be an issue even for an enormous entity like Verizon, said Tobin Ireland, CEO of Smartpipe, a company that helps operators monetize their data.

“It’s great to see these operators trying to achieve scale – if they weren’t, there wouldn’t be as much interest in this space as there is,” Ireland said. “But each is still effectively a vertical, semi-open walled garden, and therefore can only scale so much.”

The Open Approach

Telcos have attempted to tap into the open advertising ecosystem, despite the difficulty of cross-carrier collaboration and the privacy minefields that often await.

WEVE was an early attempt by UK operators O2, Vodafone and EE to create a consortium for mobile payments and advertising, but it was undermined by coordination issues and nascent technology, said Ireland. O2 bought the WEVE assets from its cohorts in 2014.

In 2012, Verizon tried going the open route with the now mostly defunct addressable advertising unit Precision Market Insights, which used a unique identifier that could be activated through DSP integrations.

Unfortunately, Verizon fell into regulatory hot water for not taking the proper precautions with its opt-out mechanisms. Verizon now owns much of its own ad tech and is building a walled garden, which gives it more control over user data.

Buying ad tech also alleviates coordination issues, and some telco buyers like SingTel and Telefonica are tapping into the open ecosystem.

SingTel, whose ad tech acquisitions include Amobee, Adconion, Kontera and most recently the DSP Turn, has a history of playing well with others. In 2013, for instance, it started running mobile ad serving for other carriers.

“They’re happy to work with other operators’ data,” Ireland said. “That, to me, doesn’t feel like a walled garden.”

Telefonica is similarly open-minded. In February, Telefonica-owned O2 partnered with AOL UK to give AOL advertisers access to first-party WEVE data through Axonix, Telefonica’s mobile ad exchange.

“We don’t see other operators as competitors here,” said Dan Rosen, global director of Telefonica, at Mobile World Congress. “We see other operators as our partners because it’s early days.”

Inside Job

Not all telcos, however, are ready or willing to monetize their subscriber data.

Norwegian telco Telenor, for example, uses the cross-device tech from its 2016 Tapad acquisition to promote its own products through more personalized marketing efforts.

Telenor is being cautious with its rollout in deference to privacy concerns, said EVP and Chief Digital Officer Jon Gravrak.

The deal is also evidence that buying ad tech won’t magically bring in the revenue. During its Q4 earnings call, Telenor said that it was writing down its Tapad acquisition for $121 million, roughly one-third of what it paid for the assets.

Distribution + Supply

AT&T’s proposed $85 billion acquisition of Time Warner isn’t a classic telco/ad tech acquisition, but the mega merger does speak to the potential of monetizing premium content.

Whereas Verizon is squarely focused on developing a stack to monetize its mobile data, the AT&T/Time Warner hookup would bring content distribution together with high-quality supply, including programming from HBO and Turner.

The end result is what Turner CEO and Chairman John Martin called a “fan engagement company.”

Fans “who come back over and over again are the easiest people to monetize,” Martin told Beet.tv at Mobile World Congress this year.

But What About The Little Guy?

Regional telcos will never have enough scale to justify their own ad tech acquisitions. And even if they did, there wouldn’t be enough assets to go around.

“But smaller operators are equally as desperate for new revenue as anyone, and they tend to be more innovative and fast-moving,” Ireland said.

Swedish telecommunications giant Ericsson hopes to capitalize on that need with the recent launch of a mobile ad platform for telco data. Smartpipe also offers a solution to help operators anonymize their data and make it available to buyers in the open ad ecosystem.

For now, Smartpipe is prioritizing more developed markets, including the UK, Germany, France and Italy, where there’s already an advertising infrastructure in place.

But there’s also been a lot of inbound interest and demand from telcos in places like Nigeria, Pakistan and smaller countries across Asia. The global opportunity is ripe, Ireland said, it’s just a matter of what order to pluck it in.

“About 2.5 billion people are served by operators other than the top 10 operators,” Ireland said. “It’s a fragmented opportunity, but there will come a time when they start to take part in this."

 

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