This was an important week for carriers: first the $19 billion spectrum auction announcement and then Verizon opening its network. Great, the trillion dollar market is in sight! But do we see any good advertising business models in there? Today, I’m optimistically embarrassed to admit, I don’t.
The market:
John Sculley was right, after all. Shortly before his ouster in a palace coup, Apple’s CEO is ridiculed for predicting a trillion dollars PDA market. This is in 1993 when launching the Newton. In the space of 15 years PDAs gradually become smartphones. In 2008, with more than 3.3 billion cell phone accounts, we’re approaching the magic trillion dollars, $25/month ARPU and we’re there. And that’s just network revenue — which gets us to today’s question: smartphones enjoy a cornucopia of new applications, but do they run any good advertising business models?
The dream:
Let’s yield to the breathless enthusiasm for a moment. Not all phones are smart today but look at the Blackberry and the iPhone, they’re the trendsetters, sure to be followed by legions of imitators. As we wrote here a few weeks ago, cell carriers are going the way of the landline ISP: flat fee regardless of carried content. And, just last week, Verizon embraced its fate instead of fighting it: it will no longer dictate what phone you use or what application you run on its network, mostly. This is a cultural revolution and is likely to force everyone (AT&T, Sprint…) to follow. Add the $19 billion spectrum auction. Smartphones are hot. They are the new PC, only smaller, in size, and bigger, in numbers, precisely because of size, mobility and rising computing power, and applications, and…
iPhone for later:
We’ll leave the study of the iPhone business models for another week, they are very… Apple, they may set widely imitated examples or they may be unique or insular, depending on your views of Steve Jobs ways.
Smartphones advertising dollars? Back to today’s mundane world: Google proves the value of Web advertising. Does this translate to smartphones?
A possible answer comes when we replace Web, The Cloud, by PC. Today’s Web advertising billions are PC advertising dollars. Does that money flow to smartphone? Not today. The small screen doesn’t show much. SMS? Users are asked to pay for the ad, they’re upset. So much so there’s legislation afoot to ban SMS spamming. This leaves most everyone, and that includes us VC philanthropists, some call us visionary sheep, looking for ways to replicate the PC advertising bonanzas. Original thinkers that we are, we forget what happens at every turn of the techno-cultural wheel. Yes, the new generation borrows from the old but it actually is a new genre with new rules. The mini, in spite of its name, wasnt a small mainframe. The PC was wrongly called a micro before the P in Personal won the day. We know, the natural tendecy is to first see the smarphone as a PC, only smaller. Yes, it now navigates the Web and does e-mail like a PC, but its mobility, size, ubiquity, proximity to our body makes it a different genre. Different rules we don’t understand yet. Being the optimist, I expect happy surprises. I just wish to be among the first one to have a retroactive flash of the obvious…
–JLG
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