Blyk’s Saga: The Limits of Ad-Supported Mobile

Blyk, a European ad-supported mobile phone service with gold-plated backing and a dream management team, was considered a serious potential threat to mobile operators when it launched in 2006. But mobile advertising has not reaped the hoped-for financial benefits for either Blyk or traditional operators. Now, the two sides are teaming up in the hopes of getting better results.

Blyk’s co-founders are Pekka Ala-Pietila, the former president of Nokia and Antii Ohrling, a veteran advertising executive. Its financial backers include Hasso Plattner, the billionaire chairman of German software maker SAP and Paris-based Sofinnova Partners. The company started out as a mobile virtual network operator or MVNO, marketing services under its own brand but piggybacking on Orange’s network.  Users received free call and texts, up to a ceiling, in exchange for receiving advertisements.

Blyk projected millions of users and a rapid rollout across Europe. It launched like a rocket, reaching its target of 100,000 users in Britain six months ahead of schedule and planned to expand into the Netherlands, Belgium, Germany and Spain by 2009. If enough mobile phone users opted for free, ad-supported service, some analysts predicted that billions in revenues could shift from traditional subscriptions to mobile advertising, a market which some estimated could generate as much as  $19 billion globally by 2013.

While skeptics warned that customers  would be turned off by advertising, Blyk resonated with its target market by staying away from pop-ups or search ads and instead concentrating on messaging, the most popular form of mobile communication for 16-24-year-olds.

Blyk’s ads are sent via sms or mms or a combination of mms with texting. The idea is to get users to engage in a dialogue with advertisers. It ran more than 2,600 campaigns and attracted quality advertisers such as Coca-Cola and L’Oreal. The response rate to the ads have averaged around 25%, according to CEO Ala-Pietila. Some campaigns, such as one for hair product company Brylcream got a response rate of 49% , other had 60% or more, which is considered phenomenally high for the ad industry.“One of our most crucial assumptions was verified in a very robust way: advertising can be made relevant and when it is made relevant it ceases to exist as advertising and is instead perceived as content,” says Ala-Pietila. “So in that sense we can say Blyk media works and has shown its success.”

So what went wrong? The service, which never moved out side of the U.K., didn’t scale. It rapidly reached 200,000 users and then got stuck there, limiting its interest to advertisers.  Blyk also found it was difficult to make decent revenues while paying for use of a traditional operator’s network. “We needed to take a tough decision and change the MVNO model to a partnering model,” says Ala-Pietila.

Under a deal with Vodafone in the Netherlands announced July 23  Blyk will remain a consumer-facing brand but will take on responsibility for helping to develop Vodafone’s offer in the Netherlands and manage advertising sales and related technology.

The deal with Orange in Britain, announced July 27, calls for Blyk to be absorbed into Orange  as an application in a new offer called ‘Monkey’, a pay-as-you-go package for the British market that offers free music to customers when they top up their mobile. Working together, Universal Music, Channel 4 and Orange have developed a package that gives customers free  access to hundreds of thousands of songs (plus free texts) streamed through any mobile handset.  Aimed at the same 16-24 year olds in Blyk’s target market Monkey offers customers free texts, allows for playlists to be shared on social networks and it delivers ads (thanks to Blyk) direct to their mobile.

Traditional operators are interested in partnering with Blyk because they lack expertise in new media.  “There is a sense of urgency from the operator side,” says Ala-Pietila. “They don’t want the Internet guys to win and they want to fight back.”

While analysts believe that Blyk’s expertise may help boost  the offerings of operators, potentially attracting new customers from the youth market and helping to reduce churn, mobile consultancy CCS Insight is predicting that the mobile industry will generate limited revenue from mobile advertising in the near term. By 2010 the European market for mobile advertising will generate just €425 million, according to CCS Insight.  In other markets, such as the U.S. and Asia, mobile advertising is more advanced than in Europe, but not at the point where it is generating revenue in the billions, the report says.

“The long term outlook for mobile advertising is encouraging as brands and ad agencies increasingly look to spend more of their budgets on the mobile channel,” the report says. “But the industry should be wary of claims of massive spending or phenomenal growth as advertising on mobile devices is shifting only slowly from an experimental stage toward commercial reality.”

So where does that leave Blyk? Current customers will have their service cut off on August 26. After that they are free to choose a new operator. Despite Blyk’s efforts to put a positive spin on the change in strategy press headlines in the UK included one that read “Blyk bites the dust.”

Analysts are divided about Blyk’s future. “I think it has a great chance of success,” says Paolo Pescatore, an analyst at mobile consultancy CCS Insight and author of the October report on mobile advertising. “Blyk could be a great benefit to operators.”

John Strand,  CEO and founder of Copenhagen-based Strand Consult, disagrees. “Blyk is dying a slow death,” he says. “Investors are trying to save a part of their investment but I don’t think Blyk has a future.” Strand says he did not believe in Blyk from the beginning, pointing out that three Nordic MVNOs tried and failed to build advertising- supported mobile phone businesses.  He says he believes Blyk will not have better success in its new role because it is primarily a technology company. “Mobile marketing will be domained by big media companies,” predicts Strand.

For his part Ala-Pietila remains optimistic, pointing to interest from several unnamed Asian carriers and to other possible partnership deals in the U.S. and Latin America.  He stresses that Blyk’s success in the U.K. proves that the company can help jumpstart mobile network operator’s mobile advertising offer. “We are proud of what we did in the U.K. and we know how to repeat it,” he says.

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