Dialing for dollars

Leap Wireless may have answered a critical question for many carriers targeting the mobile Internet space. The San Diego-based company has shown, at least in two markets, that customers are open to wireless advertising, despite a plethora of marketing studies indicating otherwise.

The company took its cue from the broadcasting industry, which is funded primarily by advertisements, when it crafted its wireless data story. Rather than throw a data device into customers' hands, Leap executives recruited some advertisers, bought some back-end technology and set up a service that presents advertising blips to customers the few seconds before their calls are connected. Customers can then find out more information by the touch of a button on their handsets.

The results so far show that it's a win-win-win proposition for customers, advertisers and Leap itself. Customers — who pay an extra $3 a month for the service — are hearing what they want, restaurants and stores are reporting anecdotal evidence of higher traffic, and Leap is reaping the revenues.

Carriers have been looking at advertising as a way to rake in supplemental revenues but have been extremely afraid of irritating their customers. And studies support their fears. Ovum recently predicted that global revenues from advertising on wireless devices would stay below $1 billion until early 2004 and would only take off from 2006 onward. The reason, Ovum says, is that users consider their wireless devices to be part of their personal space. Any uncontrolled spam risks tainting the market for everyone. Advertising campaigns must be carefully constructed, the firm warns.

Cahners In-Stat Group says many wireless customers are interested in services like voice portals but that their interest wanes once advertisements are thrown into the mix.

Leap's executives were worried that customers would become irritated by having to listen to advertising messages — until they tried the service for themselves (see story on page 26). They now point out that customers listen to the advertisements, which are often news feeds sponsored by advertisers, when they would be doing nothing but waiting for the call to connect. And the content delivered to their handsets is carefully controlled; customers fill out a questionnaire to help the company determine what kind of content they want to hear.

Leap's market trials of last year indicated 74% of the people who heard the advertisements were prompted to act. Nearly one-third made a purchase as a result of the messages delivered to their phones.

Leap's success is bolstered by another market trial completed earlier this year by Boulder, Colo.-based marketing company SkyGo. Participants in the trial had the option of receiving at least three advertisements each day, all of which were distributed when users wanted them. In the end, some participants demanded more, and SkyGo found that customers responded to 64% of the ads delivered to them as WAP alerts.

Throwing location-based technology in the mix makes the prospect of wireless advertising even more attractive, yet more of a headache for carriers. Some may worry about privacy issues because such technology tracks customers at all times and then shoots off an advertisement that will get them to walk into a nearby Starbucks. Even Leap doesn't fully know how location-based technology services will evolve.

Yet, it will take more companies like Leap that are willing to take chances to find out just how lucrative the wireless advertising market is. Wireless advertising may be just what the industry needs to get people to use wireless data services. WAP has been an industry disappointment because customers immediately found it difficult to use. Wireless advertising could help educate users on the complexities of WAP.

Carriers shouldn't wait for numerous studies to back up this concept.
Contact Lynnette Luna at lyluna@qwest.net.