Why Location-based spam ads will fail, but also LBS-based event ads will succeed

We are having a good discussion at Twitter about location-based services (LBS) and location-based ads and location-based search. Regular readers of the blog or my books know that I consider it a myth and have written also here extensively with tons of evidence to illustrate how futile it is to launch LBS-based services. But it is a widely loved myth, so it keeps coming back. This time I won't write a new blog, let me take two excerpts from my 7th book, Tomi Ahonen Pearls Vol 1: Mobile Advertising (2009).

First, let me show why location-based spam ads will fail. In the book I am referring to the world's first ever conference on mobile advertising, which I chaired in 2001 in London. Excerpt from the book Tomi Ahonen Pearls Vol 1: Mobile Advertising:

This is perhaps the most important discovery to me, from the February 2001 London conference. Note that this was only a conceptual idea from my Consulting Department, but an idea not invented by us, and one which was to appear for years in just about every presentation and study and report about mobile advertising.

 

The (underlying) idea is similar to what Tom Cruise experiences in the movie Minority Report, that you walk into a shopping mall, the network detects your location (that you have entered the mall) and knows you by your phone, so now fully-personalized ads can be served to you. If Tomi likes whisky, well, there is a whisky shop with Glenlivet, Tomintoul and Cragganmore on sale, here is the map, come over and get a 10% discount.

 

We've all heard that idea a hundred times. But it is totally a myth. That idea will not deliver significant advertising revenues in any format, ever. The unsolicited, location-based spam ad, was a standard part of the Nokia 3G story (with the slide in the above, without the yellow part) since the middle of 2000, and I had promised hundreds of audiences that this idea was wonderful. For example I'd say "A florist had suddenly a cancelled wedding and now lots of flowers about to go bad. So use location-based ads, spam the neighborhood and sell them at half price rather than see them expire."

 

Yeah, technically this is a nice "solution" and the engineering geeks loved it, and the store-owners would like it too. But at the London Wireless Advertising conference in February 2001 we discussed this idea with the other early experts of the industry, and I learned that this was totally a myth. It would not fly.

 

Why? Because the end-user would still see it as spam. We would hate it. We had already shown a love and affection to incoming SMS text messages. We would not tolerate abuse of random spam just because we happened to walk by a given space. Most of the time we were not in the mood for that kind of shopping. We did internal calculations at Nokia and the economic case very rapidly proved that this was a dead duck. Totally a myth.

 

So in my internal workshops from the end of February, and in the public domain since June 2001, I went on record saying that this LBS Spam idea was totally busted. And I would usually add the WAA (Wireless Advertising Association, one of the fore-fathers of the current Mobile Marketing Association) Code of Conduct for mobile advertising. All ads, all of them, on mobile had to be on the basis of opt-in. And now the florist could no longer spam the neighborhood to try to find Tomi Ahonen in the mood to pick up a dozen flowers at the cost of 6 to surprise his girlfriend. I would not opt in for the random florist; and this technically elegant, but practically non-viable business idea would start its slow death-spiral.

 

Still it would take years for the idea to be accepted as dead. I would see many companies attempt to launch location-based unsolicited ads. But I also put this warning into all of my books from M-Profits on in 2002, whenever or wherever I would discuss mobile advertising. Yes, you could do location-based ads, perhaps, in certain situations, but not just to spam random walkers-by, no matter how accurately we figured out their profiles, etc. However, at the February London conference, this concept was killed by a wide consensus of the industry leaders, and from that point whenever advertising was discussed in private workshops, I pointed out that this model is dead. The first public conference that gave me the chance to show this Pearl was in June 2001 in London at the M-Commerce conference.

Now, I have also said that location-based advertising can be big, but not in this above form, but rather as events-based campaigns. We are now starting to see many emerging. Here is how I wrote about events-based LBS ads, also in Pearls Vol 1:

As I had been explaining to people that the Location-Based Spam ad was not viable, I also had come up with a variant, which was viable. I called it the "Madonna Plays at Wembley Stadium" story and included it in my second book M-Profits in 2002, and the story has been very widely referenced since.

 

The story has evolved since 2002 and in my latest book Mobile as 7th of the Mass Media I devote two pages to the idea, so I'll just summarize it here.

 

Madonna sets up a service to locate all mobile phones when they enter the concert stadium area, like Wembley Stadium in London or Yankee Stadium in New York City etc. When a fan enters the stadium, the network will send a free ad message to the fan, like the one I show in the slide in the above. Originally this would have been an SMS message, today it would be an MMS message. She gives a free ringing tone to the fan as a gift, as a custom ringing tone, only given to those who attended her concert. She also sends a screen saver, of Madonna posing in front of the stadium, so it is clearly a unique picture only from this tour.

 

Then Madonna asks the fan to join her fan club (and thus asks permission to contact the fan later). Anyone who attends a paid rock concert will understand that the artist would like to communicate with the fans, there won't be hostility against this kind of one-time greeting. 95% of the recipients will agree to the fan club and sign up (the remainder being perhaps corporate hosts or janitors and other venue staff, who will also understand that this is part of working at the venue).

 

Madonna's benefit is that now she has the mobile phone numbers of her most passionate fans, 20,000 at this major stadium. She repeats this across her global concert tour of 50 cities and she will have the cellphone numbers of approximately one million of her best fans worldwide. If the fans were willing to pay 50 dollars for the concert ticket, then these fans will be wanting to buy Madonna's next album.

 

So when Madonna releases her next album, she can send a message to her fans to pre-order the album or even buy the songs directly downloaded to her phone as is reality in South Korea today. The costs of promoting her next album will be slashed to 100,000 dollars by which her new album is snatched up by her most loyal fans on the first week of its release, and hits number one on most national charts. This will be the future of music promotion. And the same is true of her next world tour. "Would you like the same seat at my new tour?" This kind of SMS message will sell out her next world tour, with a 20,000 seat stadium sold out with 20,000 messages sent at a cost of 2,000 dollars. Obviously there are a multitude of other benefits out of this interaction with her fan club.

 

Where the location based spam is a dead concept, this kind of location-based venue advertising is a very viable way forward for mobile advertising and marketing.

 

Moreover, it does not stop with pop and rock music. How about all other events arranged at stadiums. Football. Baseball. Hockey. Basketball. Golf. Tennis. Motor racing. The Kentucky Derby, etc etc etc. Anywhere that people gather in the thousands to one venue for one purpose, for, which there is a charge for attending, these are all ripe for location-based ads. In addition, the fans will love the advertising, not hate it.

 

We are now approaching these kinds of events-based marketing activities, and I'll show you a few Pearls towards the back of the book with the Virgin rock concert in Australia and the Shanghai Formula One race in China.

So there. Location-based spam ads will fail. Location-based events ads will succeed. If you want to read more, please pick up a copy of my eBook Tomi Ahonen Pearls Vol 1: Mobile Advertising. It has 50 case studies into successful mobile ad campaigns and concepts from aroudn the world, and has a foreword by Russell Buckley from Admob, the Chairman of the Mobile Marketing Asscociation. You can read many sample pages including several of hte cases at Tomi Ahonen Pearls Vol 1: Mobile Advertising.

Comments

[Russell Buckley]

Yes, Tomi, you're right. And I speak as someone who has been there and done that in 2000/1 - thus too early to benefit from your excellent advice.

We launched ZagMe as an opt-in service in two malls in the UK - Lakeside and Bluewater. The idea was that people registered (including age and gender for targeting) and signed in on the day too, so we couldn't be accused of spamming in any way.

We signed up 85,000 consumers, ran 1500 campaigns and even signed a new round of finance - which collapsed in the post 9/11 fall out.

The main problem we had though wasn't consumer acceptance (actually most of them really loved the idea) but recruiting advertisers. Obviously, we were too early, but even accounting for that, the model was flawed. Sending sms based alerts is too expensive for a start. But the pure logistics of doing this at scale is almost impossible. Even good old Yellow Pages actually only sells to a tiny fraction (less than 1%) of potential customers and their proposition is far simpler than an LBS one.

A further complicating factor is the number of offers you need to fill all the time slots available - if you take a restaurant for example, would need different offers at different times.

Anyway, I wrote a whole White Paper about the lessons of ZagMe, which I'm happy to send free to all readers of Communities Dominate Brands. Just email me at russell AT mobhappy DOT com or tweet DM me @russellbuckley with your email address.

Russell

[Peter Cranstone]

The reason LBS spam ads fail is because they lack the correct context around who I am. An event based location ad succeeds because there is implied information about Me (e.g. I'm here because I like the event. That's meta data which can be targeted).

Check out JumpTap's recent patent frenzy. They are betting a lot on location/meta data and search. Of course they get their information from the Telco's in return for a revenue share.

Location is all about the meta data.

[Romi Parmar]

@Peter Cranstone: Exactly. Even better than getting it from the Telco (without express permission!) you could get it from a Mobile Community that has an opted in database and members who are actively looking for somewhere to go and something to buy.

An obvious example of a location based advert that will work is when 2 members of a mobile dating community are looking to meet up for a date they've arranged. Profile tells me they both like Chinese. Location tells me they're in London. Here's the place. Here's the offer. What's not to like?

[tiffany & co]

It was a very nice idea! Just wanna say thank you for the information you have shared. Just continue writing this kind of post. I will be your loyal reader. Thanks again.

[Herve G.]

Heh. The 'Minority Report' analogy was indeed what we regarded as a way *NOT* to do things when we first began brainstorming for 01 Pages, our geolocated mobile couponing/advertising platform (www.01pages.com).

This was confirmed later on: most people's first reaction when you mention a service that provides 'ads and coupons on your mobile based on your location' is negative -- along the line of "I don't want my phone to bug me wherever I go".

That's the point where we explain it's the same for us, and why and how we're taking the rather opposite way.

With 01 Pages, we believe in turning the table on the ads/customer relationship by putting the users in charge and control of how, when and where they search and locate the offers that interest them specifically (and not just some shady notion of the 'demographics' to which they allegedly or presumably belong). Our client applications (now available on most major mobile platforms) turn their cell phones into their own search and locate device (find offers only when and where you want them), as well as personal coupon redeeming terminal (barcodes, limited offers, etc). It's all opt-in and on-demand, always.

I must say, Tomi, the more I read about your documented dislike of LBS-based advertising, the more I'm comforted in the rationale and strategy of our own venture.

[Tomi T Ahonen]

Hi Russell, Peter, Romi and Herve

Thank you all for your comments. I think we all generally agree and I don't really have specific points to add to your comments except to agree with them.

Russell's White Paper is brilliant in its insights, and is a must-read for anyone considering this opportunity.

Peter - JumpTap is a great example yes.

Herve - so too is 01 Pages, where you clearly have prepared your company for the age beyond the wrong LBS model. Good luck and please do tell us how you fare in the market, am most happy to blog about you and your journey into mobile advertising (like Russell with Admob haha, who just got bought up by Google, not a bad way to have a start-up end up, haha, congrats)

Thank you all for the kind words and support

Tomi :-)