Monday, July 9, 2007

Virgin Mobile: Time Is Wireless Minutes

The cell-phone operator's Sugar Mama program compensates subscribers with free call time for interacting with ads on their phones

Much has been made of the Web-like marketing dollars to be earned by shooting ads to cell phones. But there's been little agreement so far over how to get mobile subscribers to put up with what many see as a mobile version of spam on a device they already pay plenty to use. One proposed solution for persuading them to embrace this wireless intrusion appears to be gaining traction: pay them.

On July 9, Virgin Mobile USA reported that it signed up roughly 330,000 of its 4.8 million subscribers for its Sugar Mama program, which "pays" them one minute of free call time for every 45 seconds they spend interacting with an ad on their phones or the company's Web site. Since the program was launched about a year ago, Virgin has given away 9 million minutes of mobile talk time.

For marketers, the popularity of the program offers some proof that the mobile phone may not be so different from other types of media. Just as cable TV, newspapers, magazines, and many Web services profit from a combination of subscriptions and ad revenue, the cellular industry is seen as ripe for supplementing its monthly service fees with marketing dollars.

"When we started talking to people, they said, 'Don't sully my wireless experience with your advertising,'" says Howard Handler, Virgin Mobile USA's chief marketing officer. "But when we started talking about it a little further, we heard, 'My time is one of the most valuable commodities that I have, and if you are asking me to spend time looking at a message, I want to be compensated for it.'"

Targeting the Cash-Strapped

Marketers say the key to mobile ads, usually delivered to the phone with a text or picture message, is getting users to agree to receive them by offering a clear reward. It also helps if they're in their late teens and twenties, an age group that dominates Virgin's customer base. The reason this audience is more receptive? Cash, for one. College students and entry-level workers typically don't have much of it. As a result, they're more willing to trade their personal time for free services, says John du Pre Gauntt, a wireless industry analyst for eMarketer. Second, younger people have grown up with ad-supported Web services, making them less averse to sales pitches.

But why would marketers want to bother with people so cash-strapped that they'd be willing to spend nearly a minute of their time just to get free air time? After all, a person who doesn't want to part with the 18¢ Virgin charges for an extra 60 seconds on its pay-by-the-minute plan can't have much spare change to spend shopping. Marketers counter that those who make up the 34-and-under market typically have more disposable income than older individuals with mortgages and dependents. And, says du Pre Gauntt, people in their late teens and twenties are less price-conscious when they do spend their money.

Virgin's data also shows some success in getting this audience to respond to what's being advertised. On average, Sugar Mama participants clicked on offers in the ads they viewed more than 5% of the time. The 5%-plus response rate echoes the results seen in similar studies (see, 4/23/07, "The Sell-Phone Revolution"). Though 5% may not sound like much, it's significantly higher than the average response rate to online ads, which is less than 1%. One especially successful ad campaign in Virgin's program managed to produce a 21% click-through response, says Handler, who declined to identify the advertiser. Response rates like that are one reason the market for mobile advertising is expected to grow from less than $2 billion this year to more than $11 billion in 2011, according to a 2006 study by Informa Telecoms & Media.

Planting Seeds

Another reason to pay attention to younger, less-wealthy consumers is that they eventually become older, wealthier consumers, says du Pre Gauntt. It's better for marketers to reach them now, when they are forming their impressions about brands and the kinds of products they value. "The 2007 college senior could take a job with [consulting firm] Accenture (ACN) next year," says du Pre Gauntt.

But while mobile ads may help seed future tastes, it's unclear whether this audience, as it ages, will continue to respond to mobile ads with the same fervor. Du Pre Gauntt expects they will, particularly as more people get smartphones with speedier Internet access and better Web browsers that can display multimedia ads (see, 11/7/06, "Yahoo's Grand Mobile Ad Experiment"). After all, the mobile phone is the most personal of devices, enabling more precise targeting of ads than a television. It also doesn't hurt that these devices travel with people when they're out and about, primed to make a purchase (see, 11/28/06, "Ads Migrate to Mobile Handsets").

However, advertisers probably shouldn't expect to see 5% response rates forever. Mobile marketing is still a novelty, so it grabs a user's attention more easily. Online ads enjoyed similar response rates when they first started appearing, says du Pre Gauntt. As more ads appear on phones, marketers will have to do more to stand out—more, perhaps, than simply bandying about the word "free."

Source: Business Week

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