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Tuesday, April 27, 2010

Telcos = Google advert affiliates?

I'm at the IMS conference in Barcelona today. My bulletproof vest has already protected me from a couple of shots from large vendors. It's going to be an interesting day.

Most interestingly, the first presentation was from Google - specifically the YouTube rep for Southern Europe. She started with saying "this isn't about IMS", and carried on by showing a slide of an Alcatel Lucent video (hosted on YouTube.... the subtext being fairly obvious). It covered a broad set of cool innovations within YouTube, as well as the advertising / monetisation model. Basically, it pitched YouTube as a hugely valuable and important service platform, with numerous usage cases and features, as well as a plethora of revenue opportunities.

My question, which she deflected, was why she was at the event at all. What relevance did it have, either to IMS, or to the audience. Then I realised that the audience held a good number of services/apps people from - not necessarily IMS fundamentalists, but just looking for ways of increasing revenues at manageable risk levels.

My take is that Google is offering a (smallish) olive branch to operators at the moment - basically a revenue-share on advertising, where operators help them extend the reach of their existing properties. This is behind Android, and I expect the subliminal messaging behind the presentation was to convince operators that carrying (and indeed promoting) YouTube is in their own interest.

Certainly more so than whingeing to the European Commission about imposing a tax on Google's cleverness, which is the current strategy.

There's a word that Google uses to describe partners with which it shares ad revenue, when they help improve its reach.

That word is "affiliate".

Edit: The more I think about it, the more I realise how clever this approach actually is. It is basically saying to the operators "You can become a *happy* pipe, by sharing in our success". Push more and better quality YouTube, or Gmail, or Google Maps..... and it generates more advertising, and therefore more rev-share for the operators. And it doesn't require lots of complex core network capex with uncertain returns.

And it doesn't have to be "dumb" - adding smartness to the network adds even more value, enabling Google to better target its adverts (more rev-share!) and provide higher-quality user experiences (HD YouTube = more expensive ads = more rev-share!), and reducing churn means more users/viewers (more rev-share!).

There are many, many companies making money as Google affiliates - so why shouldn't telcos just be seen as a special case?

[The above is me playing Devil's Advocate, by the way. I'm not expecting many operators to find this a particularly palatable world-view - even though it may ultimately make a lot more sense].


Anonymous said...

FYI, there was a MocoNews article about this a while back that didn't get much attention.


Davide said...

It seems to me that Google is finally agreeing to what Telefonica and Vodafone Spain have said about Google paying for the access to mobile network infrastructure.

The fact that payment is coming in a form of revenue sharing from advs rather than a fee to have access to mobile subscribers does not really make a big difference.

Google is finally agreeing on giving up a bit of his revenues to operators (in exchange of some form of QoS or marketing package) and that is a big change in the current setup of the value chain. Do you agree?

Dean Bubley said...

No, Davide, I disagree.

This is much more of a "success-based" approach, rather than agreed opex type payments.

It basically means the telco would have to actively promote Google's services in order to get a share of the *incremental* benefits that Google accrues.

It's the same as if I decided to put AdSense adverts alongside my posts on this blog. I wouldn't be expecting to have Google pay me upfront for "buying space" (ie capacity on the page) - it would instead only be based on my ability to drive traffic and clicks.

Very different indeed.

Also, I'd expect this to occur at least as much in fixed networks than in mobile.