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Why Every Company Is Now an Incubator (Issie Lapowsky | Inc. magazine 21 Dec.2012)

From Microsoft to PayPal, it seems every day another business launches an incubator. Here’s what’s motivating them to get in the game.

These days, it seems, there’s an incubator for everything. In fact, the National Association of Business Incubators estimates there are some 1,250 of them operating in the United States. There are incubators for every race, gender, industry, and region in the country. Some incubators combine several requirements to narrow their niche even further, like La Cocina, a San Francisco-based incubator for low-income, minority women, who want to launch food business.

Now, even businesses are getting into the incubation business. Recently PayPalannounced it would be incubating companies at its new Boston offices. Earlier this month LinkedIn broke the news about [in]cubator, an internal incubator for LinkedIn employees. Microsoft’s launching a tech center in Rio de Janeiro. Google’s launchingone in Tel Aviv. Even smaller companies are doing it. This year, Tough Mudder launched an internal angel fund for employees who want to pursue a business idea, and the ad agency Ignited pays employees to take part in a business plan competition.

But unlike most incubators that aim for a monetary return on their investments, the businesses operating these incubators seem to have different motivations, entirely. Here are a few we came up with:

It’s R&D reinvented.

For some, the term «incubator» is more or less another word for «research and development.» The LinkedIn [in]cubator, for instance, will foster only those products and services that can benefit LinkedIn’s customers or employees in some way. Once a quarter, LinkedIn employees can pitch an idea about a potential product offering to the executive staff, including founder Reid Hoffman and CEO Jeff Weiner. If the idea is approved, the employee gets paired up with an executive mentor, and is allowed up to three months (if the progress is satisfactory, that is) to work solely on the project. So far, five projects out of 50 submissions have been approved. One of the most successful so far is go/book, a tool that changes how meetings get booked at LinkedIn.

According to Florina Grosskurth, who runs the company’s engineering programs, «LinkedIn sees [in]cubator projects as small investments that have the potential to become big wins for the company.»

It’s an acquisition primer.

For others, like the telecommunications giant Qualcomm, incubation is a strategic investment strategy for potential acquisition targets down the line. In May, Qualcomm partnered with an existing incubator called EvoNexus to launch a program called QualcommLabs@evonexus. The idea is for companies that are already incubating at EvoNexus to apply for up to $250,000 in funding and guidance from Qualcomm. So far, the company has doled out a total of $550,000, divided between three start-ups focused on the wireless and telecom space. «It’s a directed investment initiative,» says Liz Gasser, vice president of business operations at Qualcomm. «We’re encouraging growth in the segments we care about.»

It keeps ideas fresh.

PayPal’s incubator started off as a co-working space in PayPal’s Boston office, which was being underutilized. That experience, says David Chang, COO of PayPal media network, reminded the company how invigorating it is to work in a start-up environment. Now, the company is welcoming nine start-ups to its new offices in Boston, where they’ll get access to PayPal executives and leads to PayPal’s vast network of investor contacts (hint hint). According to Chang, PayPal’s motivation is to reinvigorate a massive corporation with start-up sensibilities. He also says networking with so many bright young developers and their personal networks will be beneficial to recruiting. «We get to be really plugged in to these problems start-ups are solving. It’s great to be on the cutting edge, but not have your foot fully in,» Chang says. «The incubator, we hope, will keep us really sharp.»

It’s an employee perk.

Will Dean of Tough Mudder, an obstacle course company, is a culture junkie. The company is full of clubs, retreats, and traditions to keep employees on their feet and engaged. This year, Dean realized that a lot of the people work at start-ups because they have dreams of launching their own businesses one day. He decided it’s better for the company culture to help those would-be entrepreneurs along, rather than forcing them to work in secret. So this year, Dean and his co-founder Guy Livingstone set up a $2 million angel fund to invest in employee ideas. This summer, the company launched an internal business plan competition to encourage employees to pitch new business ideas, even if they weren’t considering it before.

Unlike [in]cubator, Dean says he hopes many of the companies Tough Mudder invests in will be able to stand on their own someday. «A lot of people came here to work out of business school and wanted an entrepreneurial experience. We said, ‘We want you, and it’s completely fine to stay for two years,'» he says. «We’re an entrepreneurial company, and I think it’d be great if we could have our own alumni community of successful entrepreneurs like, PayPal does.»

It’s a licensing pipeline.

Through Procter & Gamble’s Connect+Develop program, entrepreneurs can pitch a product and develop it under P&G’s supervision, leveraging their equipment, contacts, and expertise. For a lucky few entrepreneurs, this program is a direct path to commercializing a product, as P&G regularly mines its Connect+Develop portfolio for potential licensing agreements. In fact, more than 50% of P&G’s new products have come from collaborations with external partners. The Connect+Develop program is responsible for the birth of products like Glad ForceFlex bags, Mr. Clean Magic Eraser, Swiffer Dusters, and Tide PODS. As Lisa Popyk, a spokesperson at P&G, put it, «Connect and develop continues to deliver winning results because it’s rooted in, and continues to develop from, the core belief that together we can do more than any of us can alone.»

Here Comes the First Real Alternative to iPhone and Android

Sailfish OS Hands on Preview

 

If you talk to enough people at the Finnish mobile startup Jolla, at some point it occurs to you that the company it most resembles is Apple. Not the Apple of today, which is basically a half-trillion-dollar supply chain with a design appendage, but Apple back when it was Steve Jobs obsessing over the creation of the Macintosh, which was radical in its focus on the user. In demos, at least, Jolla’s decidedly different new mobile operating system (OS), called Sailfish, looks that good.

Sailfish, Jolla insists, will become a legitimate alternative to the Coke and Pepsi of smartphone platforms: Apple’s iOS and Google’s Android. Microsoft would like to accomplish the same thing, and has spent billions trying, with limited success; it has already cut back production for the new tablet running its latest OS, Windows 8. So what makes this group of fewer than 100-odd Finns, most of them refugees from the sinking ship that is Nokia, think they stand a chance?

“China… is the most dynamic smartphone market — it’s really booming,” said Sami Pienimäki, who runs sales at Jolla, at the company’s Nov. 21 unveiling of its new OS in Helsinki. “There is 80%-100% year-on-year growth.” (At least one projection suggests that the number of smartphones in China could grow by 150% in the next year alone, to 500 million devices.)

Jolla cannot possibly take on Google and Apple head-to-head, and it doesn’t plan to. Rather, the company, which is rapidly becoming a Finnish-Chinese hybrid with headquarters in both Helsinki and Hong Kong, and an R&D operation in a yet-to-be-named location in mainland China, plans to nurture and grow an entirely new mobile “ecosystem” — meaning the phones, the operating system that runs on them, and the apps that run on that. And it plans to do it in China because that is the one market producing first-time buyers of smartphones fast enough to give such a scheme a chance.

In order to get its operating system and, eventually, Jolla-branded phones, in front of enough Chinese, the company has partnered with the largest mobile chain retailer in the country, D.Phone. Not only will D.Phone sell Sailfish-powered phones through its 2100 outlets; it is also part of the Sailfish Alliance, a group of software and hardware companies that will all be able to add standards and code to the open-source OS.

The deal with D.Phone isn’t just a feather in Jolla’s cap; in some respects, it’s the reason it exists. It represents an early commitment from an established player with reach but no devices of its own, and a built-in market for what would otherwise be an even more hugely risky proposition.

Jolla CEO Marc Dillon believes that both iOS and Android are boring technological dead-ends where innovation has gone to die. And if you cruise YouTube for the various hands-on videos demonstrating the Sailfish OS, you begin to get a sense of what he means. Visually, Sailfish doesn’t seem very radical, but the mechanics of how people interact with it are.

Sailfish is designed to acknowledge that most people use their phones for several things at once these days. The phone’s home screen can be filled with up to 9 concurrently running applications. (Contrast that with an iPhone, where, save for things like playing music, applications are paused when a user switches from one to another.) And they can all be controlled without even “opening” them. Rather, each “application cover&rdquo ;— which is a large rectangle on the phone’s home screen — has its own interface.

The basis of this is “swipe” gestures, a convention borrowed from the Nokia N9, a one-of-a-kind phone that Nokia developed in alliance with Intel and released in 2011. It ran on a unique operating system called MeeGo, which is a direct ancestor of Sailfish. (Most of the Jolla team came from Nokia and previously worked on MeeGo, and while Jolla has no financial ties to the company, spiritually it’s a spin-off.) Swiping from one side of a tile or the other will, for instance, skip tracks if it’s a music player, or flip through contacts if it’s the address book.

While in some ways Sailfish superficially resembles the Windows phone, which has a home screen full of “live tiles” displaying information from various apps, the tiles’ only other function in Windows is to open the app when you tap them. The Jolla team seems to have asked itself: What does the user want to accomplish, and what’s the smallest number of taps required to accomplish it?

“I believe that when people try [Sailfish] and use it for a few minutes, it’s going to resonate with them,” says Marc Dillon, CEO of Sailfish. “It enables things that are much more different than on other devices. It makes them effortless.”

A radical business model

Ease of use is one part of Jolla’s plan. Market reach is another.

In China, things work a little differently than they do in rich countries. Retailers like D.Phone, for example, wield outsize influence over the rest of the mobile device market. In the West, cellphone carriers generally pay the handset-makers part of the cost of a phone in return for being the exclusive carrier for that particular device. In such a market, a new phone based on an OS that nobody has heard of doesn’t stand a chance because the carriers won’t take a gamble on it; they might not recoup their cash outlay. In China, however, the retailers buy handsets and charge customers full price for them. The way carriers compete for exclusivity is to offer retailers and their customers the biggest possible amount of free airtime.

That means that if D.Phone decides it wants to take a chance on a new device, carriers can’t really veto its decision. And D.Phone, and presumably other retailers, has much more incentive than the carriers do to offer something truly different, because otherwise the only way it can compete with other retailers is on price.

“In China, many families are coming to the point where they’re either saving for their first real smartphone or they’re ready for the next one,” says Dillon. “They really do want to stand out and have something a bit different.” Android dominates in China, capturing nearly 80% of all Smartphone sales. Apple’s iPhone stands out and is different, but it’s also hugely expensive for a country in which the average yearly household income is still only about $9,000.

Coke, Pepsi… and Red Bull?

Andreas Constantinou, managing director of Mobile Vision, a telecoms consultancy, isn’t buying the Jolla story.

“It’s impossible for anyone to compete with the duopoly of Google and Apple,” says Constantinou. The mobile market, at least in rich countries, is winner-take-all. Users don’t care who makes their phone, he argues; they care whether or not it will run the apps they want. Developers, meanwhile, only want to create apps for the platforms with the most users. The result is that Apple and its fast follower Google, which pioneered the smartphone app store, have made it too hard for newcomers to enter the market. The mass of users who are already attached to their iPhones and Android devices because of their wide choice of apps are, in a way, the real value of those platforms.

“Take the case of Jolla,” says Constantinou. “In order to start spinning its network effects, it needs to have a critical mass of either users or developers.” He adds, “Microsoft has spent five to ten billion dollars and still hasn’t been able to compete. And that’s two years after they’ve introduced Windows phone. It’s like there’s Coke and Pepsi and everyone else — good luck.”

The comparison of smartphones to soda is an idea invented by Peter Bryer, who spent 16 years in high-level management at Nokia. So what does he think of Jolla? On his blog, he says the company may be the “Red Bull” of this marketplace, a company that could “hit an industry from the side with something different, something fresh, and something unexpected.”

A team of rivals

Jolla’s leadership is well aware of how hard it is to break into a field of entrenched behemoths. One of its solutions is an “interpretation layer” that allows Jolla phones to run most Android apps. But for a lot of people to start using Jolla phones, even in a country like China where many are not yet attached to a particular platform, Sailfish is going to need its own apps, and people to build them, as Constantinou points out.

The company has tried hard to create a culture that will attract such people. Because it’s run by software developers, it espouses values — like sharing, collaboration and transparency — beloved by developers, who it hopes will contribute code for free in their spare time, as typically happens with open-source projects. Android, also open-source, has captured some of that goodwill, but the only company allowed to contribute code to Android is Google itself. Google has also been using heavy-handed tactics to keep Android handset manufacturers in line.

Jolla also comes from a country that is now legendary for its programming prowess. Home of Rovio, maker of Angry Birds, the most-downloaded paid game on iTunes ever, and Supercell, one of the fastest-growing game studios ever, Finland is a good place to be popular with programmers. “Finland is a country of five million people and it sure feels like we have five million supporters here,” says Dillon.

Jolla itself has grown from a staff of around 50 in August, expecting to reach 100 by the end of 2012. Many of them will be located in Hong Kong, which will be the headquarters of the Sailfish Alliance.

Open to modification

The alliance symbolizes another key thing that Jolla says will make it different: the company aims to have less control over Sailfish than any other OS maker has over its OS. The purpose of the alliance — which includes Tencent, one of China’s leading online companies, and ST-Ericsson, maker of the chips that already power at least a dozen different Android smartphones — is to make it possible for the various handset makers, software companies and mobile carriers who have a stake in the success of Sailfish to dig into the guts of the OS, make suggestions, tweak it for local markets, and put in new services that can help them generate revenue.

So, for example, if a company like Samsung offers an Android handset, it has to obey by rules laid down by Google so that it can include the Android app store, called Google Play, on its devices. It can’t use another app store. Revenue from Google Play goes to Google, not Samsung. By contrast, if a carrier wants to include, for example, its own app store or music service in Sailfish, that’s no problem.

Dillon says that even though Sailfish will always be open-source, Jolla will make money by licensing the patents the company has on its unusual user interface. He also hints at other, more radical business models that revolve around, for example, making it easier to match users with apps, but he says he can’t yet discuss them. ”I don’t want to go head-to-head with the two big app stores,” says Dillon. “I’d like to do something a bit different.”

Freedom from the patent wars

Jolla’s final advantage is that it believes it can stay out of what has become a massively expensive conflict between phone-makers over intellectual property. Hardly a day goes by that some holder of mobile patents doesn’t initiate a lawsuit against another — the latest is Nokia versus RIM, maker of the Blackberry, and in August a U.S. court awarded Apple $1 billion in damages in its patent infringement suit against Samsung. “There were massive investments from previous customers [Intel and Nokia] to clear MeeGo [now Sailfish] from intellectual property issues,” says Jussi Hurmola, former CEO of Jolla and now a consultant to the company.

This also means that Jolla offers a sweetener to carriers. Because its interface is so different and the OS was written specifically to avoid infringing existing patents, it could be free of the de facto licensing fees that usually come with using Android on a phone. (As a result, while Google charges nothing for Android, Microsoft is the one that makes money every time an Android-powered handset is sold.)

The Steve moment

“Many people have told us that this is not possible… that the market is flooded,” Jolla VP Pienimäki said at the Sailfish launch. To argue for why the company should succeed he pointed to Jolla’s deal with D.Phone, but also to the research the company has done on Chinese consumers. “We spent hundreds of hours studying the marketplace and consumer behavior in the field, in shops, malls, streets; seeing consumer behavior in the metro, subways, bars. […] That’s the key power of this company — the management is in the field all the time. You can’t outsource this kind of market insight.”

There is a Steve-Jobs-like quality to the pride Dillon and Hurmolla take in their creation and their exacting standards for ease of use. I ask Dillon if he would compare his company to Apple.

“It’s fair enough,” says Dillon. “We inherited some things from MeeGo, and and some of this has evolved into things have become a bit more revolutionary. We’ve really simplified the interaction, and made a lot of things easier to use so they require far less interaction. […] I would like for this to be a major disruption.”

But acting like Steve Jobs and succeeding like Steve Jobs are two very different things. Jolla will unveil its first handsets, and its super-secret alternative business models, around the beginning of 2013, says Dillon, and phones running Jolla should be available by the spring. Even if Jolla ultimately succeeds in China or manages to become the “Red Bull” of the smartphone world, that will be just the beginning of a very long battle.

Android app reviews move to Google+ ID system

Google has made it obligatory for Google+ account details to be displayed alongside new reviews of Android apps on its Play store.

Previously posts could be submitted anonymously.The move means the reviewer’s name and profile photo – if they have one – will appear alongside their entry. One developer said the change should help address the problem of fake reviews. It may also boost use of the search giant’s social network. When users attempt to post a review, they will be presented with a pop-up box notifying them of the new policy. The nicknames that used to appear alongside previous entries have all been deleted and replaced with «A Google User».

Facebook’s app centre already requires users to reveal their «real» Facebook identity alongside entries. But Apple, Microsoft, Blackberry and Amazon’s equivalents all allow reviewers to use pseudonyms. Google+’s terms and conditions state that profile names must match«the name your friends, family or co-workers usually call you».

Fake reviews

In October, Google announced there were more than 700,000 apps in its store.With so many to choose from, many consumers base their picks on whether the software has a high star rating and the number of people who have reviewed it. One industry watcher said this had given developers an incentive to «game» the results. «It’s very easy to have apps that have nothing but fake high-scoring reviews,» Mark Mulligan, editor of the Media Industry Blog, said,

«It’s only once many people have fallen victim to that and have added their real reviews that the tactic stops working. This is definitely a good move in solving the problem.» Ian Wharton, creative director of Zolmo – the firm behind Jamie Oliver’s 20 Minute Meals app – also welcomed Google’s change in policy.

Posts now identify the reviewer, while earlier ones simply say they were posted by A Google User. «We’ve seen companies release an app and then hundreds of their own employees end up rating them, which is a very disingenuous way to go about things.

«It’s a good thing that there’s now a face and a name. App stores are becoming so saturated with content that any effort to strip away falseness and make them more transparent can only make it easier to find good content.

«If Apple did something similar it could only make our life better.»

Social network support

The move may help the fortunes of Google’s social network, Android is the most commonly used smartphone system. Device owners had previously needed a Google Account to download apps from its store and use some of its other services – but this had not involved setting up a Google+ profile.

They now have an extra incentive to do so. It follows an earlier announcement that Google had decided to allow users to link their YouTube and Google+ profiles.

«Facebook is still clearly the dominant social network player, but Google+ does have momentum and there is plenty to suggest it could make up a lot of further ground,» said Mr Mulligan.

«One of the key tools Google has to its advantage is all the bits of its own ecosystem – it can promote the service by making it the glue that binds together all of its assets.»

He noted that this kind of move represented a growing trend, with another example being the way Microsoft had tied its Xbox Live product into its new Windows Phone 8 operating system via its Xbox Music Store.

However, companies need to be careful about the extent to which they cross-pollinate their offerings.

The EU is already carrying out an investigation into the Google’s placing of its services in its own search results, and reports suggest US watchdog the Federal Trade Commission is considering its own probe.Google has denied manipulating the results to favour its own products

Which Mobile Commerce Apps Won On Black Friday?

Mobile Ecommerce Traffic Up

Groupon maintained its spot as the top mobile commerce app, but Best Buy saw the biggest overall one-day gain on Black Friday, according to Onavo, a Sequoia-backed mobile data compression startup.

Usage of Best Buy and Walmart’s iOS apps jumped by more than fivefold last Friday and Thursday night. Following them were Kohl’s, Target and ShopSavvy. Onavo didn’t include Amazon in their study.

Onavo collected the data for their report through a sample of about 130,000 U.S. iPhone users last week. They’re an Israeli company that gets live insight into daily app usage through two consumer products: Onavo Extend, which helps consumers save on their mobile bills by compressing data usage and Onavo Count, which tells you how much data you’re using. Because they have millions of users, they can peek into daily mobile traffic to different apps.

Plus, because Onavo creates consumer-facing products and doesn’t work directly with developers, the company can publish data on active usage for specific apps. This is unlike mobile analytics companies like Flurry, which can’t really disclose performance of specific apps because developers would probably not work with them.

The apps with the overall highest usage last Friday were the group deals apps Groupon and LivingSocial, followed by Walmart, Target and eBay’s Red Laser.

Overall, comScore reported that U.S. retail e-commerce spending topped $1 billion for the first time this year. They said e-commerce spending jumped 26 percent from the year before to $1.042 billion. comScore said Amazon was the most popular e-commerce site by visits, followed by Walmart, Best Buy, Target, and Apple. eBay-owned PayPal also reported that Black Friday global mobile payments volume was up 193 percent from last year.

Rackspace announces UK start-up programme for 2013

By Dave LeeTechnology reporter, BBC News

Start-up workers at London's Tech Hub
Blogger Robert Scoble likened the UK’s start-up scene to Silicon Valley’s early days

A major new programme to support fledgling technology start-ups in the UK is to be launched in the 2013.

Cloud hosting firm Rackspace is to offer £12,000 of hosting and mentoring for start-ups on the programme.

The launch comes as the government continued efforts to encourage successful UK start-ups to float on the stock exchange.

A survey of more than 50,000 entrepreneurs ranked London as the seventh best city to launch a start-up.

The report, by telecoms firm Telefonica, concluded that the UK’s offering was «no Silicon Valley» – due mainly to a lack of investment and what is perceived as a risk-averse investment culture.

But Rackspace, whose start-up programme has aided more than 850 US start-ups in their early stages, said they felt the timing was right to launch its push in the UK.

Speaking at Google’s Campus building in east London, technology blogger and Rackspace «evangelist» Robert Scoble drew parallels between London today and the early days of California’s famous Silicon Valley.

«If you go downstairs [at Google Campus] you can see dozens of start-ups working at tiny little tables,» he told the BBC.

«This feels a lot about how I saw Instagram for the first time – two guys sitting at a table coding like mad, two years later they’re worth a billion dollars. It has that feel to it.»

Rackspace is one of the world’s largest cloud hosting firms – second only to Amazon.

The cloud, as it is known, is a term given to storing data on servers in a variety of locations – rather than on a local machine.

Cloud hosting gives small companies flexibility when starting out. Rather than pay for the rental of dedicated servers, which can be expensive, it means start-ups can just pay for what they need.

‘Next Facebook’

In September, the government announced plans to loosen regulations surrounding companies that wanted to float on the stock market.

The move, which was backed by several of the country’s largest investment firms, would provide a «new route» to an initial public offering (IPO), universities minister David Willetts said.

A successful British IPO would be seen as a major success for the government’s Tech City initiative – an organisation designed to promote the interests of UK-based start-ups globally.

Companies tipped to be likely IPO candidates in the new year include Mind Candy – creators of children’s social network Moshi Monsters – and online loans company Wonga.

Mr Scoble said the key to a successful flotation was in the timing – and that chasing the «next Facebook» may not be the right move.

«Some of it is luck,» he told the BBC.

«Some of it is about being at the right market window at the right time. Right now it’s a really tough market window.

«In Silicon Valley the venture capitalists are telling me they’re moving investment away from consumer and into enterprise because they’re seeing that the consumer markets are too risky.

«They’re investing less in consumer kinds of things – they’re trying to get the kids to focus on the enterprise market.»

The Mobile Advertising Ecosystem Explained

Alex Cocotas Oct. 22, 2:19 PM
mobile ad forecas

We are in the post-PC era, and soon billions of consumers will be carrying around Internet-connected mobile devices for up to 16 hours a day.

Mobile audiences have exploded as a result.

According to the U.K.’s Association of Online Publishers, mobile accounts for at least 20 percent of traffic for 87 percent of publishers.

It follows then that mobile advertising should be a bonanza, similar to online advertising a decade ago. However, it has been a bit slow off the ground, and its growth trajectory is not clear cut.

That said, U.S. mobile ad revenue was $1.2 billion last year, according to the IAB, and is on track to hit $3.2 billion this year.

In this report, we attempt to demystify the mobile ad industry’s many moving parts.

Here’s what we learned:

  • The mobile ad ecosystem is fractured and more complex than its desktop counterpart.
  • Mobile ad networks occupy a central position in the ecosystem, but are coming under threat.
  • Demand side platforms and mobile ad exchanges are streamlining the market.
  • Real-time bidding will play a growing role.
  • Agencies are coming around on mobile, but major brands still haven’t fully caught on.
  • New companies are emerging that hope to upend the traditional banner ad.

The Mobile Ad Ecosystem

2011 global mobile ad spend

The mobile ad ecosystem is not as strictly delineated as the desktop ecosystem.

«The cake is smaller on mobile,» says Krishna Subramanian, chief marketing officer of mobile advertising and marketing firm Velti. «[Companies] will try to do multiple things to see what gains traction.»

Another factor adding to complexity is the multiple industry layers advertisers must sift through.

In mobile advertising, the rules of the road change with different combinations of device, wireless operator, and operating system. There are few shared protocols and standards, so mobile lacks the technical consensus that enables ad targeting, delivery, and measurement to work fairly seamlessly across the desktop world.

mobile ad format

As the mobile ad industry matures it will likely become more streamlined and simple, but for now there are innumerable actors interacting with one another and attempting to find a niche.

Google does utterly dominate the paid search category, which was responsible for 62 percent of mobile global ad spend last year. In this report, we focus on the display ad category, which isn’t nearly as consolidated and thus presents a more complicated picture.

Mobile Ad Networks

Mobile ad networks aggregate advertising inventory and match it with advertisers, much as online ad networks do.

Millennial Media

Google’s mobile ad network, AdMob, is the largest player in this business. Millennial Media was the first pure-play mobile ad network to go public (read their prospectus here).

Networks soak up ad inventory, analyze its potential, and sell it by matching it to advertisers’ needs.

«Ad networks play an important role in mobile [because the] audience is fragmented across a large number of devices and publishers,» says Michael Collins, CEO of mobile ad agency Joule. «The role of the network is that they are able to aggregate audience at scale. There are many [networks] all at different stages of their evolution, some stronger and more robust, but still a good amount of innovation is going on in the market.»

The open secret, according to Collins, is that «networks all have the same inventory,» which they buy from wholesalers aggregating publisher supply.

Subramanian, CMO at Velti, echoes this sentiment: «If you are running on three ad networks, you could effectively be bidding against [yourself]» for inventory and impressions.

Where networks differentiate is in value-added services, such as aggregating buying power to strike better deals, or improve targeting.

The largest ad networks have their own sales forces reaching out to advertisers, as well as their own campaign optimization technology.

«Our belief is that the number one thing you have to do is understand the audience better than anyone else,» says George Bell, CEO of mobile ad network Jumptap. «That’s value-add between the publisher and the advertiser.”

Several people we talked to mentioned that mobile ad networks face challenges as the mobile ad market matures and scales.

Victor Milligan, chief marketing officer at Nexage, says networks’ dependency on direct sales «is not going to grow with the market,» but will remain part of the ecosystem. He notes some ad networks are starting to embrace online real-time bidding (as ad exchanges already have done; see below) in order to sell ad inventory at the larger scale enabled by automation.

Demand Side Platforms

Mobile ad networks also face pressure from demand-side platforms (DSPs) like StrikeAd. These function similarly to ad networks, in the sense that they help match advertisers with inventory, but tend to work hand-in-glove with brands.

“Demand-side platforms give media buyers a platform providing visibility into ad inventory, letting them optimize campaigns on a real-time basis and buy into real-time inventory cross-publisher,» Collins of Joule was quoted as saying in an interview with Mobile Marketer. «In some ways, it is an evolution of an ad network model.»

In plain English, DSPs give advertisers deeper insights into mobile audiences in a real-time environment.

Bell, of Jumptap, says DSPs are complementary to the ad network business because they more richly describe mobile audiences.

But once DSPs start hiring their own staff to sell ad inventory, the complementarity could end, and DSPs would compete more head-on with ad networks. In case you were wondering, StrikeAd is currently hiring account executives.

Mobile Ad Exchanges

Exchanges automate many parts of the mobile ad process, and can connect publishers with multiple ad networks.

Ad exchanges are primarily supply-facing at the moment, and have relatively few interactions with mobile ad agencies (even less so with brands). Agencies are disincentivized from using exchanges because they threaten their lucrative role as the brands’ media buyers, according to Bell, Jumptap’s CEO.

If exchanges gain a certain level of scale, like Google did in online advertising, brand money could start to directly flow into their businesses, and that would threaten agencies’ media buy margins.

But Bell thinks that the «people spending the money have ambivalence about whether algorithms should be in control of [media buying].»

From publishers’ perspective, the main advantage of exchanges is their efficiency. Generally speaking, they provide greater price transparency, scalability, and liquidity.

It is important to note that mobile ad networks and exchanges aren’t playing a zero sum game. The rise of one doesn’t necessarily preclude the other’s existence. For example, exchanges sometimes act as «aggregators» of publisher inventory, which they then wholesale on to the networks, according to Collins of Joule. That’s why many ad networks have the same inventory.

Bell thinks that exchanges will phase out the prevalence of software development kits (SDKs), which have been the focus of the mobile ad industry for the past three to four years. The SDKs are lines of code that developers and publishers drop into their apps in order to plug into ad networks’ systems.

Large mobile ad networks, like Millennial Media, have garnered large install bases for their SDKs. However, if publishers want to pit multiple ad networks against each other, they need to install multiple SDKs. Additionally, many publishers opt to include the SDK of an independent app analytics company, like Flurry. Supporting multiple SDKs can quickly become an engineering headache.

Exchanges can vastly simplify this process by offering a single SDK. Through an exchange’s SDK, publishers are able to offer ad impressions to multiple networks simultaneously. Bell’s hope is that this streamlined process will convince developers not to view the mobile ad ecosystem as cumbersome.

There are two types of formats for exchanges, often working in tandem: mediation and real-time bidding (RTB).

Mobile advertising mediation combines human and technical considerations. The publisher and the exchange work together to tweak goals and set the framework for how ads are placed on their site.

For example, they can set parameters by price, ad format, number of ads, location, what kind of advertiser they want, etc. They can parse out a certain percentage of impressions to various networks, block off inventory for their own promotions, or auction impressions on a sequential basis, where the high bidder gets first crack at the next impression.

Velti’s mobile ad exchange, brought over with the Mobclix acquisition, is an example of an exchange that uses mediation to work with publishers and developers (it also has a real-time bidding platform).

Velti gives clients an SDK they drop into their apps, which connects them into analytics and plugs them into 60 ad networks. Currently, over 35,000 apps use the SDK.

Nexage is an example of a real-time bidding (RTB) mobile ad exchange. RTB allows market participants to instantaneously bid on individual impressions targeted by location, platform, device, or other criteria. Milligan, CMO at Nexage, says there can be as many as 500 million auctions per day on Nexage’s exchange.

Jumptap’s Bell says real-time bidding — also called algorithmic buying — will rush into mobile at some point, but it is still reasonably small. He estimates that it is currently no greater than five or 10 percent of the bidded mobile advertising market, but added he wouldn’t be surprised if it grew to 30 percent or more in a few years time.

Mobile Ad Agencies and Mobile Marketing

One of the gripes you often hear around the mobile ad industry is that agencies don’t get it. According to the U.K.’s Association of Online Publishers, 55 percent of publishers blamed «agencies’ attitude» for low mobile ad revenues.

However, that is changing. Several people we talked to said agencies are doubling down on mobile, and competency is improving.

For example, Joule, a subsidiary of WPP, is a full-service mobile marketing and ad agency. Other mobile ad agencies include Airwave (an OMD subsidiary), and Mobext.

Joule CEO Collins says the world’s largest advertisers have only just made the transition to online advertising and now face a new medium with its own quirks and challenges.

Consequently, there are «still a large percentage of brands … that don’t have the mobile destinations — either a site or application — that they can use to engage users in the mobile space.»

The basic difference between mobile advertising and mobile marketing is pretty straightforward.

«Mobile advertising,» Krishna Subramanian, Velti CMO told us, «is everything happens before the click. Mobile marketing is everything after the click.»

Mobile advertising is the process that gets the ad before a consumer’s eyeballs. Mobile marketing is the more long-term process of driving value from mobile customers, which can include loyalty rewards or contests. The two are irrevocably interlinked and there are a number of companies that straddle the fence.

Subramanian says 80 percent of Velti’s revenues come from mobile marketing.

The Natives

smartphone receptivity

Other companies are emerging that don’t neatly fit the established categories. They resemble ad networks in that they connect advertisers with publishers’ inventory, but they express disdain for the traditional mobile advertising model.

Chris Cunningham, co-founder and CEO of adtivity by appssavvy, says mobile ad networks are «focused on spraying users» and «took the same approach as with the Web, which is focused on banners.»

Such criticisms feed skeptics’ perception that mobile ads are ineffective and that consumers find them intrusive.

Skeptics may have a point. According to Nielsen, only 19 percent of U.S. smartphone owners thought mobile advertising was acceptable and another 16 percent don’t mind it as long as it’s not intrusive.

Some ad companies are trying to find a native approach to mobile advertising that will break through consumers’ apparent disdain for mobile ads. For lack of a better term, we have grouped them as «the natives.»

Adtivity by appssavvy is focused on delivering relevant ads during natural breaks in consumer’s mobile content consumption. For example, they ran a Coca-Cola campaign tied to «giving happiness.» When a consumer shared a piece of content from one of the publishers, they were shown an ad tied to the theme.

Cunningham wants fewer ads, but to make them front and center during these breaks rather than relying on the status quo of placing mobile ads adjacent to content.

SessionM induces consumers to opt-in to rich media ads. Consumers are rewarded for reaching certain milestones on a publisher’s app or website with «mpoints,» which can be redeemed for gift certificates and other goods. Consumers earn more points the more they interact with sponsors’ rich media ads, typically video-based, mini-games, or social polls.

«Digital consumers switch screens 27 times in an hour,» says Lars Albright, CEO of SessionM. «You have to think of ways that you can capture their attention.»

Albright says between 75 and 85 percent of consumers opt-in to SessionM ads.

There are also major publishers pursuing interesting mobile advertising strategies, such as Pandora, Twitter, and Facebook. As we discussed in our Future Of Mobile Ads presentation, Pandora mixes display, audio, and video ads, which now account for two-thirds of its ad revenue. Twitter and Facebook have opted for sponsored stories, which are ads that are integrated seamlessly into a user’s feed. Twitter’s mobile revenues now shoot past the traditional web’s on many days. Facebook was taking in $500,000 a day in mobile ads only a few weeks after their introduction.

However, it should also be pointed out that the vast majority of publishers don’t have nearly the scale or size to pursue these sort of strategies on their own.

THE BOTTOM LINE

  • Mobile ad networks are being squeezed by ad exchanges and DSPs (demand-side platforms), but can maintain their central position if they keep an edge in audience targeting and measurement.
  • Many brands lack the mobile destinations necessary for an effective mobile ad campaign.
  • Mobile marketing can produce as much or more revenue for agencies as mobile advertising alone.
  • Mobile native ad formats are finding success with TV-style content break ads, and opt-in reward schemes.
  • Only the largest publishers have the size and scale to go it alone in mobile advertising.

Click here to download a PDF version of this report→

Manufacturers Shipped Twice As Many Smartphones As PCs Last Quarter

By Marcelo Ballvé

We’ve reached another milestone in the growth of the smartphone market. Hardware makers shipped twice as many smartphones as PCs in the third quarter of this year, according to BI Intelligence estimates compiled from multiple sources.

It’s the first time the quarterly data shows global smartphone sales outstripping PC sales by a ratio of two-to-one. In all, 169.1 million smartphones shipped, compared to 87.7 million PCs. Smartphone growth first took off in 2009, and continues to be robust.

Smartphone shipments grew 10 percent in the third quarter, compared to the previous quarter. Tablet shipments also notched impressive gains, growing 5 percent in the quarter and accounting for 27.7 million units shipped.

Click here to download all the data associated with this chart in Excel→

BII_Tablets_GrowthQ312

Mobile payments to exceed $1 trillion by 2017 – IDC

14 NOVEMBER 2012

Spending on goods and services using mobile devices will exceed $1 trillion by 2017, driven by m-commerce and NFC payments, market watcher IDC said

According to IDC Financial Insight’s Worldwide Mobile Payments 2012-2017 report, which presents a worldwide forecast of consumer and business spending through mobile networks over the next five years, worldwide purchase volume over mobile devices will surpass $1 trillion by 2017.

The report includes purchases of digital and physical products and services, as well as direct fund transfers that do not involve the exchange of any product or service.

Most of the purchase volume will come from mobile commerce, IDC said, which includes purchase of digital media on the device as well as e-commerce through a mobile web browser.

Proximity payments, which are made by waving a mobile phone with Near Field Communication (NFC) technology near a merchant’s point-of-sale (POS) terminal, will ride upgrades in POS and mobile device technology to become the second-largest category of mobile payment spending, IDC said.

Person-to-person (P2P) fund transfers will come third, IDC said, limited by a lack of common standards for sending money across borders using mobile devices.

In addition, P2P fund transfers could suffer from a lack of locations for adding to and withdrawing cash from the system, it said.

While its forecast for mobile payments in 2017 is large in dollar terms, IDC said it is a tiny fraction (just above 2.5%) of the total amount of worldwide commerce that is theoretically addressable by mobile payments.

«The growing prevalence of smartphones is enabling a variety of mobile payment methods, which combined are becoming a significant share of global commerce,» said Aaron McPherson, practice director of Worldwide Payment Strategies at IDC Financial Insights. «We expect growth rates to continue to accelerate as consumers and retailers become more comfortable with the technology.”

In driving the growth of mobile payments, IDC says financial institutions should view them as an opportunity to leverage the information they possess on their customers’ shopping habits and demographic characteristics.

This could include financial institutions implementing targeted marketing and reward programmes as a supplement to regular loyalty programmes, IDC said, in addition to incorporating their cards into NFC and mobile wallets to capitalise on the growth of m-commerce and NFC proximity payments.

8 Ways to Integrate Mobile Into Your Marketing Strategy

Question: What’s one creative idea for marketing your business on mobile platforms?

Ashley

Advertise in the Top Apps

“What types of mobile games does your target market play? What types of apps do they use? Once you identify these elements, create eye-catching interactive advertisements that play off of and refer to their interest in that game or app.”

Logan Lenz | Founder / President, Endagon

The Extra Checkbox

“Advertising platforms like StumbleUpon and Google AdWords are affordable for small businesses and allow you to opt-in to mobile ads simply by checking a box. It’s really no extra work for you and allows you to reach a larger audience.”

Natalie MacNeil | Emmy Award Winning Producer & Entrepreneur, She Takes on the World

Create the Campaign

“We’ve recently separated our campaigns on Adwords with separate campaigns for smartphones and tablets, and have seen a significantly boost in ROI.”

Josh Weiss | Founder and President, Bluegala

Use QR Codes

“I have had great success combining physical flyers with QR codes which drive traffic to mobile-friendly landing pages or solicit mobile-friendly actions. Use a QR code plus Clicktotweet.com to generate an instant tweet from someone holding your flyer. This works great with Facebook Check-ins and Likes as well. Get creative with where your QR code goes!”

Lucas Sommer | Founder CEO, Audimated

Step Away From the App!

“Don’t create an app that no one is going to download or use. Instead, create app-like mobile websites. These give you more flexibility, and they allow for additional functionality. Better yet, users like the fact that they don’t have to pay exorbitant fees or download software that eats up space.”

Brent Beshore | Owner/CEO, AdVentures

Set the Scavenger Hunt

“Encourage users to follow your brand on Foursquare and use check-in notes and venue tips to create a city-wide scavenger hunt in your key market. You’ll engage your customers by creating a remarkable and rewarding experience and you’ll also gain clout with stores and venues by delivering them new foot traffic. “

David Gardner | Co-Founder, ColorJar

Mobile Networking Works

“I often find that the more I share of myself online, the more interaction I get and therefore the more relationships I build. By being present on engaging mobile apps (Path, Foursquare, Instagram, etc.) I get to create relationships with people that I share similar interests with outside of work. Then, I have the ability to potentially talk business with someone that I already know I like!”

Erin Blaskie | CEO, BSETC

The Mobile Map

“Mobile marketing offers the potential to reach a huge audience. Who doesn’t have a cell phone these days? Make sure to include your company’s address in whatever type of mobile campaign you decide on. People using cell phones are on the move and you want to be able to direct them right to you.”

John Hall | CEO, Digital Talent Agents

The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

2 Quick and Easy Local and Mobile Holiday Marketing Ideas


If you want to attract more shoppers to your store this holiday season, then I’ve got 2 holiday marketing ideas for you.

That’s right, my friends at Pitney Bowes asked me to create two videos to help small businesses implement local marketing strategies this holiday season and I’m going to share them with you below.

The good news is that both of these holiday marketing ideas can be put into action quickly and easily, making them viable tactics for this year’s holiday season.

Both ideas focus on mobile marketing which is handy because the use of mobile devices while shopping continues to be astrongly growing trend.

And, if you’re worried that it’s too late to implement new marketing strategies for this holiday season, the good news is that both of these holiday marketing ideas can be put into action quickly and easily, making them viable tactics for this year’s holiday season.

So grab the eggnog and watch the two videos below. Both reveal step-by-step actions for you to take to increase both your traffic and sales this holiday season.

Build and Market a Stand-Alone Mobile Website

This year, there’s a great holiday marketing tool to add to your arsenal and it’s called a mobile website.

Why build a mobile website? Here are some great reasons:

  • Two out of three Americans have the ability to browse the Internet while away from their home which means that they can make buying decisions and look for places to shop while on the go;
  • 39% of mobile users use their device to send messages to a business to get more information and you do not want to miss the opportunity to receive those messages; and
  • A whopping 84% of surveyed small businesses with a stand-alone mobile website have seen an increase in new business as a result.

The step-by-step video below will help you get your mobile site up-and-running for this holiday season.

Note: for best results, view the video full-screen by clicking the two outward-facing arrows below the video and to the right after clicking the play button.

[vimeo http://www.vimeo.com/53638709 w=500&h=281]

Tool used: pbSmart™ Mobile

The 12 Days of Christmas – A QR Code Marketing Plan

What can you do to get customers to pay attention to you this holiday season and visit your store to buy presents? Here’s a useful idea that uses QR codes.

Using an app on a smart phone, a QR code is scanned by the camera and can take you to a mobile site with a coupon for your store. Using QR codes, I’m going to show you how to run a very specific type of marketing campaign called, “The 12 Days of Christmas – A QR Code Marketing Plan”.

Note: for best results, view the video full-screen by clicking the two outward-facing arrows below the video and to the right after clicking the play button.

[vimeo http://www.vimeo.com/53103921 w=500&h=281]