TKG's Mobile Forecast By the Numbers

As part of the mobile forecast we released last week, we thought it would be interesting to show a little detail about the ad-sponsored directory assistance portion of the forecast. As we wrote previously, we have been watching the market unfold for over a year. The predictions in the original report last October along with earlier briefings are turning out to be correct.

In the most recent report, we forecast that ad-sponsored DA calls will exceed 2 billion annual calls by 2012, a 50 percent CAGR. Further, mobile revenues will grow at 112 percent CAGR over the same period.

A suggestion was made that this forecast is “bearish.” This is a little like saying Google had poor results with a quarter-over-quarter growth rate of 58 percent or that Warren Buffet is a mediocre investor since the compound annual gain of Berkshire from 1965 to 2006 is only 21.4 percent. It’s just plain wrong. The U.S. ad-sponsored DA market is growing — and rapidly. Nevertheless, it’s apparent that we are in a period of heightened expectations due to the stellar performance of a few Internet stars.

The ad-sponsored DA business is about two business segments. The first is the mobile market and the strategic imperative to create a dial-around-business to bypass U.S. wireless carriers. The second is an “Audio Ad Business” that seeks to push audio ads across traditional market boundaries. Here, we’ll focus on the latter.

These markets include terrestrial radio, Internet radio, podcasting, ad-sponsored DA and all other markets where an ‘AdSense’ like audio ad network could be created. This is a prediction that we have been speaking and writing about for some time. It is our belief that Google and others are seeking to create an audio ad business that encompasses many markets. These audio ad products will become audience reach products. The first step, which we are witnessing, will be ad networks and others building and aggregating audience.

In the same fashion that AdWords advertisers can opt in or out of AdSense so too will audio ad subscribers be able to opt in across formats and markets (for example, radio and ad-sponsored DA). There are many subtleties to work through in this emerging market, and we’ll save this discussion for a later post.

The following chart is similar to one in our forecast. It shows the relative upside of audio ads based on geography contrast with the current ad-sponsored DA revenues per call. Please note that the radio prices were reduced to a per-impression basis for comparison sake.

Take a look at the trend line for the “Per Call Ad Sponsored DA Revenues” from the forecast through 2012. Compare the price of an average radio impression nationally (lower dotted line) and the price for a New York City radio impression (upper dotted line). You should keep in mind that the radio spot cost is illustrative and there is a lot of variation by station, cluster, format, market, day-part, time of year, DJ mentions, etc.

Based on current average ad-sponsored DA pricing, we believe there is solid revenue upside, especially in large metro markets. We believe more and more advertisers, even small businesses, will become accustomed to audio ads and this market will grow substantially. The pieces and sales forces are not yet all in place, but we see them coming together. Ad-sponsored DA is a good introduction to audio ads.

Soon, we’ll see companies like Jingle offer a lot more voice services like movies, directions, restaurant reviews, news, weather, etc. Microsoft’s Tellme already offers many of these. Google and others will expand their consumer offerings. Portal-backed ad networks will push audio ads across markets. (Then we’ll write more blogs that link back to this one.)

Some of us have spent a considerable amount of time working with radio and want to offer a word of caution. Before you copy this graphic and rush down to your nearest Clear Channel radio cluster manager, demanding they sell your audio ad product, let us save you some time. They won’t. The cluster manager has a very important job. Pushing, cajoling and demanding the sales force sell out the inventory all day every day — that’s when they are in a good mood.

Regardless, the next few years will be anything but business as usual. In many markets we are on the verge of a “transformative” change.