The Netsize guide is a yearly comprehensive report on the state, structure, products and trends of the mobile industry. It’s a must read report if your interested in the way things mobile are going.

It addresses things like whether mobile advertising is finally making headway, whether the operators will become dumb pipes, whther the internet giants will dominate the mobile space, and much more.

Trouble trouble trouble….

Recently, Rhythm New Media – a company with a truly cutting edge video on mobile tech solution – and that sold the first dynamically targeted video (post and pre-roll) ads, shocked when they announced that they were pulling out of the UK. (Disclosure, I used to work for Rhythm)

Remarkable since they already had deals with 3, T-mobile, and others in the pipeline and more remarkable considering how strong and mature the UK advertising market is.

If Rhythm could not crack ad funded mobile video in the UK, we might rightly ask, who will?

One key problem though, unlike 3 most mobile operators in the UK have not zero rated the price of video usage on mobile.

Video is bandwidth hog. Rhythm managed to get good quality audio and images through a tiny hole at 100kbps for video and 12.2 kbps audio. That’s 112.2 kbps (kilobits per second). Impressive.

Lets compare.

The standard SMS message contains up to 140 bytes.
That’s 1.09 kb for one SMS.

Let’s say the average length of a video clip is 30 secs (its actually more, sometimes up to 3 minutes), plus a preroll ad of 10 secs. That leaves us with 40 secs times 112.2.

That’s 4488kb for a short video and ad compared to 1kb for a SMS.

Let’s compare some more. What about loading a Facebook page? Say when browsing with a ‘normal’ internet browser using your iPhone?

Well I downloaded my busy Facebook front page including my personal newsfeed with pics of friends and more on my Mac (yes I’m a proud Mac user!) and was quite surprised. It’s all of 220 kilobytes.

Quite big for a web page. Now kilobytes and kilobits are not the same thing. Do the conversion and you get 1760kb for the Facebook home page.

Still its less than half the size of 40 secs of artfully squeezed video.

(As an aside, this is probably one of the reasons why Facebook has created an application so users can access Facebook on their mobiles – to cut down on the bandwidth)

Nevertheless it is clear why mobile operators love SMS so. If they charge on average 4p for every message sent, and if Rhythm sells each ad for a CPM (or cost per thousand – a standard in advertising) of £40 (That’s a solid CPM let me tell you, a CPM which they normally share with the operators) the difference is striking.

The revenue per thousand from SMS messages is also £40 AND the operators don’t have to share it. But the bandwidth used is infinitely (more than 4000 times) smaller.

Video simply don’t look that good as a revenue opportunity when looked at that way. No wonder operators are not falling over themselves to zero rate video usage.

But their is also problem of demand when it comes to video.

Even on an operator with zero rated video data costs like 3, and who has customers paying for SMS, still send far more SMS than stream video. This says a lot because the group that sends most SMS, 18 – 24 year olds, are cash poor and quite price sensitive.

As Facebook’s personal news feed proved, news about our friends and interacting with our friends seem to be far more entertaining and interesting to us than a one way flow of news on distant Hollywood, Amy Winehouse and the Credit Crunch.

Which is the reason why mobile operators have been zero rating the data costs of the use of MySpace and Facebook. (See the Orange ad below promising free usage of MySpace I took on the Tube this week).

It’s something their customers really want: being connected and in conversation with their friends. A real compelling reason to switch to Orange.

For the operators it’s good news also because using and promoting Facebook is not eating the same amount of bandwidth as video would, but its making their customers sit up and take notice of their service offerings.

But the operators should be careful. Techcrunch’s Michael Arrington recently opined that his Facebook address book has almost replaced his mobile one. Facebook could easily turn the operators into dumb pipes.

Yesterday I wrote about the likely slow demise of the so-called mobile internet and mobile operator portals (if they don’t shape up). But what does this portend for mobile advertising?

Just this week the Media Guardian in the UK made the case for mobile advertising in article titled Pocket-sized powerhouse. They trot out familiar pro mobile as ad platform arguments:

• Unlike the TV or the PC its always switched on.
• You always have it on you.
• It’s possibly the most interactive gadget we have (not true but it is interactive)
• 95% of us have one.

“Mobile has the potential to be the most exciting advertising medium ever,”

That’s marketese hyperbole in overdrive for you. Thanks Geraldine Wilson, vice-president of Connected Life at Yahoo! Europe. Connected Life handle the display ads on mobile portals for Vodafone, T-Mobile and 3.

Yes. Mobile as advertising medium has never been knowingly undersold.

These arguments for mobile advertising have been made for quite some time now.

But as the Guardian asks quite rightly, if mobile is such a good advertising medium, why does it account for less than 1% of all ad spend?

General SMS campaigns seem to be well and truly over. Brand owners have figured out how unwelcome this intrusion is in our personal space. Such is the personal nature of a mobile that the reaction it generates is even stronger than the reaction one gets from an ad in your Facebook personal newsfeed.

Whether these ads can be tailored and targeted to such an extent that consumers welcome them, AND brands will take the risk, remains to be seen.

I concede that the mobile operator portals have made some money selling display ads. In the US Admob have sold quite a lot on all manner of sites.

But as I mentioned in my previous post. Operator portals are about to start discovering what Yahoo! and MSN did on the web not too long ago. If your product is not as good as a rival’s, your customers will go to your competitor no matter how much cross promotion, and brand awareness you have. They are likely to begin a slow bleed in their audience.

As mobile devices sophistication grows, there is a chance that mobile ads will just become part of the general web ad mix. The only panacea I see are creative use of location based targeting, mapping and other mobile typical stuff like the accelerometer. Only that can make reaching customers via mobiles more relevant. Time will tell.

In the short and medium term brands looking for the wow factor will have to look at brand sponsorship of mobile applications or building them themselves. This includes viral strategies like Carling’s recent iPint application, which converts your iPhone into an interactive pint of virtual lager.

Advertising as content so to speak. You will hear about this a lot.

Interesting to note the plethora of fan videos of the iPint on YouTube.

With the launch of the first phone (The G1) sporting Google’s Android mobile operating system, it’s worth asking a few wider questions about the internet and its convergence with mobile phones.

Analysts have already hailed the iPhone and the G1 as paradigm shifters. In a post titled Touching The Android: It’s No iPhone, But It’s Close Techcrunch said:

“But remember, in the end this is not really about Android versus the iPhone. It’s about Web phones versus the brick in your pocket. Simply matching the iPhone on many of these features—especially Web browsing and email—is going to be enough to help redefine the mobile market. The table stakes have just been raised. From now on, phones need to be nearly as capable as computers. All others need not apply.”

Preliminary stats show the iPhone users push up the aggregate use of the internet on phones dramatically. In fact they are 5 times more likely to use the internet than other phone users.

Why are mobile professionals not that excited at the mo?

Just the other day I spoke to the Head of Mobile at one of the world’s biggest traditional magazine publishers. I asked him, excitedly, if the iPhone does not herald a brave new world for him?

“I’m not so sure.
“It might as well spell the end of the mobile web”

The answer was delivered in a tone of an undertaker.

Confused?

It’s simple really. The G1 and iPhone allows us to browse the web directly. The re-purposed poorer cousin WAP, will be used less and less. Especially in the West and other developed nations.

And the Mobile Web is getting squeezed on two sides. Some websites and services are being tailored to the iPhone and Android. But not as WAP pages.

They are getting tailored versions as applications. Apparently the Facebook Application, is one of the most popular iPhone applications.

Could it be that mobile professionals and companies would do well to look for another job? Or get into apps pronto?

There goes the last portal

Both devices are also bad news for Mobile operator’s control of their decks.

Unlike on the web, in the past Mobile Operators could be real Portals. Portals that control the entrance to the web in a way that the likes of Yahoo!, MSN, and Lycos (remember them?) aspired to but could never achieve.

Now the power of the portal is slipping in Mobile as well. Why? Because its darn easy to go anywhere you please with a normal browser, bigger screen, better keypads and search engines.

AND there is a lot more out there to go to than on the Mobile web.

If the mobile web is under threat what about Mobile advertising? I’ll deal with that in a next post.