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What Business are Mobile Service Providers In?

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November 04, 2011

What Business are Mobile Service Providers In?

By Gary Kim, Contributing Editor

Many observers like to point out that text messaging is a highly-profitable business for mobile service providers, as though every product sold by any retailer must necessarily have similar margins. In fact, as at a grocery store, each product might have a different profit margin, and retailers deliberately lose money on some products, using these “loss leaders” to draw customers into a particular store. SMS profit margin

In fact, the “cost” of a retail service sometimes is not directly tied to the cost of providing a particular feature to a customer. Consider the airline business, particularly as it relates to moving passengers from one place to another. You might rightly argue that such airlines are in the business of moving passengers. That is true in a real sense.

It also is true that where an airline makes its money is not directly related to the physical process of transporting a passenger from one place to another.

Fees from checked baggage and reservation changes made up four percent of airline operating revenue, but 62 percent of operating profit in the second quarter this year, according to the Bureau of Transportation Statistics. Airline operating profit

That's an instructive number for wireless service providers as well, as it suggests that the business of providing mobile communications, though clearly the “reason” people use mobile phones and services, is not actually always the way mobile service providers might make their money.

In the future, it might be the case that a disproportionate share of the actual profits made by a mobile service provider might not come from completing calls, supplying mobile broadband or text messaging services.

"At the end of the day, we're getting to a situation where customers are the products that these wireless companies are selling," said Nasir Memon, a professor of computer science at New York University's Polytechnic Institute. "They're creating a playground to attract people and sell them to advertisers. People are their new business."  Analytics is the real business

That the location-based advertising business is growing is unquestionable. A BIA/Kelsey study in 2010 predicted that U.S. local online ad revenues will reach $42.5 billion annually in 2015. And as the mobile device is itself the best sensor providing real-time location data, mobile analytics will become increasingly important.

With location data becoming more important, wireless service providers are in position to package such data in ways that are very valuable to local advertisers. Location-based ad forecast

Nexage, the leading provider of market liquidity in mobile advertising, says the value of its location-based inventory is 3.8 times standard inventory. Demand for location-enabled impressions also grew rapidly, showing a 170 percent per month growth in that same time period. Value of location-based ads

That is one reason Google (News - Alert) has been interested in mapping Wi-Fi locations and signals from Android devices. Getting a GPS fix on locations can take minutes, and may be impossible when indoors or in a big cities.

By comparing nearby Wi-Fi networks to a database of networks with known positions, however, a phone can calculate location to within 100 feet.

That's important to firms such as Google, whose business is built on advertising, and which considers location-based advertising the next big frontier. Value of location data for Google

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

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