Leveraging AdTech for profitability: An unexplored oasis for telcos

The shift from 2G to 3G was a disruptive change that enabled mobile networks to create internet accessibility and hence opened a world of opportunities. We all remember the times when we were first able to view pictures and videos through our mobile phones so quickly, probably in our first smartphones. Connectivity improved to most rural places, accessibility increased to poorest of people and profitability boomed for the telecom operators. But progressing from 3G to 4G did not have a similar effect. Surely our data speed and download capacity increased. But that’s it. It was an incremental innovation that just enhanced the internet speed. The excitement was not as before. Telecoms find it increasingly hard to be profitable in the competitive market with just mainstream OSS and BSS activities. Telcos are finding it difficult to sustain their competitive advantage due to increasingly evolving customer expectations that require radical innovation in the business model and offerings.

What can telcos do now? One solution to improve the bottom-line as well as increase customer base is to diversify into related segments, also famously known as the ‘Telco to Techo’ progression. Telecom industry is unique in the way that they have lot of customer data including but not limited to location-based service data (LBS or real-time customer geography data), M2M applications data involving data from multiple devices like mobile phones and telephones, data from OSS involving user behavior data such as web browsing history, website interactions and consumer preferences and data from BSS involving personal information like demographic, geographic and bill related financial data. Proper data monetization strategies will yield profitability in the short run and a loyal customer base eventually.

For instance, telcos have lot of data capturing ability comparable to meta and google but not equally well monetizing capability.

Data utilization graphic

One of the high potential areas is into targeted ad provision to end customers…

Online advertising, also known as online marketing, internet / digital/ web advertising uses the internet to promote products and services to audiences and platform users. It includes paid search, social, display and retargeting. Global digital ad spending is a 700 billion dollar industry in 2024 and poised to grow at a CAGR of 9.5% for over the next decade. The key growth drivers include 5.3% growth in world population, 25.7% increase in consumer spending, 33.4% rise in internet users, 10.5% surge in smartphone users, 20% rise in smartphone penetration rate, 35.2% climb in mobile broadband subscriptions, 11.7% boost in fixed-broadband subscriptions and 11.1% improvement in mobile cellular subscriptions expected in the next 6 years.

Digital advertisement spending status around the world and the growth factors

Global telecom providers that are present end-to-end of the online advertising value chain like Telkom (Indonesia), Comcast (USA), Axiata (Malaysia) are more profitable than Vodafone (UK) or Telefonica (Spain) who just operate on just a part of the value chain i.e., DSPs and DMPs.

Realizing true value in the advertising value chain is crucial…

Digital advertising value chain

Brands go through in-house advertising teams or through external agencies to strategize, create content and produce an advertisement. The ads can be of one or multiple formats like text, video, instream ads etc. then it may follow any of the following pathways:

• The ads are listed on demand side platforms like Amazon DSP, Adform etc. and an ad exchange matches it with the supply side platform like Amazon Publisher Services, OpenX etc. that has listings of all the ad slots provided by the publisher like TV channel or OTT owner.
• The ads and ad slots move to data management platforms like Adobe Audience Manager which are exchanged by third-party data brokers
• Large Ad networks like Media.net, Adcash, PopAds etc. that directly connect agencies to publishers

From there on the ads can be published on various mediums like social media and television and reach the target audience.

AdTech is the Key Success Factor in the advertising space

A significant way to increase both revenue effectiveness and efficiency for telcos to enter the Advertising value chain is through utilizing AdTech, which will enable achieving competitive advantage. Advertising Technology (AdTech) is the usage of software and tools to strategize, set up, and manage the digital advertising activities. AdTech aids in buying ad space and optimizing campaigns in real time powered by AI (Artificial Intelligence). It can be used as a complement rather than a substitute to connect ad agencies to publishers.

AdTech enables programmatic advertising i.e., buying and selling of digital ads for precise targeting thereby improving efficiency. Apart from precise targeting through data driven decision making, AdTech also helps to refine ad formats for audience based on their past data. For example, for a consumer who visits shopping websites regularly, display or shopping ads would be the most relevant format as it seamlessly merges with the user experience. This is also called dynamic creative optimization (DCO). It uses multivariate testing (A/B/n testing) for each ad element like color or text of the ad versus the demographic, psychographic and behavioral data of consumers and helps in achieving better results not only on ROI but also other KPIs like impressions and clicks. AdTech automation capabilities help in scaling to a wider audience thereby improving effectiveness. Hence it helps on both advertiser and publisher side to increase the monetization opportunity.

As every coin has two sides, AdTech also has several disadvantages. Third-party cookie deprecation by browsers, ad fraud like bot traffic, ad stacking, domain spoofing as well as using software for ad avoidance and blockage of ads are some of the significant issues while implement AdTech systems. But brands can overcome these issues by proving user-friendly ads that resonate well with the target audience based on their preferences, keeping the theory of native advertising in the back of the mind.

Way forward for the future…

For telcos, understanding distinct roles of each player in the digital advertising value chain and utilizing the right AdTech tool for each role is extremely crucial to achieve the desirable outcome. Some of the key factors like determining the right revenue model, designing the AdTech platform development roadmap, assessing the AdTech platform reliability and responsiveness must be designed based on the vision and cost-benefit analysis of each telco provider. There is no universal thumb rule, but it is advisable for telcos to first enter a part of the digital ad value chain, incorporate AdTech and subsequently repeat for other parts to be present in an end-to-end manner.

The baseline is that telcos can achieve good profitability by entering the advertising value chain with customer centricity in mind, through implementation of AdTech which also ensures sustainable competitive advantage in the long run.

References:

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