May 2010

South African Mobile Advertising Landscape

Current and Future Trends

" W E A C C E L E R A T E G R O W T H " - W W W . F R O S T . C O M

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Table of Contents

Executive Summary ................................................................................................................................. 3

Mobile Advertising Overview .................................................................................................................. 3

Mobile Advertising Market ..................................................................................................................... 4

South African Mobile Advertising Landscape ......................................................................................... 6

South African Market Insights - Challenges and Opportunities .............................................................. 9

Future Trends ........................................................................................................................................ 11

Conclusion ............................................................................................................................................. 12

References ............................................................................................................................................ 14

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Executive Summary The mobile phone is a unique device that, since its inception, has moved quickly from an item of novelty to a ubiquitous one. The fact that mobile phones have over 4 billion users globally demonstrates how widespread the technology has come. From an advertising perspective, the high penetration rate of mobile phones creates various opportunities for marketers and advertisers to reach their customers even on a personal level.

Mobile advertising has certainly moved from its infancy stage and is globally being demystified. It has become a viable option for promotional use and company’s around the world are jumping on the mobile marketing and advertising bandwagon. With this, mobile advertising expenditures as well as revenues are increasing at a steady rate. However, the challenge today is to figure out how advertisers or businesses will find innovative ways for advertising to work within the mobile platform as well as the mobile media embracing an increasingly diverse range of devices and functions.

South Africa has one of the highest mobile phone penetration rates in the world and this creates great opportunities for its advertising market. Many companies locally and globally have seen the impact that mobile phones and mobile advertising have on the economy and have made large investments in this industry. The country is seen to set trends and its innovations within the mobile marketing space are being welcomed internationally. This report attempts to provide an overview of the South African mobile advertising landscape. It discusses the challenges and opportunities faced by South African companies as well as current and future trends within the South African mobile industry.

Mobile Advertising Overview Advertising is believed to have emerged since the early history of humankind. Apart from being one of the oldest industries, it is also currently one of the largest in the world that has evolved over time adapting to social changes in order to survive. While advertising keeps to its prominent conventional media such as TV, radio, magazines and newspapers, the advancement of technology has forced advertising to shift focus to other mediums. Technological advancement has lead to the convergence of mobile phones and the Internet where consumers can now access the Internet via their mobile phones or devices.

WAP Banner ads, mobile search advertising, mobile video bumpers, interstitial ads in on device portals are some of the

many forms of mobile advertising. From a direct marketing perspective, mobile advertising includes the sending of SMS, MMS or WAP push messages, Bluetooth messaging and other interrupt based marketing to mobile phones or devices. It is necessary to differentiate mobile advertising in this

Key Benefits of Mobile Advertising are:

• The ability to reach a large number of targeted consumers immediately, even when they are commuting or are away from their desks.

• A high conversion and click-through rate.

• Cost-effective and affordable campaigns.

• The ability to calculate ROI effectively.

• The ability to track campaigns successfully.

• The opportunity to build direct relationships with customers.

• It is relevant to consumers.

• An affordable supplement to traditional online and offline advertising campaigns.

Purple Cow Communications (2010)

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respect as mobile advertising does not require advertisers to obtain permission from consumers while direct mobile advertising does. This sets the stage for how mobile operators or businesses can reach their consumers with the products they offer.

Many organisations are searching for ways to improve their brand or product reach to customers. The traditional ways of marketing and advertising are, while still important in today’s society, limited in their reach, response times and often very costly for many companies. From a business perspective, mobile advertising has shown to have low production costs for SMS / MMS and WAP. This makes it even possible for smaller businesses such as SME’s (Small-to-Medium Enterprises) with relatively small marketing budgets to embark on sophisticated marketing campaigns. From a consumer perspective, mobile phones are more affordable to the mass than Personal Computers (PC) or Televisions (TV). In many developing countries, mobile phones are often the first screen that consumers will have personal access to more than a PC or TV. Moreover, due to having a personal nature, mobile phones are mostly attached to the consumer at all times. This allows advertisers to; for example, communicate with consumers before a decision is made or at the point of purchase.

A report by ITU shows that by the end of 2010 the worldwide mobile phone penetration rate is expected to reach 5 billion subscriptions. By the end of 2009, the global subscription rate had reached 4.6 billion. Together with the fast worldwide growth penetration of mobile phones, the advertising industry is seen to have taken considerable initiatives to fit easily within the mobile environment due to its relevance, customisable and immediate nature. Mobile phones have, therefore, become a realistic advertising medium.

To support the April 2008 launch of the comedy film Forgetting Sarah Marshall, Universal Pictures launched a cross-media marketing campaign, including text message advertising on the 4INFO ad network. Text message ads ran on the 4INFO network across multiple channels, including sports and entertainment interests. Ad copy asked a question, such as “Been dumped?” or “Looking for romantic disaster?” with an option to reply for more information. Long ads included movie information and a link to a mobile-ready video trailer.

The mobile campaign was a huge success in driving increases in awareness and persuasion metrics for the movie. - Brand awareness increased 19.7% - Recommendation intent increased 21.6% - Viewing mobile trailer increased 14% - Intent to see movie increased 21%

This campaign outperformed both mobile and online norms by 7-20%. The campaign made those exposed more aware of the movie, persuaded them to plan to see the movie, and more likely to recommend the movie to their friends. These metrics held true for all respondents, regardless of age, gender and overall interest in viewing movies.

Mobile Advertising Market Mobile operators and advertisers in many developed and developing countries have generated significant interest in mobile advertising. Internet statistics show that worldwide mobile phones

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outnumber TV sets by over 3 to 1, PC based internet users by over 4 to 1 and the total laptop and desktop PC population by nearly 5 to 1. It, therefore, comes as no surprise as to why mobile operators and advertisers in many international markets consider the mobile network as a big media opportunity.

In first world countries such as the Americas, large corporations have all strengthened their presence in the mobile advertising industry. With Google's and Apple's recent purchase of AdMob and Quattro Wireless (start-ups that specialise in targeted advertising to websites and online applications tailored for smart phones) respectively, the mobile advertising industry has surpassed the $1 billion value ($750 million for AdMob and $270 million for Quattro Wireless). Prior to this Microsoft, AOL and Nokia had also bought into the mobile ad networks.

In 2007, within the Asia-Pacific region, Japan had lead the way in mobile advertising as they reached a large subscriber base in this emerging market. This was due to several saturated mobile markets that had mobile penetration rates of over 100 percent. It is predicted that, for the 2010 year, the total spending in the mobile advertising market in the Asia-Pacific region to be $1.5 billion. According to the Mobile Marketing Association (MMA), SMS-based campaigns are leading the way in the Asia-Pacific region. This accounts for 60% of the total mobile ad campaigns while WAP-based campaigns count for the other 40%. Also gaining ground in this region is mobile social networking. Companies are leveraging on social networks such as Facebook and Twitter in order to drive mobile advertising.

In 2009, despite the economic downturn, the United Kingdom had led the European market with advertising targeted to mobile phone users rising 32 percent to a total of £37.6 million from £14.2 million in 2008. During the global recession it became difficult for marketers to make sales, therefore budgets were focused on directly influencing consumer’s decisions. High profile campaigns were run where digital vouchers giving away free products were sent to consumer’s mobile phones. It is estimated that Western Europe's mobile advertising will reach £821 million with the UK being the strongest market valued at £173 million.

Emerging markets such as Africa, Middle East, China, India and Latin America are also closing the gap with developed countries. In Africa, mobile ad revenue is estimated to be at $2 billion by 2014. As with the Asia-Pacific region, SMS-based campaigns are leading the way in mobile advertising. However, due to the number of prepaid users in developing countries and the high costs of data services other forms of richer media mobile advertising doesn’t seem to be a viable option yet.

Statistics clearly show that mobile advertising is gaining ground internationally for both developed and developing countries. Many of these countries have already jumped on the mobile advertising and marketing bandwagon and mobile advertising has certainly managed to move from its infancy and experimentation stage to being a viable option for promotional use. The challenge today, however, is to figure out how advertisers or businesses will find innovative ways for advertising to work within the mobile platform as well as the mobile media embracing an increasingly diverse range of devices and functions.

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Mobile advertising agency, BuzzCity is reporting that the global recession is having some effect on mobile advertisers, but that mobile advertising continues its strong overall growth. In the second quarter of 2009, the BuzzCity Mobile Advertising Network delivered 7.5 billion paid advertising banners, a year-over-year increase of nearly 80 % across the

network. Although strong, the numbers represent a decline of 10% compared to the previous quarter due to 600 million fewer impressions on the network in Indonesia, BuzzCity's largest market. The drop resulted from Indonesian operators tightening controls on subscription services on mobile phones. Despite the decline, advertiser interest in Indonesian audiences remained and kept this market in top position. Key developing markets such as India, South Africa, Saudi Arabia and Kenya continue to grow.

Cellular-News (2009)

South African Mobile Advertising Landscape South Africa has one of the largest mobile markets in the world and has managed to rank in at 4th place following Indonesia, India and USA respectively. Mobile phones in South Africa account for nearly 90% of all telephone lines and has more than 100% penetration rate. This offers mobile operators and advertisers great opportunity for unparalleled reach to consumers. It is, therefore, not surprising that mobile advertising would be booming in this advertising sector. Many South African companies are realising this opportunity and are taking the necessary steps to gain their share of the market.

According to Vodacom, South Africa's largest mobile network operator, mobile advertising in South Africa is gaining ground rapidly as a medium and is expected to be as large as online (Internet) by the end of 2010. Moreover by 2011, mobile advertising is expected to make up 4% of the total advertising spend

reaching a total of R1.5 billion.

According to BuzzCity's (one of the largest global marketing media company) Global Mobile Advertising Index the growth of the global mobile advertising industry has risen by 38% within the first three months of 2010. Among the top five were Indonesia, India, the United States and Canada (joining in for the first time) with South Africa in 4th place. The increase in growth can be attributed to mobile-centric agencies delivering more investments into the mobile medium. As illustrated in the figure below, South Africa's growth in Ad Banners Served by BuzzCity grew 15% to 357 million in Q1 2010 from 312 million in Q4 2009. South Africa has also featured consistently in the top six markets of Admob and Mkhoj (now called InMobi) which are also key global mobile advertising networks.

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The secret to South Africa’s success are based on three key factors. South Africa’s unique attributes differentiates itself from first world countries like Europe and North America in terms of economic, cultural and infrastructure factors. A good case in point, according to Rick Joubert - head of Mobile Advertising and Social Media at Vodacom, is that from an economic perspective around 90% of all mobile subscribers are pre-paid users with a fairly low ARPU (Average Revenue per User)

while the remaining 10% are high spenders balancing the average ARPU totally. Culturally, South Africa is a very heterogeneous society with 11 official languages. PC-based Internet penetration in South Africa has been low however with the large penetration rate of mobile phones, there are more subscribers to mobile broadband (3G/HSDPA) than there are ADSL users. Combining the three factors together, Vodacom created Ad-Funded services for the lower Living Standards Measures - LSMs (such as students) and the mass market known as the "Please Call Me" service. Targeting the 90% of prepaid users the service allows the user to send a message free of charge to a mobile number. The recipient of the message would call back paying for the call. Also, embedded within these "Please Call Me" messages are adverts that actually pay for these messages. These adverts are generally link to a company's mobile websites.

Targeting the high end market Vodacom operates the Vodafone LIVE! portal in South Africa. The site serves 20 million page impressions and has 1.5 million unique customers per month making it the largest digital property available in South Africa. The service proved popular with the up-and-coming black market aged 20-35. With regards to the different languages in South Africa, it is quite difficult to use traditional mass market marketing as it is impossible to communicate with consumers in a single language and single cultural context. This therefore becomes a huge opportunity for the advanced targeting capabilities of mobile advertising.

The largest player in the South African mobile advertising industry is currently Vodacom. In 2008 the company had gotten the mobile advertising industry off to a great start and had invested heavily in the medium. Vodacom was setting the standards in South Africa that everyone else was following. With the formation of the MMA council in South Africa most companies involved in mobile marketing can subscribe to the same standards. According to Rick Joubert the emerging mobile industry needs to self-regulate and ensure adherence to standards if it wants to maintain control over its destiny.

Between all three of the global mobile advertising networks (AdMob, BuzzCity and mKHOj) they serve close to 500 million advertising impressions to South Africa

Rick Joubert (2009)

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MXit is another major player within the South African mobile advertising industry. It is a Mobile Instant Messaging and Social Networking Application that is recognised internationally and continues to grow beyond the South African market. The application is free and the only running costs are data charges from the Cellular Networks, equating to fewer than 2 cents (ZAR) a message undercutting the costs of SMS services. 100 million messages are being sent within this community every day. MXit is mostly used by teenagers and as of July 2009 MXit has reported to have 14 million registered users predominantly in South Africa. MXit makes it easier for advertisers to target the youth audiences that are normally fragmented in media consumption and spoiled with choice, making it difficult and expensive for the advertiser to be effective traditionally.

InMobi, formally mKhoj, is now the largest mobile ad network in South Africa. As of Q4 2009, InMobi has had 650 million mobile requests per month. This amount alone makes InMobi one of the largest (if not the largest) mobile ad network in the world.

Other major players include MTN with their MTN Loaded service offering services such as (but not limited to) downloading music, reading news and playing games and Exact Mobile, a mobile campaign service that assists companies in communicating with their consumers via bulk SMS, competitions, vote lines and quizzes.

Further examining the success of South Africa, credit has to also go to South Africa's highly progressive user base. These consumers have adopted mobile Internet in a colossal way. Moreover, mobile data usage is encouraged by the competitive operator market, which provides low-cost Internet access especially today with the recent cut in data charges. Combining these two creates right environment for South Africa for the growth of mobile advertising. It has the favourable ecosystem that seems to work well in a competitive market.

Benefits of the MXit Medium:

• Totally Uncluttered Environment: The user only sees one ad per login.

• Captive Audience: The user is actively engaged with their mobile phone when the advertisement appears.

• Controlled Reach and Frequency: Advertisers control who receives ads and how many ads are released.

• Viral Effect: The advertisement is displayed right before users go into conversation with each other.

• Extremely low CPM: Cost per thousand.

MXit (2010)

MMA SA will also support mobile publisher measurement and tracking reports in order to provide the South African marketing industry with actionable and relevant information relating to the profiles, audience size and local spend over time in a range of predefined verticals. Working alongside the various global MMA Committees focusing on measurement, metrics and research, MMA SA will support efforts at both a regional and global level.

Mobile Marketing Association (2009)

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While brand managers are starting to realize the full potential of mobile advertising in South Africa, Ackermans became the first South African retailer to make use of this medium recently when it utilized mobile advertising as one of the elements in its birthday campaign. Ackermans’ objectives with their campaign were threefold: 1) to promote brand awareness, particularly as they celebrated this landmark birthday; 2) to drive adoption of a birthday vouchers, redeemable in-stores; and 3) evaluate the effectiveness of mobile advertising for future media buys. Ackermans chose a combination of Banner and Text Ads to meet both their brand and direct response objectives. In order to extend their reach to all possible relevant audiences, Ackerman choose to run their campaign across all South African sites in AdMob’s network, while making use of AdMob’s handset targeting capabilities to focus their spend on users with specific handsets on major South African operators. With the campaign generating over 3.8 million impressions and 22,000 clicks in only a one week period, Ackermans was blown away by the response to their ads and plans to make mobile advertising with AdMob a large part of their 2010 media plans. The success of the campaign has shown that mobile campaigns are extremely effective across all market segments, echoing what has been occurring internationally.

South African Market Insights - Challenges and Opportunities An AdMob study in Q4 2009 showed that South African mobile Internet users are split almost evenly between male and female with 51% and 49% respectively. Consumers were predominantly in the

LSM 5 to 7 category and were between the ages of 35 to 49. The study further reveals that South African consumers today are very interested in mobile technologies. This could also be attributed to, as mentioned earlier, the fact most PCs are not affordable to the masses and as such the mobile phone is most likely the first type of access the common person on the street will have to the Internet. In an Accenture survey consumers in this market had ranked the importance of home-based connections lower than mobile connections putting more value on items such as mobile phones, MP3 players and portable gaming systems.

While consumer interest in technologies enhances the opportunity for mobile advertisers, there are challenges that may hinder advertisers reach to their consumers. Challenges exist with handset capability, where cheaper handsets for the

masses do not support richer content. While Smartphone's, such as Apples iPhone, Google's Android phones and Microsoft's Windows Mobile phones exist that can handle richer content, they are generally far too expensive for the masses and often need to be financed by taking out a contract. Another challenge with handsets is if they are GPRS-enabled, to get them to be correctly configured to carrier networks in order to effectively receive mobile advert content.

The costs of fixed data plans pose as hurdles for both post-paid and pre-paid subscribers. While data costs in South Africa seem to be one of the cheapest in the world as subscribers pay relatively lower rates per megabyte than users in other markets, this is just merely a simple currency conversion. Other factors such purchasing power parity need to be taken into account. As mentioned around

LSM is a unique means of segmenting the South African market. It has become the most widely used marketing research tool in Southern Africa. It divides the population into ten LSM groups, 10 (highest) to 1 (lowest). LSM-9 and LSM-10 are divided into Low and High respectively. It cuts across race and other outmoded techniques of categorising people, and instead groups people according to their living standards using criteria such as degree of urbanisation and ownership of cars and major appliances.

SAARF (2010)

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90% of the mobile market is pre-paid users and R2 per MB would typically still be too high for these users.

Major media houses need to also focus on the lack of consumer’s education on mobile services. These media houses will need to play a role in educating users on the mobile services that are available to them and how to make use of them.

According to an article posted by MobileMarketing, the number of publishers in South Africa is significantly lower than the number of advertisers. The South African user base is more inclined to towards international sites rather than local sites and as such boils down to a supply and demand situation. The increase in the number of advertisers grew rapidly over time with the successful adoption of mobile phones however the number of publishers increased at a much slower rate. This created a high demand for publishers in the market. This means that from an economic perspective, most international publishers were capitalising on the mobile market in South Africa than local publishers as most of the revenue obtained from mobile advertising will leave the country.

On a positive note we see that as mobile advertising is being demystified, these challenges are being turned into opportunities. As technology advances, Smartphone's will inevitably become cheaper offering media rich content for the masses. South Africa has recently seen an explosion of cheaper bandwidth being offered in the country. This was attributed by the introduction of the sub-marine cable SEACOM bringing more international bandwidth to the country and offering competition to the previously monopolistic SAT-3 cable. With cheaper bandwidth, the cost per MB will drop significantly allowing advertisers to push more media rich interactive content via 3G/WAP services. As more South African companies are made more aware of the opportunities of mobile web and the

reach and impact it will have on their consumers, more mobile portals will be on the rise. Moreover, local brands and organisations will, as a result, be able to build enormous communities that are able to give advertisers platforms for target advertising that is local in nature. The revenue generated by local advertising will therefore land in the hands of local media companies and mobile advertising servers.

The FIFA 2010 Soccer World cup, which is just around the corner, could give the mobile advertising industry in South Africa a significant boost. The world cup has surely generated a large amount of interest amongst local soccer

fans all over the country and advertisers are using the mobile phone as a medium of reaching out to these fans. According to JBB research, a U.S. based research group, advertisers are creating funded user generated content applications that will make consumers actively participate in various contests. Significant amounts of money will be spent on advertising during the Soccer Wold Cup due to the country's large mobile user base.

There are two types of location-based services: Push and Pull.

• LBA push approach delivers information (send ads) to the user, determined by the device’s location

• LBA pull approach, occurs when users request some information directly

Wikipedia (2010)

South Africans pay relatively lower rates per megabyte than users in other markets. The cost per MB will cost South Africans R2 (excluding data bundles which are cheaper) while for users in the USA the cost per MB has a $2 (~R17).

MyBroadband (2010)

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News24 has launched a News24 mobile application, through which consumers can access the latest breaking news; financial headlines; sports updates; and entertainment snippets. This application has been updated and now allows for the latest news to be pushed to your phone without the need for an initial search or ‘pull’. An SMS-type notification appears on the consumer’s home page, directing them to the application that was pushed

through. By setting preferences on one’s phone settings, the individual handset has an IP address set up, through which the server is accessed, instructing it to push updates through to that particular IP address, as though the mobile phone is a personal computer. Advertising agencies also benefit from the News24 mobile application with the banner and pop up ad options.

PublicityUpdate (2010)

Future Trends Mobile advertising in South Africa has been successful and as a result many companies are using innovative mobile marketing ad campaigns to reach their target audience. In order to better gear for the future, the South African mobile market has learnt a few things about the market and their consumers:

1. MMS campaigns are extremely well-received and penetrate the base of users within 48 hours of the campaign rolling out.

2. Viral impact is high, with users sharing the experience with friends and family.

3. Response rates vary, but generally fall between in the 10 - 25% range, which is much higher than traditional marketing figures.

4. Unsubscribe rates are extremely low, in most cases less than 1%.

5. Companies are starting to use mobile websites (mobisites) to customise content for viewing on cell phones and consumers are starting to use them.

According to the report by JBB research, most South Africans keep in touch through mobile social networking sites like MXit, Meep, MTN's NokNok and Facebook mobile instead of calling or texting. As a result more companies are developing innovative ways of advertising their products through these social media hotspots. It is expected that the number of high end phone users in the country will increase by the end of 2010 and will have a major impact when video broadcasting enabled mobile phones are introduced to the market. Numerous opportunities for advertisers will become available as a result with applications such as video streaming, mobile video blogging, etc. The opportunity for brands to tell their story with sight, sound and motion has agencies and advertisers eager to experiment with mobile video advertising.

With the Soccer World Cup upon the country, South Africa is focusing efforts on location-based advertising. This form of mobile advertising uses location-tracking technology on mobile networks to target consumers with location-specific advertising on their mobile devices. Vodacom is the first company to offer location-based advertising in South Africa with a JAVA application called the GRID. Other companies in South Africa are slowly following suit.

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Since the inception of Apples iPhone, Google Android and Windows Phones came with it the applications market place. Applications can be downloaded from the market place and installed directly on these Smartphone's. Applications are offered as on a pay per app basis as well as free apps. Free apps are ad-funded and advertisers are slowly moving towards this route as another medium of reaching their consumers.

Ad funded content such as mobile gaming is steadily gaining ground and becoming popular. Trends such as mobile coupons, vouchers and bar codes are also in the works.

The greatest certainty with regards to mobile marketing is that newer business models and technological innovations will continue to change the mobile landscape. IAB outlines evolutionary steps that marketers should expect to see in the future:

1. Faster data connections with the shift from 3G/HSDPA to 4G connections

2. Improved devices to better handle richer media capabilities

3. More content to ensure that consumers find the content that they want

4. The standardisation of mobile ads and campaign measurements that will reduce advertiser and agency costs

5. Better targeting capabilities such as SMS surveys

6. More Ad-Subsidised services

7. Cheaper unlimited data services

8. Better location based services

It is said that the future generation of South Africa will become even more receptive to mobile advertising. South Africa is already home to some of the best creative marketing and advertising minds. With a firm understanding of mobile Internet as a platform and the technologies that it’s made up of, the future does not seem too far off in the distance.

Conclusion It is clear that mobile advertising has gained considerable ground globally and is certainly not a new concept. Large investments and new and innovative ways of reaching consumers through mobile advertising are being made. South Africa has clearly shown the strides it’s taken within the mobile advertising space. Mobile audiences within the country are much larger and more immediately available than online PC users. This is expected to grow with the increasing ubiquity of Internet access over mobile phones and mobile web browsing experience.

While opportunities within the market exist, challenges also come with it. Expensive media rich handsets, high cost of fixed data plans, lack of consumer’s education on mobile services and the lack of the number of local publishers pose as hurdles within the South African mobile advertising market. However, on a positive note, advances in technology will ensure that media rich handsets are cheaper, the introduction of more sub-marine cables will increase competition in the broadband

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space and will inevitably lead to cheaper fixed data plans. Local mobile portals are seen to be on the rise thereby increasing the number of publishers within the industry.

With the FIFA 2010 Soccer World Cup upon South Africans, large amounts of investments are being made within the mobile advertising space by both foreign and local investors. This will ensure a significant boost in revenues within the local advertising market and the economy as a whole. South African companies are fast learning about their markets and their consumers in order to better prepare for the future. Key future trends such as mobile social sites, mobile video advertising, location-based advertising, Smartphone’s marketplace and ad-funded mobile gaming are steadily gaining ground and becoming popular.

Mobile advertising is fast being demystified in South Africa and media buyers, ad agencies and the clients they represent need to realise the opportunity that mobile advertising presents to them. Companies need to capitalise on these facts and grow the use of the medium in reaching out to consumers.

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