Wireless Advertising in the Real World

While wireless ad standards organizations deliberate and Internet ad companies build wireless strategies and technologies, a handful of content companies are taking the leap, launching entire businesses whose livelihood is based on the adoption of these new types of advertising.

In a quest to glean lessons from their early experiences and peer into the future of wireless ad models, we talked to three of these cutting-edge content firms, and to a venture capitalist who specializes in so-called “pervasive computing.”

Probably the hottest venture-backed company in New York these days is a city guide software outfit called Vindigo, whose name is on every venture capitalist’s lips and whose software is on every mover-and-shaker’s handheld device. How does this nascent firm, and its investors, hope to make money? Advertising.

“The reality is that we think that advertising will be one of the single most important revenue streams for information delivery to mobile devices,” said Jason Devitt, co-founder and chief executive officer of Vindigo.

Vindigo offers an innovative application for the Palm operating system free of charge to users, who download it from the Vindigo site and update it when they synch their device. So far, it’s mobile but not yet wireless. What they (30,000 registered users, so far) receive is a comprehensive guide to the city, including everything from information on restaurants and bars, to movie showtimes and locations, to directions on how to get there. The company began with New York, and has now expanded to Chicago, Boston, San Francisco, and Washington D.C. It has content deals with companies like the New York Times’ nytoday.com, Zagat.com, InShop, SF Gate, and ClubPlanet.com.

All of this content will presumably be supported by advertising dollars, although the company won’t predict when it expects to be profitable. Who will be the biggest advertisers on the service? Bricks-and-mortar retailers, according to Devitt. The CEO compares it to a yellow pages-like model, which taps smaller, local advertisers.

“The real power of this kind of advertising is that you can reach someone who is on your street, in your neighborhood, and looking for your service,” said Devitt.

Vindigo executives pooh-pooh the notion of ad targeting by sophisticated technological methods like GPS, saying that where a person is located isn’t nearly as important as what that person is looking for.

That’s the beauty of an application like Vindigo. Users are on the service actually looking for things like bars and restaurants, and are indicating, by the way they structure their searches, where they are located. The company uses that information to deliver text-based ads for similar services in the same area. Say, you’re looking for a bar in New York’s Greenwich Village. You click on the name of one bar, and at the bottom of your screen you see a message that says, “You’re not far from [insert other bar name here]. Tap here for details.”

Vindigo came to the text-based ad format after some trial and error. It originally intended to send a banner-ad like message.

“We experimented with that for a while,” said Devitt. “You don’t need to put an incredibly graphic, singing, dancing ad, when everything else on the medium is text. You’re not competing in the same way as on the Web.”

Vindigo’s investors include General Atlantic Partners LLC, Flatiron Partners, and Carlin Ventures.

Another player in the advertising-supported content delivery business, AvantGo has been around since May 1999. The company delivers content from smaller players and big-name publishers — like the Wall Street Journal, the New York Times, Business Week, Salon, and the Industry Standard — to handheld devices. AvantGo sells ads on its home page, and helps its content providers sell ads on their pages.

“Everyone is looking for a way to play in the mobile space,” says Ann Culver, director of partner marketing and development for AvantGo. “We’re consistently getting interest from advertisers.”

The biggest value AvantGo brings advertisers, says Culver, is a highly-sought-after demographic of professional tech-savvy individuals with high household incomes.

This kind of audience, which currently numbers 500,000, has attracted advertisers like Intraware, Cnet, and the Guinness Flight Wireless World Fund. Of course, that audience is likely to change as the technology becomes more widely-deployed, but it’s a big selling point right now, as it was in the early days of the Internet.

The company, like Vindigo, has settled on a text ad, or a small graphic, which links to another screen that offers more information about the product. Interestingly, AvantGo also lets advertisers collect information — like email addresses or snail mail addresses — on these pages, which are sent along to advertisers. The top ad on AvantGo’s device home page right now reads, “Get some FREE stuff,” and links to special discount offers from Nextel Online, Buy.com, and publications like Handheld Computing, PC World, and the Industry Standard. To get these treats, users must give out personal information.

One of the biggest issues with the development of wireless ads is pricing. Should it be a CPM model? A click-though model? A cost-per-lead model? A sponsorship model? AvantGo has addressed this by selling ads on a flat rate basis, as well as on a cost-per-lead basis. Every deal is different, says Culver.

Investors for AvantGo, which also has a business-to-business operation, include the Goldman Sachs Group Inc., American Express, Ford Motor Co., McKessonHBOC, Research In Motion Ltd. (RIM), 21st Century Internet Venture Partners, H&Q Venture Associates, Adobe Ventures and Fayez Sarofim & Co.

What’s in the future for AvantGo? Well, Culver sees a lot of growth in the teen and college-age category, as this young demographic group takes to wireless with the same enthusiasm that it has taken to the Internet.

Young people are the sole focus of start-up Scout Electromedia, which is designing advertising for its proprietary handheld device, called MODO (which means “the way” in Latin. It has a 105 by 140 pixel screen, and trackwheels and buttons are used for navigation.

The company, which is funded by idealab!, Chase Capital Partners, Flatiron Partners and TechFund Capital, plans to manufacture the handheld devices and sell them for $95, then provide content for free (no subscription fee). The service, which will provide lifestyle content aimed at 21 to 34-year-olds, is expected to launch in September in Los Angeles, New York and San Francisco. A planned launch for Chicago is scheduled for later in the year.

Much like Vindigo, the folks at Scout are placing small ads at the bottom of their content pages. In this case, they are graphic ads, and MODO users have a specific button to click to get more information about the message. Some of the ads will contain special offers and discounts for users, with text like, “Get 10 percent off with your MODO ID.”

Advertising on MODO will be sold on a flat-fee basis and sold week-by-week. The company says the fee will be calculated based on CPM, and will scale based on users in a market. Although the company wouldn’t reveal what it plans to charge, it says its CPMs will lie somewhere between online and print.

“We won’t do one-to-one targeted ads initially, but we do have the capability when we deem it appropriate” said William Lynch, vice president of marketing at Scout Electromedia. “It will have to be permission-based, as privacy is a big issue for us.”

The investors in these early-stage companies better be in the game for the long haul. Although their models are innovative and full of promise, there’s no sign that advertising-supported companies will move to profitability any more quickly in the wireless arena, than they have on the Internet. And, if you were to compare wireless development with the growth of Internet, you’d see it’s still very very early.

“We don’t really have a wireless infrastructure yet,” said Seth Goldstein, entrepreneur in residence at Flatiron Partners, which has stakes in Vindigo and Scout Electromedia. “It’s sort of like all of the proprietary online services before the Internet really took off.”

In fact, the deficiencies of wireless advertising at this point are much more striking than its capabilities, but there’s plenty of potential and lots of experimentation going on, so stay tuned.