Free (or Reduced) at A Price Consumers Are Willing To Pay?

Last week saw an announcement and a study that show very interesting option for monetization of mobile content – and how it affects consumers both positively and negatively.

First off is the piece in Mashable about the rise of Mobile In-App Ads.  This was not anything new as we had seen ad support or incentives shown in free mobile apps and social gaming for some time.  The article’s pointed mention about Angry Birds fans being outraged was also old news since they started placing ads in the environment back in March.  It really comes down to perceived value that is generated from the ads or opportunities for currency that can come from those placements in all forms of media – mobile gaming, apps, social gaming, etc.  And, we’ve already covered in the entry – The Growing Currency – Feeding the Social Gamers’ Hunger – how users were gaining play by interacting with advertising content. The trade-off has always been there, and the general belief is that there is a stronger acceptance (and recall) of these consumer benefits of advertising.

The piece from last week that really struck me was Amazon’s introduction of a new Kindle with Special Offers model – with 3G connectivity provided by AT&T.  At $139, this version is $50 cheaper than what the ad-free version goes for.  (The $114 WiFi-only ad-supported version was released in May but it was not serviced through AT&T.)  What makes this so striking is that while the benefits mentioned in the paragraph and related story above – Facebook Credits for watching videos and the other benefits of brand interaction – are all in the software, this is one of the first hardware propositions.  Could it be the start of offering cheaper – or free – hardware as a platform for ad-serving where there was none before?  As economics get tighter, it could be a good solution as a trade-off for consumers and added promotional inventory for hardware manufacturers.

It seems like a strong move for AT&T as it tackles a concern that all Telcos have regarding getting their piece of the pie as competitive coverage plans are capping (or even diminishing) revenue for just the communication services.  They were effectivley cut out of the equation for app monetization when Apple launched the App Store and iAds, and Android did the same with the Android Market.  By offering this Special Offers model, it allows AT&T to make the money off of advertising on the screensavers where they had no option for it before. 

Only time will tell whether that makes any difference for consumers who are purchasing the hardware.  With the current environment and concerns about privacy and invasiveness of digital advertising, it will be interesting to see if consumers spend more to not deal with the hassle.  Personally, I would spend more as shown by the fact I pay Yahoo! an annual fee to have ad-free email for my personal email.  At this point, it seems like they are providing the ads in a non-invasive way by only showing the offers on screensavers.  It remains to be seen how much targetting will be found in the Kindle.

The acceptance of the ads as a way to get free or cheaper content has proven to be popular and special-priced ad-revenue hardware could be a wave of the future, but the beauty is in the fact that the people will be able to make that choice themselves.  If it is successful, an obvious development might be for the carriers to start programming their smartphones so that there were som hard-coded ad inventory so that they could offer the same options as opposed to tiered data pricing.  For those entering that higher data tier, much of it is from video usage.  Would it be that different for them to trade some ads or commercials to go back to that unlimited environment?

Either way you slice it, it will be interesting to see whether enough people bite and set a new paradigm for added revenue streams. 


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