Blyk: ad-funded MVNO revisited

Ad-funded MVNO Blyk's business is something I had long wanted to comment upon but, alas, never got around to. But as it was now reported that they increased their advertiser base from 44 to 117, now here we go...

Blyk is an ad-funded MVNO stricly for the 16-24 year-olds. It launched in September 2007 in the UK (running via the Orange network) and, on its website, promises to roll out to go "pan-European" this year.

Does it catch on? Blyk recently reported that they reached 30,000 subscribers in the UK and would ad 3,000 per week. However, they had also said they'd hit 50,000 by March and I have yet to hear of that milestone; even a Google search doesn't reveal any progress report beyond the 30,000...

There has been some talk about issues in signing up to the full service but that may well be from rumour-land, so let's ignore it here.

As a Blyk subscriber, you get 43 minutes of voice and 217 texts a month for free as long as you opt in to receive up to six ads to your phone a day. After that, Blyk subscribers, all of whom are pre-paid users, pay 10p (US$0.20) per text and voice calls are charged at 15p (US$0.30) per minute. Applying these rates to the free voice and texts, you get services worth GBP 28.15 (c. US$ 56.30) per month for free. This is therefore the amount they need to make back from advertisers (who include Sony Ericsson, Coca Cola, SonyBMG, I-play, Ford, Adidas and Mastercard) in order to break even (let's assume the operating costs are absorbed in the margin on actual cost per voice minute and SMS, which should be somewhere around 40%). On 6 messages per day, this equals 15.6p (c. US$ 0.31) required ad revenue per message in order to make good for that (operating costs aside), the equivalent of a CPM of a hefty US$ 310 (compared to a market average of US$ 25-40). With the chronically cash-deprived user base that they are targeting, one can probably well assume that most users will in fact use their allowance in full.

So how do the economics work? And do they work at all? According to fellow blogger Jan-Michael Hess from Mobiliser.org the reason Blyk claims to justify this very high CPM is there apparently very high click-through rate (CTR) of 29% on average (anywhere between X and 43%). But can this be sustained? One cannot force users to click through. If each user gets 180 messages per month, how likely are they to act on an average of 2 per day? Not very, I'd say... This means that they are more likely to having to come down on their CPM. And this is where the fact that they apparently managed to nearly triple their advertiser-base is interesting: did they do so on their original CPM? Or did they have to drop it? Alas, the report doesn't reveal this crucial bit of information...

CPM is key to Blyk's business model and I would consider it highly unlikely that it will be able to command such a premium to the market, also as 30,000 users aren't the world. Youth may be the killer target market that can create or make or kill new brands and it is therefore very interesting to advertisers. But, as has been pointed out, this particular target market is also fickle: free offers are loved but connection via community and brand means that users want to get in touch any way possible. More often that not mobile youth have several mobile prepaid cards all with special offers and bundled rates. They are tech-savvy and will often know where and how to get the free or cheap voice calls they need when they need them (to which I, the father of a near-13-year-old boy, can already testify).

My preliminary verdict is therefore: not very likely to succeed.