VIRTUAL ADVERTISING

The Wall Street Journal reports that Europe's telecom giants are looking at a new way of grabbing your attention at home, work and in the high street. In the future, they promise, sales pitches will be up close and personal.

By the end of this year, European retailers will have the ability to send messages to consumers via a mobile phone as soon as a potential customer is within 150 meters of a store. They expect the new service will bring about a change in consumers' shopping habits as they roam their Web-wired phones for bargains while on the high street.

However, telecom companies are worried -- and rightly so. The messages, which will be promoting goods or offering discounts in text or picture form, will have to be tailored specifically to meet a consumer's area of interest. Failing this, mobile businesses could end up losing customers who defect to rival services after being turned off by a deluge of unwanted mail.

The success of the service hinges on its appeal and ability to be useful.

That's the risk, but the potential of this market can't be ignored. According to Forrester Research Inc., some 247.5 million people in Europe will have a mobile phone by 2004. That's out of an estimated population of 390.3 million.

In its wake, however, the service, known as virtual advertising and vouchering, is likely to lead to further competition among retailers and raises a number of issues, including privacy and intrusive marketing. In a worse-case scenario, the use of jamming technology, although illegal, may become necessary for retailers to prevent rivals from poaching potential customers.

Gap Discount Around the Corner

"Imagine you are walking down the road, your mobile rings and tells you that the Gap store 50 meters away is offering a 25% discount on any purchases for the next 30 minutes," said Richard Williams, head of advanced wireless technology at Virgin Mobile Ltd. "Your mobile could pay for itself many times over through the money it saves you on discounts."

The technology to make this happen exists. The system that brings mobile, Internet, retail and positioning companies together doesn't.

But businesses like Virgin Mobile and BT Cellnet, the mobile subsidiary of British Telecommunications PLC, Genie Internet, Virgin Net and Swedish telecoms positioning service Cellpoint Inc. are all doing their bit to make sure they will play a role in this future.

Elsewhere in Europe, companies like Telecom Italia Mobile SpA and Vodafone AirTouch PLC are also eyeing this technology.

However, none of this will work until a positioning service is up and running. Stockholm-based Cellpoint does just that by relying on GSM -- a basic form of mobile technology that stands for global system for mobile communications.

As a person moves, the mobile phone is constantly searching for the closest base station to maintain the strongest signal to its network. Cellpoint has developed a system that translates this signal into a position by using proprietary software that's capable of handling the movements of hundreds of thousands of people at a time.

However, the accuracy of the positioning depends on the number of base stations in the vicinity of the mobile phone. In London, BT Cellnet alone has some 800 base stations. This means the positioning system can locate someone to the nearest 50 meters. In Stockholm, this is closer to 150 meters because there are fewer base stations.

User Profile

Ultimately, the process begins when a person enters the vicinity of a store. The signal from the mobile to the nearest base station is relayed by a Cellpoint server to an Internet company's database. The Internet server, which keeps records of its retail clients' promotions, determines whether it would be appropriate to market a range of products to the customer by checking the user's profile stored on record.

"Location services have been identified as a vital component to the mobile Internet," said Peter Henricsson, chairman of Cellpoint, which is in talks with Internet portal companies to make mass-market location services available soon.

For the moment, retailers are keeping quiet about their plans. While few are even prepared to drop any hints about their interest in this technology, some deny knowledge of its existence. As one retailer put it, "Everybody wants to be the first to market and deliver that knockout punch."

One such retailer that has gone public about its ambitions is entrepreneur Sir Richard Branson's Virgin Group. Subsidiary Virgin Retail, which has about 350 stores in seven countries across Europe, has linked its business with sister company Virgin Mobile.

Since November, Virgin Mobile has been able to offer goods such as CDs on its phones. By summer, the range is expected to grow and include DVDs, computer games and videos.

Mr. Williams is overseeing the refinement of this m-commerce service, which will eventually lead to virtual advertising and vouchering.

Before this can happen, Mr. Williams' priority is to ensure the June launch of Virgin Mobile's 12.50 pounds ($19.4 or 21.20 euros) Smartcard, which will enable the public to access the Internet. This can be done by just adding Virgin Mobile's chip into the back of any modern phone.

This will be a cheaper alternative to buying a WAP Web-browsing phone that can cost more than 200 pounds. Once the link with the Internet is in place, the introduction of virtual discounting is just a matter of time, according to its enthusiasts.

Mr. Williams expects the technology to come online by the end of this year. Once in action, virtual vouchering and promoting can work in many ways.

Take Punch Group. The London-based company manages a total of 5,000 pubs and restaurants in the U.K. The potential here is clear. Punch's pubs could enhance its ability to target its local audience by directly sending messages that promote special offers on lagers and coming band nights. The company says it's "monitoring developments with interest."

Overall, the wall of silence from retailers is understandable. "Retailers are keeping quiet because they don't want their competitors to know what they're doing, or they're keeping quiet because they don't want the stock market to know that they aren't doing anything," said Raza Rizvi, technical support manager at REDNET Ltd., an Internet services company.

He believes retailers will embrace the technology simply because they are scared of being left behind by their competitors. "This will create a domino effect in the same way that retailer after retailer is taking to the Internet and signing up to e-commerce," he said. Virgin Mobile and BT Cellnet are holding talks with a number of retailers, many of which are well-known household brands.

Still Embryonic Technology

However, not everyone is convinced about this marketing dream. "M-commerce isn't even developed enough to be embryonic," said Richard Hyman, chairman of retail research consultancy Verdict Research Ltd. He doesn't expect such services to have a direct impact on sales, saying "consumers are often turned on by high prices."

The introduction of marketing techniques of this kind is bound to lead to questions about intrusion and privacy.

"When I am walking down the street, I don't want my phone to keep bleeping all of the time," said Malcolm Appleby, head of research and development at Genie Internet, a subsidiary of BT. "The service has to be customer driven and focused."

Getting it right from the beginning will be critical to the future success of the service.

"Network operators are particularly concerned about churn -- in other words, customers getting fed up or irritated with services and turning to another network," said Rosalie Nelson, a consultant at telecoms, IT and e-commerce research house Ovum Ltd. "They will be extremely wary of pushing services on users who haven't said they are willing to receive them. For example, if I'm hurrying to a business meeting, and my mobile goes off, it will be extremely irritating if it proves to be a promotion for a local coffee shop -- particularly if I'm waiting for a critical business call."

Intrusive Marketing

Until the launch of virtual vouchering and advertising in Europe, Internet companies will be busy looking at ways of garnering information from their users to build a more accurate picture of their preferences. The idea is to learn more about a customer's likes and dislikes -- cotton instead of polyester. This is all information that will ultimately prove invaluable for the retailer.

Mr. Williams, who hates junk mail, insists the technology will not lead to intrusive marketing. "To get someone's attention, you've got to get their permission," he said, quoting from one of his favorite books on the subject: "Permission Marketing" by Seth Godin, vice president of direct marketing at Yahoo! Inc.

While companies have already come under fire for potential privacy violations in the U.S. for tracking people's online habits, positioning technology has also been lambasted in Europe. Cellpoint has been attacked by the Swedish press for developing so-called Big Brother technology.

"It's a topic just loaded with controversy," said Lynn Duplessis, co-founder of Cellpoint. But Ms. Duplessis explained that a consumer can choose whether he or she wants to be positioned either by switching the phone off or by pressing a button on the mobile's menu that turns the function on or off.

Like all new technologies, loopholes will always exist. Jamming, although illegal, could well become a feature of the wireless landscape. As Mr. Rizvi put it: "The last thing you want as a retailer is the mobile phone to go off just as a customer is about to buy some socks and a rival store two doors down makes a better offer."

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