Bzzt.

Bzzt.

Bzzt.

I’m walking around lower Manhattan, cell phone stashed in my pocket. Each time I walk in the vicinity of a major retail outlet or restaurant, my phone buzzes. I yank it out to see who’s trying to get in touch with me. First, Starbucks offers me a special price on a latte. Just a few feet further down the street, I’m advised that I could get a giant Coke free! If I’ll just veer into the McDonalds and buy a Big Mac. When the Banana Republic tells me to STOP! And take advantage of its great prices on….
Crash!

I slam my cell phone into the pavement, its plastic and circuitry scatter, joining the rubble from all the other cell phones whose owners had been driven to violence by the endless stream of coupons beamed to their phones.

This nightmare scene isn’t upon us yet. But it is a real possibility if the marketers who are promoting location-based ads as the next big money-making breakthrough have their way. For most of a decade, they’ve been touting the appeal of sending hyper-targeted—unsolicited—advertisements through your phone. These intrusions are, they would argue, inevitable given the almost captive audience of almost 263 million mobile phone owners.

How powerfully the idea has persisted is captured neatly in two stories from The New York Times that bracket the past eight years. A September 28, 2000, story reads in part: “It’s a Saturday night and all the tables at the hot new restaurant in town are reserved. But you’re in the neighborhood when suddenly your cell phone chirps, alerting you of a table that is available at the last minute along with a coupon for a free drink… For marketers, a wireless pitch is unlike any other because it can be aimed at certain people and particular locations.” The promise was repeated on February 6, 2008: “Pssst, hey you! There’s a cheap latte waiting at the coffee shop on the corner!… Location-based ads are of great interest to advertisers who have seen shoppers eschew traditional forms of mass-market advertising on television and in newspapers and magazines.”

Yet in the years between those two Times articles, the revenue from location-based ads remains the same, which is to say, virtually non-existent. In September 2000, Ovum, a research company based in Boston thought the mobile ad market would reach $16 billion by 2005, but research firm eMarketer estimates the figure for 2008 will be only $1 billion. By 2012, the firm only sees it at $6.5 billion.

What happened to the grand plans? First, it’s not what most people in the industry have in mind when they insist that location-based ads will be a multi-billion dollar industry. “The example everyone cites, McDonalds or Starbucks sending a coupon and how that would be annoying. It drives me nuts,” Derek Kerton, principle analyst at his own wireless consultancy firm, The Kerton Group tells me. “It was never a good idea to do it like that. It’s not how it’ll get done.” Second, the whole concept requires that phones be equipped with GPS so the advertising companies can track your movements, a technology upgrade that has taken longer than expected. Now that more phones are equipped with GPS than ever — 180 million were shipped in 2007, according to research firm In-Stat — the flame of location-based services and advertisements is once again burning white hot.

Google’s CEO, Eric Schmidt, appeared on CNBC’s Mad Money in the middle of August and told Jim Cramer, the show’s host, that he believes “we can make more money in mobile than desktop eventually…we can do a very, very targeted ad. Over time we will make more money from mobile advertising.” Google’s first foray into the mobile world, the G1, goes on sale in late October. Will it, along with other mobile phones, provide the kind of revenue Schmidt hopes for? Google currently earns $20 billion annually in desktop ads and while “eventually” and “over a long time” could be an eternity; Schmidt has certainly set a high bar for Google’s mobile ambitions. So how will they get it done without causing G1 owners to smash their phones in frustration? “The way location based ads will be offered will be opt-in,” says Brent Iadarola, the Global Program Director for Mobile & Wireless Practice at Frost & Sullivan , a consultancy firm. Iadarola says the buzzed alert style of ads won’t just attack you willy-nilly as you walk down the street. It will kick in only if you request information by filling out a personal profile on your phone. For example, if I’m in the market for a new flat screen television, I can tell my phone exactly what I’m looking for. I want to spend between $800 and $1200 dollars. I want it to be no smaller than 42 inches. I’m not interested in off brands, just Sony, Panasonic, or Sharp, and it damned well better be an LCD screen. Every time I’m near a store that is selling a television that fits my criteria, I get an alert. If I’m lucky, I get a discount too. Iadarola sees this as a value added feature from a consumer’s point of view, not an intrusion, so long as the wireless companies protect users’ privacy and security.

Derek Kerton, principle analyst at his own wireless consultancy firm, The Kerton Group tells me he agrees with Iadarola’s model, but says that level of tracking is years away. “For now, if you are in New York City and you want pizza, you pull out your phone and you search for pizza. At the top of the first page of results for pizza is an ad for a pizza place or a coupon.” In this way, companies advertising on mobile phone searches gain a competitive advantage. Sure, there’s a pizza place every half block, but when I ran a search on my phone, there was Angelo’s Pizzera right at the top of the list with a location only three blocks from my location offering me two slices and a Pepsi for five bucks. In this economy, that’s enough of a deal to draw me right past 10 other pizza places on my way to Angelo’s.

Google’s Schmidt believes the company will earn so much from mobile advertising because, according to Kerton, “When people browse the Web, it is leisurely, not active. When interacting with Google on a mobile phone, however, they are looking for something specific, they are ready to act. They’re not trying to read articles, they need to know where the Kinkos is, what the stock price is. It’s not all commerce, but it’s mostly commerce, so more money will follow a mobile search.”

Landy Ung, founder and CEO of 8coupons.com, agrees with Kerton and is designing her business on the concept of search advertising. Her start-up, which offers coupons on the Web for local New York businesses, just struck a deal with outalot.com, a company that makes applications for mobile phones. When someone logs onto an outalot program to search for local restaurants, the advertisements surrounding the search will be provided by 8coupons, and they will direct the user towards local deals. “We are for people that are actively looking for something,” Ung says.

If Schmidt and Ung prevail in the coming struggle over how mobile phones will fit into the vast advertising market, fears that my phone will become a spam box that could drive me to mobile-cide will be unfounded. Instead, my phone might just turn into the most expensive little coupon holder in history.

Not exactly the next slogan for the iPhone, but I’ll take it.

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