Mobile advertising: Vodafone is taking steps to grow what has been a small part of its business

[yahoo news] Vodafone, the world's No. 1 wireless firm by revenue, is taking steps to grow what's been a small part of its business -- advertising.

A new mobile online store is part of Vodafone's ad strategy. So are location-based advertising and text-messaging ad formats.

Still, the U.K.-based carrier knows wireless firms have talked up advertising for years, and the market hasn't taken off.

"There's clearly monetization potential," Vittorio Colao, Vodafone's chief executive, said in an interview. "We need to create the conditions for having this monetization really happen.

"Will it be big big for us in the early days? No. But it is important to create the conditions and to make the pie bigger and bigger."

Rise Of A New Medium

Colao ran Italian media group RCS for two years before rejoining Vodafone in 2008 as CEO. Though wireless firms have had trouble selling ads, some trends work in the industry's favor, Colao says.

"At the end of the day it's about the time people dedicate to using a medium," he said. "It used to be six hours per day of television and one hour per day of newspapers. Now time is moving to new media. There's a huge amount of time that people spend each day looking at the screen of their mobile device."

By year-end, Vodafone plans to open an online store where mobile phone users can download games and other software applications, aiming to duplicate the success of Apple . IPhone users have downloaded more than 1 billion applications.

Vodafone would share the application revenue with the software programs' developers. It plans to keep 30% of sales, the same share as Apple. Many mobile applications are free, however, and the revenue from such a business, even for Apple, likely is modest.

Ads In Apps

Vodafone also hopes to generate dollars from ads that are inserted within some applications. Many advertisers have created branded applications for the iPhone or have placed ads within applications.

"Applications are going to play a role (in advertising)," Colao said. "The creativity of the applications developers will determine the success."

Vodafone is one of several firms opening their own online stores to sell mobile applications. Others include Nokia (NYSE:NOK - News), Microsoft and Google .

Wireless firms once had a stranglehold on content, steering users seeking applications only to providers approved by the carriers. With the introduction of its iPhone in 2007, Apple had the clout to change that game.

It's not clear wireless firms can reassert themselves with online stores, says Steven Hartley, an analyst at market research firm Ovum.

"The genie is out of the bottle in the applications game," he said.

Vodafone, though, has a key asset in its bid to build its applications store. It has software that can pinpoint 20s users' locations, and it will share that with applications developers. That could lead to more applications that let users find the nearby restaurant, gas station and so on.

Vodafone bought Swedish global positioning firm Wayfinder in December for $30 million in order to boost its location-based ad platform.

Privacy issues have been a hurdle to location-based advertising. Mobile users must "opt-in" to get ads.

Another avenue Vodafone plans to use to drive ads is its "Vodafone Live" data portal, which streams video. Colao says mobile TV will be a revenue generator, though such services so far have lagged forecasts.

Hartley says Vodafone could get a boost as it expands the Vodafone Live platform into more emerging markets.

The wireless carrier, which doesn't disclose its ad revenue, is experimenting with other models, and it has introduced mobile ads in 18 markets. Vodafone says a new mobile Internet browser it is developing could open up ad opportunities.

'Please Call Me'

Vodafone plans to expand a text-messaging ad service, called "Please call me," to more markets this year. Developed by Vodafone's South African subsidiary, Vodacom, the service lets prepay customers send a free, ad-funded text message to someone asking them to call back. It targets users who are running low on their minutes.

The "Please call me" service already is available in Spain, Egypt, and the Czech Republic. India will be among the next markets to get the service.

Vodafone is testing other ad formats in Ireland, New Zealand, Turkey and other markets. One offers customers points they can redeem for airtime, ring tones and other items if they agree to get ad-supported text messages or other marketing promotions.

Vodafone Aims To Boost Advertising Revenue