An Olympic Return

The Olympics are an incredible event that is hosted once every four years and it brings together nations from all over the World in friendly competition to measure human achievement. These Olympics in Beijing, China have seen some of the most impressive feats capable by all of mankind. Take for instance, Usain Bolt, who ran the 100 meter dash in 9.69 seconds blowing away the rest of the field and establishing a new World Record. How can you talk about the Olympics without mentioning Michael Phelps and his 8 gold medals in swimming? How about the impressive performances by US gymnasts Nastia Luikin and Shawn Johnson in the women's all-around competition.

After just 11 days of competition, I've been truly impressed by the Olympics and think that this one in particular will have significant long-term impact on the World and I feel like it is already changing it in just a short time.

Anyway, aside from the remarkable performances by the athletes and the most amazing opening ceremony probably in the history of the Olympics and perhaps the history of mankind, I wanted to delve into the financial impact that the Olympics has on the World. A huge reason why the Olympics have become the show that it has is due to large investments for big multi-national corporations around the World.

Take for instance the Olympic logo. In order to become an "official sponsor" of the Olympic games and therefore be able to market your company as such, it will cost approximately $50 Million. If companies don't want to spend this enormous amount of money over a 17 day span, they can also become a "partner" of the games in which they can display the logo of the Olympics in their marketing campaigns, but they will need to also put the "USA" or any other country along with it. This typically will cost companies around $25 Million.

As you can see there is a significant investment that companies who decide to involve themselves in the Olympic games undertake. However, it really wouldn't make much sense for these companies to spend exorbitant amounts of money if there weren't any payoff involved.

Intuitively, it makes good sense to sponsor an event like the Olympic games. For example, sponsors get an enormous amount of global reach in their advertising campaigns during the course of the games. This is true of television commercials, internet advertising, as well as, advertising at the Games themselves. This gives companies a great deal of exposure to a World market.

Additionally, the advertising campaign makes sense if you believe that advertising actually works. What I mean by this is that the Olympic games are a fun event that people have positive connotations connected with it. By linking those positive connotations of the Olympic games with the corporation that decides to sponsor the games, people become more likely then to associate positive images with a particular corporation. Ultimately, this is intended to drive revenues and eventually increase profits.

Increasing profits is the name of the game and Olympic sponsorships are a huge investment and it would thus only make good sense for companies to back this event if it ends up benefiting the company.

Therefore, I did an analysis of the 2004 Summer Olympics held in Athens, Greece and looked at 9 companies in particular that sponsored the games. Each company were primary "official sponsors" in varying categories. I looked at various financial indicators since 2004 through 2008 including their revenues, EBITDA, stock price, current ratio, and leverage ratio. I wanted to evaluate whether an Olympic sponsorship effort had any significant return or increase in growth over subsequent years.

In order to do so, I compared my 9 companies that sponsored the 2004 Summer Olympic games in Athens, Greece with 48 of the top 50 Fortune 500 companies in 2008. I consider these companies to be a sufficient benchmark on which to gauge economic progress.

• Methods

The first thing I decided was which Summer Olympics to look at in particular. I chose the 2004 Athens, Greece games, because I think that the sizable investment that companies have to make in sponsoring the games ought to have quick returns, defined as those that significantly impact financial data of a company within 4 years.

Next, I found the companies that sponsored the Summer Olympics in Athens, Greece. I found a website called, INVGR.com (Invest in Greece), which itemizes the companies that sponsored the Olympic games in Athens. According to the website, the sponsors invested over $600 million in the games.

Based on this list, I then picked companies that were publicly traded and had readily available financial data. This ended with our current list of 9 companies and their category which include:

1. Hellenic Telecom (Telecommunications)
2. Heineken (Brewery)
   
3. Coca-Cola (Non-alcoholic beverages)
4. Kodak (Film/photography and imaging)
   
5. McDonalds (Retail Food Services)
   
6. Samsung (Wireless Communications)
7. Time Warner (Periodicals/Newspapers/Magazines)
   
8. Xerox (Document Publishing, Processing, Supplies)
   
9. Shell (Petroleum Products)

After determining these companies, I then looked up their financial data since 2004. All financial data is courtesy of Google Finance and all stock quote information is courtesy of Yahoo! Finance. Samsung's financial data was taken directly from their Annual Reports for 2004 through 2007.

The financial data includes measures for the current ratio of each company and leverage ratio for each company. The current ratio is found by dividing the current assets by the current liabilities and is a measure of a company's ability to pay its short term liabilities and its capacity to turn products to cash. The leverage ratio is a measure of the financial leverage of a company and gauges its ability to meet financial obligations. This ratio is found by dividing total assets by equity.

After performing the initial analysis of Olympic Sponsor companies, I then needed to benchmark my results against an average. I decided to use the top companies in the Fortune 500 List as my benchmark because of its inherent diversity of companies. In addition, the companies on the Fortune 500 list typically perform well and if I wanted to see if companies perform unusually well this would be a good group to compare it against.

I took the top 50 companies of the Fortune 500 List in 2008 and compared their revenues and stock prices since 2004. My sample included only 48 of the top 50 companies due to mergers and acqusitions that had occurred since 2004. I decided to leave these two companies out, because the merge may have inflated or slowed growth.

• Results

• Compound Annual Growth Rate (CAGR) Revenue

Since 2004, the 9 companies that sponsored the 2004 Athens Summer Olympic games had an average CAGR of 5.4%. The company with the highest CAGR was Samsung. Their CAGR was 17.7% and went from revenues of $55.2 billion in 2004 to $106.0 billion in 2007. The company with the lowest CAGR was Kodak. Their CAGR was -6.6% and went from revenues of $13.5 billion to $10.3 billion.

Compared to our benchmark of the top 48 of 50 companies in the Fortune 500, these results are dissapointing. The Fortune 500 companies had an average CAGR of 11.0% since 2004. The company that had the highest Revenue CAGR since 2004 was The Goldman Sachs Group, 30.1% and went from revenues of $23.6 billion to $88.0 billion. The company with the lowest Revenue CAGR since 2004 was General Motors, -1.4% and went from revenues of $195.6 billion to $182.3 billion.

Additionally, if we evaluate each sample's standard deviation we can determine a range in which we would most likely find 68% of the companies in each sample by looking at +/-1 standard deviation.

The Olympic sample had a standard deviation of 6.3%, which determines a range for Revenue CAGR for companies sponsoring the Olympic games as between -1.0% and 11.6%. The Fortune 500 sample had a standard deviation of 7.5%, which determines a range for their sample of 3.5% to 18.5%.

• CAGR Stock Price

Since 2004, the 9 companies that sponsored the 2004 Summer Olympic Games in Athens had an average CAGR for their Stock Price of 7.5%. The best performing stock was McDonald's which had a CAGR of 17.9% and the worst performing stock was Kodak who had a CAGR of -5.4% for their Stock Price.

The top 48 of 50 Fortune 500 companies had an average CAGR for their Stock Price of 7.1%. The best performing stock was Valero Energy which had a CAGR of 35.6% and the worst performing stock was The Ford Motor Company who had a CAGR of -12.9%.

To determine a range in which we would most likely find 68% of our sampled companies we take a look at standard deviations. The standard deviation for the sponsoring companies was 8.2%, which defines a range of -0.7% to 15.7% CAGR for stock price. The standard deviation for the Fortune 500 companies was 10.1%, which defines a range of -3.0% to 17.2%.

For further comparison, we can look towards three widely used indeces in the United States Stock Exchange, the Dow Jones Industrial Average (.DJI), NASDAQ (.IXIC), and S&P 500 (.INX). Since 2004, the Dow Jones Industrial Average has had a CAGR of 3.8%, the NASDAQ has had a CAGR of 3.0%, and the S&P 500 has had a CAGR of 4.0%.

• CAGR EBITDA

CAGR for EBITDA was only evaluated for the sponsoring companies. On average, the group's EBITDA had a CAGR of 2.9%. The highest performing company in terms of EBITDA was Time Warner, who achieved a 12.0% CAGR for EBITDA. Time Warner went from an EBITDA of $6.1 billion in 2004 to $9.6 billion in 2007. The worst performing company in terms of EBITDA was Kodak at -22.0%. Kodak went from an EBITDA of -106 million to -235 million.

• Revenue Percentage Growth and Year over Year

The 9 sponsoring companies of the 2004 Summer Olympic Games grew on average by 7.5% from 2004 to 2005, 5.7% from 2005 to 2006, and 8.7% from 2006 to 2007. Between 2004 and 2006, Samsung grew the most each year. In 2006 to 2007, Coca-Cola had the highest percentage growth in revenues. Kodak was consistently the company that performed the worst from 2004 to 2007. Aside for a -0.1% growth by Xerox between 2004 and 2005, Kodak was the only company that had negative growth over this period.

By keeping the 2004 revenue of each company constant, it can give an idea as to how much the company grew over the four year period. On average for the group, revenues increased by 7.5% in the first year, by 14.4% by the second year, and by 25.2% by the third year.

• Current and Leverage Ratios

In order to evaluate current and leverage ratios it is best to take a look at them as they deviate over the four sampled years. Overall, the average for the group's current ratio deviated by 0.146. The largest deviation in Current ratio was 0.491 by McDonalds. The smallest deviation was by Shell which was 0.079. The average current ratio for the 9 sampled sponsor companies over the four year period was 1.20.


The average deviation for leverage ratios was 0.515. The largest deviation was by Kodak, 2.912, and the smallest deviation was by McDonalds, 0.046. The average leverage ratio for the 9 sampled sponsor companies over the four year period was 2.83.

• Conclusion

Companies will pay a tremendous amount of money in order to sponsor the Olympic games. Marketing campaigns and rights to the Olympic rings can cost in excess of $50 million. With such a large investment, it would seem strange for companies to not profit from it.

Based on the financial research of 9 sampled companies that sponsored the 2004 Summer Olympic games held in Athens, Greece, there is no significant benefit to sponsoring the Olympic games.

In terms of revenues, it appears as though those companies that sponsored the Olympic games actually lagged behind. Olympic sponsors had a CAGR of 5.3% since 2004, whereas the benchmark for this research (48 of the top 50 Fortune 500 companies) had a CAGR of 11.0%. This would suggest that the investment in the Olympics is unfounded.

However, when comparing stock price CAGR, Olympic sponsors outperform the benchmark slightly, 7.5% versus 7.1%. This, however, is very close and shouldn't be seen as a significant difference. EBITDA gains for sponsoring companies, 2.9% CAGR, further indicates the lack of impact that the Olympics has on the profitability of a company.

Current and Leverage ratios practically stay in line and there is no significant jump in these financial categories.

However, it is interesting to note that companies that invest in the Olympics typically have a strong stock return. As of January 1, 2008 the 9 sampled companies were up 50.8% on average, with the highest returners, McDonalds and Hellenic Telecom, up 127.5% and 117.4% respectively. It is also important to point out how companies who sponsor the Olympics have strong revenue growth. Although our sampled group didn't outpace our benchmark, the revenue growth after four years (without Kodak) is on average 31.3% with the highest growth coming from Samsung, 91.9%, Coca-Cola, 32.7%, and Shell, 33.6%. These are extremely strong numbers and 6 out of 9 companies had in excess of 20% revenue growth.

It's important to remember the larger picture and purpose of the Olympics in general. It's a momentous occasion that brings together the finest athletes in the World to compete together and promote good-will. Companies have the opportunity to benefit from the immense audience that is drawn to the Olympics, but there is certainly no proven formula.

Outsmarting The Great Facebook

I typically have two tabs open on my FireFox when I'm browsing the Internet. The first is my Gmail, because I am very adept at keeping up with correspondences, and who doesn't enjoy procrastinating once in a while. The second tab is Facebook, in my opinion, the king of social networking.

Facebook is a tremendous site and it continues to get better and better. It constanly adds new features; most recent is the instant messenging (IMing) that you can do with all of your Facebook friends when they are online at the same time as you. That's just brilliant. It brings you to the site, and keeps you there. This has got to make advertisers very very happy. They've also had their fair share of problems with the addition of new features. Who can forget when Facebook added their controversial News Feed.

This feature addition provoked an uproar by the Facebook community and even elicited a public apology by Mark Zuckerberg, the CEO and creator of Facebook. However, for the most part, I would say Facebook keeps their users happy and content. I continue to use their service everyday (multiple times a day), because it's the best means of keeping in touch with people and also now with the addition of applications, video, pictures, etc., the best means of representing something about you to the world and the people you know. Your Facebook can say a lot about you, beware.

I, like a lot of people probably, also like to think about how to improve and use Facebook better. What can Facebook do to make my life that much easier? The funny thing is that every time I think something up that would make Facebook better, I login the next day and see that they've already done what I was just thinking about.

This actually just happened to a friend of mine. He was thinking about a new way to transmit news, where the Internet gives the power back to the people and takes it away from the large media giants like BBC, CNN, etc.

But, just as he dreamed it up, he checked through the Internet for a little and came across, iReport, which is published by CNN and was essentially his idea already formed.

This doesn't discredit my friend's idea though; it is impressive that he was able to think something up ahead of time that CNN has gone through the trouble to develop and put in place.

That being said, this time I'm going to be one step ahead of the Great Facebook. It is no joke, they are great, and they have an army of 70 million to prove it. I think that there is one critical feature that they are lacking that would make the service that much more desirable to users (or perhaps just me), and to Facebook as well.

We have to understand one thing first, though. Facebook is a business. They are doing very well. Facebook is in the business of Marketing and Advertising.

Facebook does not have any reason to change anything on its website at the moment if it doesn't further their business; they are doing fine enough as it is. So, if there is upside from a Marketing or Advertising perspective, then Facebook should add a new feature, but not before.

Quite simply, Facebook should add a "RANDOM FRIEND," link somewhere on their page. When a user clicks the "Random Friend," button it takes them to a random profile page of one of their Facebook friends. The location of this new feature doesn't really matter. It could be on the left panel below the "Applications," or across the top bar by the "home," "account," "privacy," and "logout" hyperlinks.

I don't care where they put it really, but they need to add it, and the sooner the better. If you want a prototype of this idea, I suggest checking out the "Random Article," link on Wikipedia.

• First, I'll explain why this is an awesome and necessary feature, and second I'll explain why Facebook should do it to help their business.

The "Random Friend," link is a really helpful tool to Facebook users, because it makes their browsing less active and so much more passive. By the simple click of a button, one can be whisked off to a new Facebook friend's profile without even having to think about it. There are several ways that I find my friends today on Facebook that, in my opinion, take far more work than the simple, "Random Friend," button. I can:

1. See a NAME or PICTURE on the News Feed
2. See who's STATUS has been updated
3. See who is CURRENTLY ONLINE
4. See which friends have RECENTLY UPDATED
5. Click on friends who have written on my WALL
6. Click on friends who have commented on my PICTURES

These are all excellent ways of finding your friends and visiting their profiles. However, I'm often pleasantly surprised when I see someone's name pop-up on my News Feed who I haven't spoken to in a while.

I visit their profile, look at their pictures, then usually write them a message or post on their wall. This helps me keep in touch with them which is, or should be, the primary function of Facebook. I feel like it is easy to fall into a loop of seeing the same people's profile over and over. In that sense, Facebook is making our world smaller, rather than enlarging it as it could.

By having the "Random Friend," link, I will be better able to stay in touch with my friends, because I may more frequently, or at least once in a while stumble upon their profile.

I think that this is also a necessary feature for Facebook to add, because it has gotten to such a size where certain members have accumulated 200, 500, or even 1000 or more friends on Facebook. According to Buzz Canuck, a blog on viral communication, the mean number of Facebook friends a person has is 164.

At such a size, it becomes hard to track all of those people. When discussing social networks, people will often cite the Dunbar Number, which explains the "cognitive limit to the number of individuals with whom any one person can maintain stable social relationships: the kind of relationships that go with knowing who each person is and how each person relates socially to every other person."

That number isn't exactly known but it is often referenced at 150. That means that beyond 150 people, based on evolutionary psychology, anthropological findings, and sociological studies (not to mention a reference in The Tipping Point), human beings have trouble maintaining stable social relationships.

The beauty of Facebook, I believe, is that it can make this Dunbar Number larger. However, we are wired in such a way currently to have this 150 capacity. Facebook can help us develop our own social skills by broadening our horizons, rather than trapping us in the same social loop.

Facebook would also want to add this feature to help their own business. There are two things that advertisers are looking for when they decide to publish an advertisement on a web page. One of the first things they look for is, how long people stay on that web page. This is critical, because it indicates how much exposure the advertiser is getting and how much time their advertisement is likely to be seen.

Facebook has done this tremendously well with their newest IMing feature. People are going to stay on Facebook for obscene amounts of time now, because they can chat with their Facebook friends easily. That will keep people at their computers.

The second thing that advertisers look for when publishing on a web page is the amount of impressions or visits a page has. This is important, because it suggests how many people your advertisement will be exposed to and how frequently that will occur. This second concept is improved by the "Random Friend," link.

**Click the Image to see it more clearly**
Now, I realize that Facebook's advertisements, usually on the vertical ones on the left hand side below the "Applications" section refreshes every time you go to a new page.

What I'm more interested in, however, is how many pages I and the rest of Facebook users go to on a regular visit to the site. This will impact overall page views for the entire website.

What is interesting to note is that even with all of these incredible new applications and new features that have been put on Facebook, according to Alexa.com, a web information company, in the past 3 months the number of unique pages viewed per user per day for Facebook has declined 20%. Facebook still receives an obscene amount of unique pages viewed per user per day, around 20, but Facebook is a business, and if a component of their advertising allure (page views) declines by 20% in a quarter, no one is going to be happy.

Quite simply, Facebook needs to add a "Random Friend," link in order to maintain and potentially improve their very successful site.

MobileAd

Driving is a huge hassle these days. No, I’m not talking about the fact that there's constant traffic or the fact that as more greenhouse gases are released each day into our atmosphere, more pollution fills the air, contaminating our water, food, and lungs. These are not the things I’m talking about when I say driving is a hassle. Rather, what really ticks me off about driving these days is constant drain of dollars and cents that are thrown away at the gas pumps. Gas prices these days are ridiculous. As of April 14, 2008, the average price of gasoline in the United States was $3.38 (Source).

When you consider that a car typically holds around 16 gallons, that’s about $50 every time you go to the pump (Source). With rising inflation and the crashing dollar, you may not think that $50 gets you very far these days, but it can really add up. If the average motorist drives 37 miles per day (Source), and a tank typically holds enough to drive around 300 miles, a tank of gas will last for 8 days. That means that every 8 days you’re going to go back to the pump, pay $50, and just wait another 8 days to repeat the cycle.

Over a year, these numbers equate to $2,280. I don’t know about you, but that’s a huge chunk of change to just be throwing away each year. And, at the current rate, it doesn’t appear that this price is going to get any smaller. Gas prices have and will continue to increase as time goes on. So, there must be some way to combat the oil companies practically picking the pocket of gas consumers. That is where MobileAd comes in.

MobileAd is a pretty simple concept stemming off of the huge revenues produced by the booming advertising industry. Today, when people think about advertising, they might think of Google or Yahoo! which are two of the kings of advertising in the Internet world. Each time you click one of their ads, they make money. You may think that you hardly ever do this (and you probably hardly ever click on an ad), but then again, search engines work under the law of large numbers. Little –by-little it comes in.

However, you may not be thinking about all the other types of advertisements that slap you in the face everyday. Think about billboards, advertisements on the lateral sides of buses, or posters on the inside of public transportation. You may take these for granted, but it costs a pretty penny to be able to advertise to such a large audience.

But people just like you and me go out into the world every day and have the opportunity to interact with hoards of people. If you commute to work, you probably spend the morning hours stuck in traffic alongside hundreds of thousands of people. I would say that having that sort of exposure would really entice a lot of different advertisers.

Then, why not advertise on the side of your own vehicle for money? This service wouldn’t be intended as a way to put food on the table, but rather, a stipend or reduction to one’s gas price. If advertisers are willing to advertise on buses and taxis, why not on ordinary vehicles that travel 37 miles per day on average? There could be stations built into BP’s or Shells in which you can sign up and an advertisement will be placed on your car. There will be various sizes and companies to choose from.

It will have to be put on professionally to ensure that the advertisement doesn’t fall off and to make sure that it actually stays on. Ultimately, if people can save anywhere between $5 to $10 every time they go to the pump, I don’t see why they wouldn’t do this. They can choose the company that they advertise, so it almost says something more about you aside from I drive a BMW or Audi.

Testing for Realism:

• Is it well accepted by a particular target demographic?
  

I think that there is a definitely a specified target demographic of people who would want to use a product like MobileAd. For starters, more generally, people who would like to use this service are those who are concerned with saving money. As the American Dollar continues to dive and gas prices continue to skyrocket ($116/barrel - 4.22.2008 - Projection), saving money when driving one’s vehicle is of premium importance to most consumers. But this isn’t enough for me to make a substantial argument for MobileAd.

Rather, I say consider people who recognize and even glorify advertisements on cars. Who am I talking about? The 75 million people who comprise the growing fan population of NASCAR. Aside from having 17 of the top 20 attended events in the United States, this motorsport profited $3 billion in 2007. The fans that make up NASCAR are considered some of the most brand-loyal fans in America, which causes Fortune 500 companies to sponsor NASCAR more than any other sport.

75 million people is a tremendous base to be able to guide MobileAd towards. That is a very conservative estimate as well, because this is just one group of people in particular who are accustom to having advertisements on cars. The benefits of MobileAd stretch to a wider audience, because it saves people money for simply driving around, which I don’t think too many people would disagree with.

• Does it fill a need?

To answer this question truthfully, I would say that MobileAd does not necessarily fill a need. However, as time goes on, and gas prices begin to climb higher and higher, the need to lower gas costs will be essential. The fact of the matter is that people are going to continue to drive cars. Just because gas prices go up 50 cents doesn’t mean that everyone is going to start commuting via train or public transportation. People will inevitably just head back to the pump and pay the price. Therefore, in order to combat this rising cost, I think MobileAd does indeed fill a need of lowering gas costs.

• Can it be setup by an individual or at most small group of individuals?

MobileAd is a little more complicated to put together and initially set-up, but it can be done if one just talks to the right contacts. For starters, the first thing that needs to be done is for an agreement to be made between MobileAd and various marketing departments of companies. If we consider a sample size of companies, lets say Burger King, Taco Bell, and Wendy’s, all three of these marketing departments have to be contacted. They each have to agree to distribute their logo on private vehicles, and each may determine a different price per mile (more on this later).

If they all agree to the terms, this is spectacular news. The next thing that will need to be done is creating the various advertisements that can be placed on cars. There can be several different makes that people can opt for.

For instance, people can choose to have an advertisement on their hood, trunk, lateral sides, or at the top of their car. Each one of these placements may alter the amount of money that advertisers are willing to pay per mile, but this is up to the person driving. I think that providing people with several options will make MobileAd a much more profitable endeavor. I’m not sure how this advertisement will actually be created, but it has to have the ability to be attached and taken off, but only professionally, because we have to ensure our advertisers that people are actually keeping this advertisement on their car.

It also has to be done in such a way that it does not alter the car in any way. If we can get past these two first initial steps we’re doing superbly well. Next, either one of two things will happen. MobileAd will connect itself to BP’s, Shell’s, and Amaco’s all over America, or it will be independent of gas stations. This will require engaging in agreements with gas stations or buying up real estate to be able to service consumers who want to use this product.

I think it would be very convenient to have this service available at gas stations, but think that it will be far more complicated. Buying up real estate to house the office in which MobileAd can work is far more likely, but it also takes away the immediate payoff that one will receive, because they won’t receive their reduction at the gas station.

They will rather have to drive to another location and get paid there. I don’t foresee this as being a terribly large problem, but it hurts the product a little bit.

Within each office of MobileAd it is a very simple set-up. Essentially, people can walk in and browse around the room for various types of advertisements that they may want to place on their cars. It’s almost like shopping for a cell phone.

You walk into the store and find an advertisement that works best for you. Do you like Wendy's or Dell? After picking out an advertisement that works well for the person, they approach an attendant at a computer. The computer is outfitted with a database which holds the following information. It contains information regarding a person’s name, car, license plate, advertisement choice, rate of pay per mile, and miles logged on their cars. Creating a database like this is quite easy, but maintaining it and streamlining it is quite a task.

In order to make it easiest for both the person working for MobileAd and the consumer, an electronic card will be given to people who take part in using MobileAd’s services. Contained on this card will be all of the aforementioned information that when slid across a magnetic strip will automatically bring up the consumer’s information in the database.

All the person who works at MobileAd has to do is update the miles that the consumer has driven. The computer program that handles the database will have to be able to also check for falsely reported mileages. That is to say that given the amount of time that the person last came to MobileAd and how many miles have been traveled. So, the card will also store information regarding when the person last came to receive a payment. This will safeguard against people trying to run up miles in order to receive higher payments.

There will have to be a significant amount of safeguards in place to make sure that when people come to receive payment it is truthful and honest. Once the payment is given to the consumer, the job of MobileAd is complete.

• Can it generate income?

MobileAd has the potential to create enormous income. According to AdGrove.com the advertising industry represents a $190 billion dollar a year industry. This is tremendous and will continue to grow as it has done previously. So, there is no lack of money in the advertising industry, this is clear. But how does MobileAd profit from any of the services that it seeks to provide. Quite simply, lets crunch some numbers.

• According to a video posted on 5min.com entitled, “How much advertisers pay for your attention in NYC” the price of advertising on the lateral side of a bus per month is $500.
  

Find more how to and instructional Marketing videos on 5min.com

I consider this to be quite premium adverting space, especially because it is a bus and definitely even more so because the bus is in New York City. The rest of my calculations will go off of the premise that a bus in New York City costs $500 per month to advertise on.

In the MobileAd system, drivers are rewarded on the number of miles that they drive, not the time that they have the advertisement on their car. This has to be the case with private vehicles, because some of the time those vehicles will not be in use either because they are parked in a facility or a garage.

This essentially means that the advertisement isn’t doing its job. However, you can be certain that the advertisement is at work when the car is clocking miles, because it must be out in the open. So let us then determine how much this $500 per month equates to in dollars per mile for a New York City bus.

If we assume that New York City buses operate 24 hours a day every day of the month, this gives us a total running time of 720 hours per month. Furthermore, according to Schaller Consulting in a document prepared for Transporation Alternatives NYPIRG Straphangers Campaign in which it was studying the patterns of New York City buses, they determined that the average speed of a bus is 7.5 miles per hour.

Therefore, if we know that there are 720 hours per month that a bus is on the road, and if that bus will travel at 7.5 miles per hour on average, we can determine that the average bus in New York City travels 5400 miles per month (720 x 7.5). Therefore, in order to extrapolate the rate per mile at $500 a month, we simply divide $500 per month by 5400 miles per month and arrive at a rate of 9.26 cents per mile.

Essentially, advertisers are paying buses 9.26 cents for every mile that they travel, based on our calculations here.

Now, remember that I told you that I thought that advertisements on a New York City bus was premium advertising space indeed. Therefore, for a private vehicle, I think that a reasonable rate would be around a third of that for a bus.

This means that I would consider an advertiser paying 3.08 cents per mile for advertising on a private vehicle very acceptable. If we recall back to the beginning, an average gas tank will get you around 300 miles. So, the maximum amount of money that people are looking at making or reducing from their gas consumption is around $9.26 per fill up.

However, MobileAd is a for-profit company, and needs to make income as well. Pricing is an unbelievably complicated procedure, but I will provide several pricing options here and I will determine which one is best at the end. If we consider taking a slice out of the 3.08 cents per mile provided by advertisers in chunks of 10% up to 70% we arrive with the following:

10% - MobileAd makes 0.308 cents per mile and consumers make 2.772 cents per mile equating to $8.31 per 300 miles for consumers and 93 cents per 300 miles for MobileAd.

20% - MobileAd makes 0.616 cents per mile and consumers make 2.464 cents per mile equating to $7.39 per 300 miles for consumers and $1.85 per 300 miles for MobileAd.

30% - MobileAd makes 0.924 cents per mile and consumers make 2.156 cents per mile equating to $6.47 per 300 miles for consumers and $2.77 per 300 miles for MobileAd.

40% - MobileAd makes 1.232 cents per mile and consumers make 1.848 cents per mile equating to $5.54 per 300 miles for consumers and $3.70 per 300 miles for MobileAd.

50% - MobileAd makes 1.54 cents per miles and consumers make 1.54 cents per mile equating to $4.62 per 300 miles for consumers and $4.62 per 300 miles for MobileAd.

60% - MobileAd makes 1.848 cents per miles and consumers make 1.232 cents per mile equating to $3.70 per 300 miles for consumers and $5.54 per 300 miles for MobileAd.

70% - MobileAd makes 2.156 cents per mile and consumers make 0.924 cents per mile equating to $2.77 per 300 miles for consumers and $6.47 per 300 miles for MobileAd.

The key at this point is to determine what would be the Just Noticeable Difference in order to set the price. Recalling back to our first example, gas costs around $3.38 and cars hold around 16 gallons giving a total gas purchase of $54.08 for the average motorist.

With these numbers, I would probably favor a share of 40% MobileAd to 60% consumer when it comes to advertising payments. The reason that I conclude this is because the theory of Just Noticeable Difference relies on the fact that people are generally able to tell the difference in 50% of cases. With this 40/60 split, consumers will receive $5.54 on average everytime they fill their $54.08 tank. This equates to a price reduction of 10% ((54.08-5.54)/54.08 = 90%), which is a sizable price reduction.

I think this will be able to motivate people enough if they know they can reduce their costs by 10% and move their payment from the 50’s to the 40’s. If we go off of this pricing model and consider the demographics of the people who may use our service we conclude the following (very conservative estimates):

• 2% of NASCAR Fans = 1.5 million people
• 1% of the rest of the US population not including 75 million NASCAR fans = 2.25 million people
• Total people using service = 3.75 million
• 3.75 million x 37 miles per day = 138.75 million miles per day.
• 138.75 million miles per day x 3.08 cents per mile = 4.27 million dollars per day.
• 40% for MobileAd = $1.7094 million per day
• 1.7094 million per day x 1 year = $623.931 million per year

As you can see, there is a significant amount of money that can be made from MobileAd. At the same time, it also pumps money into the economy which would be supremely beneficial in a hurting economy.

• It is marketable?

The idea of MobileAd is a little different than any that has previously existed. It is almost a little faux pax to place stickers on one’s car, however, with the changing times; people are going to have to change in order to deal with the higher than usual costs.

Placing an advertisement on one’s car isn’t a mainstream thought today, because there has never really been a need for it. However, if things continue as they have, something like advertising on one’s car may become the norm in just a few short years.

I think the key is really finding the “tipping point” with this idea. I don’t expect MobileAd to be a well accepted idea, but only up until a certain point. There is a point at which gas prices will just become too much and an easy alternative will have to exist.

In years from now, cars may not come in simple colors like white, green, red, or black, but rather fully advertised all around it. I feel like MobileAd is a preliminary step between now and then, which provides extremely high profits.