Professional Investor: Mobile phone advertising: the next big thing

From its origins in print media and billboards, to the television and the internet, the advertising industry is constantly seeking new media to capture audiences. So far, mobile phone users have been relatively free of advertising, but that may be about to change.

According to international research and consulting firm Strategy Analytics, the global mobile phone advertising market, worth just $1.4bn (£700m) today, is set to grow tenfold to as much as $11.3bn by 2011. Technology research company ABI Research is even more optimistic in its forecasts, putting the market at $19bn by 2011.

The mobile marketing and advertising market today can be compared to internet advertising in the early 1990s. It is a relatively young and undeveloped industry, to a large degree limited to text alerts or advertising through the individual service provider's portal. But with all this money to be made, mobile software platforms and service providers across the board are constantly developing new advertising technology in a race to find the killer application that will standardise mobile phone advertising into a single platform, one that is compatible with all the mobile phone operators and handsets.

With its headquarters in London and offices in New York, Boston, Athens and Sofia, I believe that the mobile marketing, advertising and value-added services provider Velti is in the best position to do this. The company, which has more than 200 employees and operates in 10 countries with more than 100 customers worldwide, was launched in 2004 by a team of former Massachusetts Institute of Technology PhD students. If MIT means nothing to you, consider the fact that 63 current and former members of the institute have won the Nobel Prize. This tells you something about the quality and expertise of the management behind Velti.

The business also has the backing of Nicholas Negroponte, the MIT professor famed for his work as founder and chairman of the non-profit organisation One Laptop Per Child, a former board member of Motorola and a pioneer in the field of computer-aided design. Negroponte provided a start-up fund for the business, which is now worth £50m and listed on the Alternative Investment Market in London last year. He remains a non-executive director of the company alongside the former chief executive of Logica, David Mann.

Key to the company's success will be Ansible, a joint venture announced in July with Interpublic, a vast holding organisation of advertising agencies and marketing companies, including the world's largest advertising agency network, McCann Erickson Worldwide. Based in New York, Ansible will use Velti's mobile advertising and marketing technology to launch campaigns for Interpublic's companies' clients. Some of the services under development include offering free calls and texts to those users who are willing to receive advertising to their handsets. This service would be particularly useful for tapping into the youth market, where ad agencies are struggling to keep up with their audience's fast-changing media habits.

Other potential services include advertising playing while a mobile phone is inactive, and software that allows advertisers to pinpoint a user's geographical whereabouts and send appropriate alerts – be it on the nearest restaurants, clothes retailers, supermarket offers or even new releases playing at the movie theatre down the road.

Velti already has extensive experience in mobile advertising campaigns and counts Vodafone among its clients. Recently, Velti was asked to promote Vodafone Live! and the sponsored Da Vinci art show to existing and potential Vodafone clients. Velti came up with software that allowed users to enter a WAP-based contest called "Break the Da Vinci Code" in which they were prompted to answer questions on the life and work of the Italian painter. Those who answered correctly were entered into a draw to receive free tickets to the Vodafone-sponsored da Vinci show.

The ultimate goal of the software designers is to create a platform that can tailor advertising to the mobile-phone user's profile. When you consider that a mobile phone is carried on most individuals' person at all times, it becomes clear that this is a very powerful advertising tool.

Competition in the market is tough, but I believe that Velti's partnership with Interpublic gives it a leg up. As mobile software becomes more sophisticated and mobile phone handsets become increasingly integrated with bigger and higher-definition screens (the new Apple iPhone leading the way), the advertising opportunities are limitless. Velti offers investors an ideal opportunity to get a foot into this space, which has the potential to grow multifold, while it is still relatively unoccupied.

Makis Kaketsis is manager of the F&C UK Dynamic Fund.Sean O'Grady is away