Sprint's prepaid cell phone business, Boost Mobile, announced this week that customers can opt to receive a $5 monthly discount in exchange for seeing ads on their smartphone lockscreens. For Sprint to break even on this scheme, they either need to charge ultra-premium rates or sell a whole lot of impressions.
Sprint makes money on its new offering by turning a consumer's smartphone lock screen into ad inventory. Each time a user unlocks his phone, Sprint has the opportunity to sell an ad impression and generate a small amount of ad revenue. Open your phone often enough, and Sprint can more than make back the $5 discount.
To make this profit math work, Sprint either needs to charge extremely high rates or sell an enormous number of impressions. For people who check their phones only a handful of times per day, Sprint needs to charge upwards of a $50 CPM. Even for people who check their phones 50 times per day, Sprint's breakeven rate is nearly $5 CPM, well above typical display ad rates.
Keep in mind that Sprint doesn't get to keep all of this ad revenue. The offering is powered by a company called Unlockd (unlockd.com), which keeps some of the ad revenue. And of course there are additional ad serving middle men who also take a cut of ad revenue
Look To The Right
The chart above makes what seems like a reasonable assumption about the number of times consumers check their phones, but it turns out to be very wrong. According to Unlockd, the average consumer checks his phone 150 times per day, and the average millennial checks his phone 200 times per day. That's a whole lot of ad inventory, and it means we need to look much further to the right on our breakeven chart.
At 150 unlocks per day, Boost can recoup its investment by monetizing inventory at a $1.11 CPM. Those 200-unlocks-per-day millennials require just an $0.83 CPM. Profitability seems well within reach.
The Cost Of User Experience
Here's the rub. Imagine having to dismiss an ad every time you want to check your mail. Or answer a phone call. Or turn off your Monday morning alarm. Imagine doing this 200 times per day, every day. Is this hassle worth a $5 coupon? Customer reviews for the Boost Dealz app suggest the value exchange doesn't quite work:
Presumably Unlockd and Boost can improve the user experience with time, but in the end, they're left with a business model that requires delivering a whole lot of interruptive ads. Kudos to both companies for testing new ground on ad economics, but this feels like a short lived experiment.