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Advertising on mobile phones is a tiny business. Last year spending on mobile ads was $871m worldwide according to Informa Telecoms & Media, a research firm, compared with $24 billion spent on internet advertising and $450 billion spent on all advertising.

Yet the biggest selling point of mobile ads is what marketing types call “relevance”. Advertisers believe that about half of all traditional advertising does not reach the right audience. Less effort (and money) is wasted with online advertising: half of it is sold on a “pay-per-click” basis, which means advertisers pay only when consumers click on an ad. But mobile advertising through text messages is the most focused: if marketers use mobile firms’ profiles of their customers cleverly enough, they can tailor their advertisements to match each subscriber’s habits.

In September Blyk, a new mobile operator, launched a service in Britain that aims to do just that. It offers subscribers 217 free text messages and 43 free minutes of voice calls per month as long as they agree to receive six advertisements by text message every day. To sign up for the service, customers must fill out a questionnaire about their hobbies and habits. So advertisers can target their messages very precisely. “Britain is the largest, but also the trickiest European ad market, so if it works here it will work everywhere,” says Pekka Ala-Pietila, chief executive and one of the founders of Blyk.

Last year America’s Virgin Mobile tried something similar with its “Sugar Mama” programme, which offers subscribers the choice between receiving an ad via text message or viewing a 45-second advertisement when browsing the internet in exchange for one free minute of talk time. Those who spend five minutes filling out a questionnaire online get five more minutes. Sugar Mama is proving popular: at the end of August Ultramercial, the company that manages the scheme, reported that Virgin Mobile had given away more than 10m free minutes.

Vodafone, a big mobile operator based in Britain, sees mobile advertising as a potentially lucrative source of additional income. For the time being, most of the ads on its network are still text messages, although it has begun displaying ads on Vodafone live!, its mobile internet homepage, through which subscribers access the internet and download videos and music. Vodafone is also running several pilots, says Richard Saggers, the head of its mobile advertising unit, in which subscribers receive free content in exchange for viewing ads. Earlier this year, subscribers in Britain were given the option of downloading footage from “Big Brother”, a reality-TV show, in exchange for viewing a promotional video clip. The firm has also offered free video games punctuated with ads to customers in Greece, and free text messages to Czech students who agree to accept ads in the same format.

Most mobile advertising strategies now rely on text messages, since few customers have taken to more elaborate services that allow them to download music, games and videos and to surf the web. Only 12% of subscribers in America and western Europe used their mobiles to access the internet at the end of 2006. Most people think mobile screens are too small for watching TV programmes or playing games, although newer models, such as Apple’s iPhone, boast bigger and brighter screens.

That is not the only problem. While consumers are used to ads on television and radio, they consider their mobiles a more personal device. A flood of advertising might offend its audience, and thus undermine its own value. Tolerance of advertising also differs from one market to another. In the Middle East, for example, unsolicited text messages are quite common, and do not prompt many complaints. But subscribers might not prove so open-minded in Europe or America.

Another hitch, says Nicky Walton-Flynn of Informa, is that operators have lots of databases with information about their clients’ habits that would be of great interest to advertisers. But privacy laws may prevent them from sharing it. Moreover, advertisers, operators and middlemen have not agreed a common format for this information, nor worked out how to share the revenue it might yield.

Some think these obstacles will confine mobile advertising to a niche for years to come. But others see a whole new world of possibilities, as more people use their phones to access the internet and consumers grow used to the intrusion. Mobile phones, some of which are now equipped with satellite-positioning technology (see article), could be used to alert people to the charms of stores or restaurants they are walking or driving past.

Tying ads to online searches from mobile phones is another potential goldmine. A subscriber typing in “pizza” for instance, could receive ads for nearby pizza parlours along with his generic search results. Such a customer, mobile operators hope, is likely to be more grateful than annoyed by the intrusion. What could be more relevant than that?

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This rapid deflation has prompted speculation that PNDs will soon become a commodity. Naturally, both TomTom and Garmin reject the idea. They argue that navigation systems are complex beasts that require a tight integration of hardware and software to make them easy to use. This is why Garmin invests more than $150m annually in R&D, says Kevin Rauckman, the firm’s chief financial officer.

Still, most of the innovation is now occurring in supplementary services rather than in basic navigation system, argues Harold Goddijn, TomTom’s boss. That is where his firm has placed its big bets. Drivers in the Netherlands and Britain, for instance, will soon be able to subscribe to real-time traffic information that will allow their PNDs to steer around traffic jams. To provide prompter warnings of congestion, TomTom has teamed up with Vodafone, a mobile-phone carrier. It can tell how quickly cars are moving by the speed with which phones on its network switch from one transmission cell to the next.

Once PNDs can send and receive data or, conversely, mobile phones come equipped with a receiver for GPS signals, all kinds of services become possible. Users of Garmin’s products can already check fuel prices at the petrol stations that appear on their maps and screening times at cinemas. Nokia, for its part, wants to target pedestrians. One of the services the Finnish company is planning to introduce is a system to help friends find one another: if any are nearby, their names will pop up on a digital map (presumably, those wishing to avoid unwanted friends and lovers will have to disable this feature). Another offering will be geo-tagging: users of Nokia phones will be able, for instance, to write a review of restaurants that others can read as they peer through the window.

To date, digital mapmaking has not been very profitable. Nokia and TomTom both hope that they can cut costs by tapping enthusiastic subscribers to update and improve their maps. That is quite a task: every year, some detail changes on 15% of all roads, be it a new name or a change in traffic flow. Navteq alone employs 700 “geographic analysts” to keep abreast of things. TomTom recently launched a service called MapShare, which allows its users to suggest corrections to its maps. Clever software and wary editors then decide which suggestions to adopt. The firm expects lots of feedback. Even before it launched the service, it received 16,000 corrections each month, but had no effective way of dealing with them.

Yet the chief rationale for Nokia and TomTom’s purchases is strategic. Both seem to think that they need to be in control of the maps they use to keep a big share of the revenue generated by location-based services. At any rate, they want to ensure that the tools of their trade do not fall into the hands of predatory giants such as Microsoft and Google. The latter already buys maps from both Navteq and Tele Atlas and lets users annotate them, and is beginning to send out its own geographic analysts.

For now, both Nokia and TomTom are likely to stick to their promise to keep selling the same maps they use themselves to competitors such as Google. After all, neither wants to reduce the paltry profits of their new purchases by jettisoning big clients. But in the long run, the temptation to raise prices and to give their own PNDs and services privileged access to maps may prove overwhelming.

Some fear that the world may end up with a digital map monopoly, as users migrate to the provider with the most comprehensive data and then further strengthen its position by adding information of their own. Such worries have given rise to a nascent “open-map” movement. Owners of PNDs can record their wanderings, collect information about their routes and upload the data to a website called OpenStreetMap. In time, such contributions could create a detailed, free map of the world. If so, TomTom’s and Nokia’s acquisitions would look very overpriced.

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Email viruses, unknowingly unleashed by corporate users, pose the greatest threat to 39% of the surveyed SMEs, followed by internet downloads (22%), hacker attempts (10%), and malware installations (9%). Uncontrolled portable devices, such as MP3 players, USB sticks, and digital cameras, were troublesome to 7% of the respondents.

But Andre Muscat, GFI’s director of engineering warns that uncontrolled portable devices have potential to wreak more havoc on networks. “While companies are aware of, and are focused on, tackling viruses and malware, they appear to be giving sparse attention to other equally dangerous threats such us data theft and leakage from endpoints such as connected USB sticks, iPods, and PDAs on the network.”

While just 32% of SMEs suffered a network security breach in the last 12 months, 78% of the respondents indicated their company network was not very secure or just somewhat secure.

Employees who have a greater awareness of security issues would improve the level of security in their companies, according to 48% of the surveyed SMEs; and 25% said that senior management needed to become more cognizant of the potential threats. Respondents were nearly evenly split on the whether or not it was difficult to convince management to invest in security solutions. As a result, more than three-quarters of the IT leaders who were surveyed said that their budgets were not large enough to properly cover their security requirements.

But good budgetary news is on the horizon for SMEs. A study by Access Markets International (AMI) Partners, Inc. found U.S.-based SMEs will have spent about US$240 billion on improving their IT and telecom infrastructure and applications with 17% more spent on IT security in 2007 over 2006.