MOBILE PHONES and other handhelds, already undergoing a metamorphosis from communication devices to entertainment centers, will soon become moving billboards as well. The mobile advertising phenomenon-already familiar on cell phones in Japan-is just starting to appear in the U.S. Whippany's Moviate is leading the charge for advertising while other firms will help users pack their phones full of music and pictures.

Moviate launched its Shopping List application last June, enabling subscribers to Verizon Wireless Mobile Web 2.0 to create shopping lists on a mobile device or desktop computer. The moneymaking angle is that the software also provides marketers with a way of reaching consumers in the check-out line.

Here is how it works: Consumers using Moviate's application select items like toothbrushes or dish detergent from a menu on the phone's screen. Special deals from advertisers that correspond to the product will appear nearby as a link.

"Next to the toothbrush listing I can put an incentive like a coupon," says Perry Liu, the founder of the 2-year-old firm. "The user can click that to see more details like Oral-B offering a $5 discount on their new electric toothbrush. When the consumer checks out at the supermarket counter they show that coupon code to the cashier."

Outside of the U.S., particularly in Japan, many cell phones are already receiving marketing pitches including banner ads. Some users can complete purchases of advertised products through their cell phones. The items are either picked up in a store or shipped for home delivery.

Mobile advertising got its start in Japan around 2003, Liu says, and ad revenue reached $450 million last year. "The consumer clicks the link and immediately purchases the product. It is very efficient," he says. "Most of the revenue generated from advertising overseas is from portals selling digital goods through the mobile phone."

Liu believes bringing that commerce model to the U.S., where mobile users can't yet make direct purchases, will help mobile advertising take off domestically. "There is a disconnect," he says, "making advertising here inefficient."

Prior to founding Moviate, which has four employees, Liu was general manager for the mobile-business division of Japanese conglomerate Mitsui. There he developed content for mobile phones such as ring tones and games.

"I and several others saw the future with media-content holders playing a bigger role," he says. "Our target is mobile marketing and mobile commerce."

Meanwhile, "Strategic Analytics projects by 2010 there will be 796 million MP3-enabled phones in the market," says Steve Ott, CEO of CMWare in Plainsboro.

His firm is developing software that shifts MP3 music files, pictures and video files from subscribers' desktop computers to CMWare's servers, then on to the customer's cell phones. "Our initial thrust is to market our service through mobile operators where they can brand or co-brand the service and make it available to the subscribers," says Ott. CMWare plans to launch its application in June with European wireless providers.

The transformation of cell phones into personal-entertainment devices is increasing exponentially. According to a March report from American Technology Research, a technology-market research firm in Greenwich, Conn., music downloads to cell phones quadrupled in 2005 to more than 200 million songs. Further, some $40 billion was spent in 2005 on cell phones equipped to play back song files.

As users load more prized files into their cell phones, it becomes increasingly important that they can retain this music and video when switching to newer models. That's where Cellebrite USA comes in. Last week the Franklin Lakes company released its latest universal memory exchanger, the UME-36. It allows wireless providers to transfer videos, ring tones and personal MPSs from one phone to another when a customer buys a new phone.

"Customers will upgrade their phones on average every 14 months," says Adi Ofrat, CEO of Cellebrite USA.

The evolution of mobile phones as multi-use devices plays into Moviate's strategy. The company's business model for the short term is to generate revenue from its wireless-carrier clients based on users' page views in the Shopping List application. The long-term plan is to generate revenue through paid advertisements placed on Shopping List. Liu hopes the application could one day expand to allow purchases to be made directly as is common in Japan.

Meanwhile, Moviate is seeking $2 million in funding to add more software developers and a marketing staff to pitch the application to retailers.

"We are targeting profitability in the middle of 2008," says Liu.

He believes his company and mobile advertising will take off once retailers start participating. Outlets such as Wal-Mart or ShopRite could notify shoppers through cell phones about deals in their stores.

"Once we get a huge user base we can get better advertisements placed on the application," he says. "In two years our goal is to extend this shopping tool to the major retailers to create custom lists."