Mobile Services Business Some Challenges and Opportunities Matti Hämäläinen 8.11.2004
Outline The Emerging Mobile Services Industry: The Great Expectations - The Reality - The Awakening Market Demand for Mobile Services and Content Technology vs Users: From Technology Centric World to User Centric World Key Players in the Mobile Content Services Business Value Chain and Business Models Issues in Mobile Services Business Business Drivers and Constraints Fragmentation - The mobile world is complex and will continue to be so Some Markets to Study: Japan, Korea, China, India
The Great Expectations A typical analyst scenario in the late 90s - Thousands of bits per second 2,000 1,000 100 20 10 0 Text messaging SMS Graphics, audio Medium quality video High quality video 1998 2000 2002 2004 vs. status today? Source: Analyst X 1999 GSM GPRS 3G: UMTS
The Great Expectations Over 100 billion euro have been paid for European licenses. It has been estimated that infrastructure investments needed would be approximately additional 2 billion euro for each operator 3G spectrum auction fever was followed by a drought period in the industry and the deployment of technology and network roll-outs have been slower than expected
The Reality The technology innovations, the implemented functionality of new mobile services and the end user needs of new services seem to be out of phase Technology driven approach has not proven successful: WAP, MMS, Java Slow consumer adoption of data services outside Japan and Korea Low awareness: Consumers don t know about services Low adoption rate: Only a few of those who know are using them Repeat purchases needed: a small number of customers who use the services have been sustainable The enterprise market is still waiting to happen
The Awakening Development of simple, out-of-the-box mobile services is vital to stimulate end-user demand Slow data rates have earlier been blamed for the failure of mobile data services contrary evidence with SMS services and Japanese i-mode service attention has to be paid to the usability of the services and the user interface
Users vs. Technology: Need to Make It Easier Could potentially reach over 1 billion mobile devices users - but they first need to figure it out how to use the services! Probably 100 % of TV owners know how to choose a program they want to watch Today only a few percent of mobile phone owners can find the service and set up the application they want to use.
From Technology Centric World to User Centric World Source: User Centric & Context Aware Services, Nokia, M. Klemettinen 2003
Case: Mobile Entertainment Industry 90,000 EU Mobile Games Users 80,000 70,000 Thousands 60,000 50,000 40,000 30,000 20,000 10,000-2001 2002 2003 2004 2005 2006 ARC Group estimates that mobile entertainment services will generate over $27 billion globally by 2008. The Research Room estimates a global market of $41 billion by 2007, which comprises $16 billion in games purchase revenue and $25 billion in increased network traffic. Source: Finpro 2004
Demand for Mobile Services and Content Need to justify infrastructure investments Advanced Handset technology enables (requires) new content and services Color, cameras, connectivity, processing power Replace over time falling voice ARPU New emerging markets China, India, Latin America, Africa, But still a risky business: Operators expect fun and fancy things - and for all the handsets Content companies have to invest in advance but it has been difficult to forecast revenues
The Financial Environment Seems to be Improving Investment in mobile services and content market has again become active. Also recent successful IPOs (e.g. Jamdat) indicate the growing interest.
Business Drivers and Constraints Will people: be equipped with the necessary data-enabled device? feel the need to use mobile data services and will these applications meet their needs? be technically able to use their devices for mobile data services? be prepared to pay for these services? The mobile data killer application will probably not be a content-centric application but rather person-to-person communication application (such as e-mail, chat, SMS). This application will in turn drive the take-up of the content-based applications as users will be then better equipped (both in terms of their devices and their familiarity with technology) to use content on their mobile device. Cross-media provides possibilities in educating consumers (e.g. Pop-Idol voting) and also new revenue streams to content owners and operators Source: Andersen, 2002
Address the Critical Factors First Create awareness Enable service discovery Create transparent pricing and payment systems Make it really easy to use single click i.e. help the user to: Know that it exists - Find it - Pay for it - Use it - Renew/refresh it When the above has been achieved it will be easier to follow with services that make use of the more specific mobile services characteristics personalization context awareness in services interoperability of services enhanced security and privacy
Key Players in the Mobile Content Services Business Emerging new roles and channels Content Owners Other actors in the value web Operators Subscribers/ End Users Own the relevant IP rights/brands Own the customer/billing Relationship (subscriber base) Device Manufacturers Have controlled device capabilities until recently. Future position is open (become operator dominated)?
Value Chain and Business Models Device Manufacturers Content Owners Publishers Developers Aggregators Hosting/ Service Providers Operators Virtual Operators Portals/ Online Distributors Subscribers/ End Users Advertisers Revenue share - share the risks and success Fixed service fee guarantee minimum level, but no upside Subscription fee e.g. monthly, easy for consumers to anticipate the cost Pay-per-use as needed, but may prove to be costly to the users Pay-per-download pay once to use as long as interested but need repeat purchases? New business models needed that adequately reward all according to their role: Greed is not a business model! (A. Eränne)
Trends in Operator Roles We are starting to see stronger operator influence Japan/DoCoMo model being adopted and adapted Brand presence and active role in definition of services Megaoperators : Operators in Europe have rolled out near-tohomogenous solutions Vodafone live T-Mobile T-Zones Orange Orange World
Example: Vodafone live!
Fragmentation The mobile services (application & content) market has is very fragmented across multiple device, network and server/platform technologies. Different markets: Europe, US, China, Japan, Korea, Latin America, For example, in Scandinavia the technology basis is good but the market is small and fragmented to support mobile services companies Do the megaoperators moves help to reduce fragmentation and create de facto standards?
Fragmentation: Challenge to Scalability Example: Mobile Games 70+ handset variants (Java) to roll-out a product Fragmented development and delivery platforms User experience combines network & device very expensive to develop & certify, requires big volumes Need to facilitate the expansion of the mobile services market by providing a unified environment to enable high volumes at low incremental cost Effective service provisioning become increasingly important in addition to the network and devices; device management and OTA delivery
Some Markets to Study
Japan: NTT DoCoMo i-mode case World s most successful Mobile Internet Service with over 40 million subscribers in Japan More than 2600 companies offering services and content on over 3700 sites 90 % of users are active content browsers I-mode ecosystem: Handsets, Platform, Content partners, Content, operators marketing Proper business model and de facto standard represents approximately 21 % Docomo s ARPU -> 10 billion USD content market selection of Technologies attractive for content providers -> internet de facto standards -> HTML, HTTP, GIF, MIDI, Java, Flash Attractive business model and service design -> Monthly subscription model, open platform Understandable marketing for ordinary subscribers -> content centric marketing, not technology Source: Oesch, K., 2004
Japan: KDDI case - 3G Mobile Services over 10 million subscribers (WAP 2.0, MPEG 4, GPS) 3 G application Services, Hi Quality Nationwide Coverage, Longer Battery Life/Compact handsets Affordable Data rate Tariff expands the charged Content business BREW Application Services, Chaku-Uta Musical Ring Tone with original Artists Vocal downloading; 5 million Ezmovie MPEG-4 Video handsets, Chaku-Movie Movie Clip Ring Tone downloading (Wake up calls, sharing with friends) GPS Based Location Navigation Services, Hi-Def Maps, Walking Navigation Services Coming CDMA 2000 ixev-do Services : Downlink up to 2,4 Mbps, Offering Rich Contents up to 1,5 3 MB; TCP Video Streaming 3 GPP2 File Format; Monthly flat rate charging + e-mail 4 200 yen/ month Source: Oesch, K., 2004
Markets to Watch: China No.1 market in the world of both fixed and mobile telecommunications network Mobile subscribers overtook fixed in October 2003 6 million new mobile subscribers per month this year Opportunity: need to develop new services on top of the new infrastructure for the fast expanding subscriber base Consumers are hungry for good content quality China will make up 53 % of Asias internet users, 51 % of internet buyers and 48 % of e-commerce according to IDC Source: China Academy of Telecommunications Research, September 2004
Markets to Watch: India (AirTel example) Growth is in the mobile. Major new service types and technologies included Source: AirTel presentation, 2004
Questions?