World Telemedia: The Future Mobile Market, John W Strand
Last time I saw John Strand talk was at an I-mode conference in London about 3 years back. He was the guy who stood up in front of a load of mobile industry I-mode fans and gave them a right slagging, bashing lots of the figures behind DoCoMo's success and pointing out that SMS had way more success.
He's been doing this for 11 years. Confident (almost arrogant) about some of his predictions.
The shift which started in Scandinavia and moved across Europe has now reached Germany. This shift is no-frills MVNOs.
There's an assumption that ARPU increases when customers are introduced to data services. This isn't the case. 3 talk about 3G increasing spending - but is it 3G? Or new devices? Or services? Who knows?
ARPU is high in the UK because of high pricing of basic services, not high demand. Irish ARPU is higher than the UK for this reason too.
Everyone is talking about migration from voice to data, new services, new handsets, new networks... but 90-95% of operator cashflow is voice and SMS. (so 5-10% is advanced services then?)
There won't be any business selling services to operators in the future.
Operators today are good at selling phones below cost price: they subsidise handsets, pay dealers their cuts, stimulate churn... all of which costs them money. Christmas is particularly bad: the mobile industry stimulates churn, handset manufacturers make a lot of money.
So users will have multiple devices? This means multiple subsidies for devices for customers who can only use a single device at a time: so a minimal rise in ARPU. Who doubles their spending? No-one. But an operator doubles their acquisition costs (is this the whole of their acquisition cost? I doubt it)
Operators subsidise prepay phones in some markets (e.g. UK). 1.5m prepay phones have been subsidised in the UK market and moved outside of there to be sold.
Discount MVNO Telmore launched in Denmark in 1997. With 67 employees (including clerical/admin staff) they reached 13% market share: 540k customers. Orange were effectively kicked out of the Danish market, so they sold their operation. They had 1600 people in Orange Denmark at their peak, and reached only 500k customers: 11% market share. Telmore just sold SIM cards: no monthly line rental, no subsidised handsets, sold online. Simple pricing: one price any network, any time; one price text messaging any time. To compete operators had to reduce their investments and look at the industry in a different way.
Same thing happened in Finland, Norway, Sweden... now it's happening in Germany, Holland, UK, etc. (In the UK? Where? EasyMobile???)
Denmark today has 4 operators and 16 MVNOs in a market of 5.5m people. Operators used to have one brand to fit everyone (e.g. Voda, Orange, etc.)... in Denmark operators are now launching sub- and discount brands.
Vodafone sold their Swedish operation to Telenor. Vodafone were spinning this as "the Danish Disease" but there's no reason why it shouldn't spread all over Europe.
By removing subsidies, etc., Tele2 planned to reduce prices for customers. In Denmark, usage rose when pricing fell. Tele2 felt that increasing minutes of use was their future as an operator, not branding. They saw 31% growth in traffic in one year whilst Voda in the same market saw 5% growth. In the UK, minutes of use have been flat but acquisition costs have increased (and operators have been spending on portal development etc.)
Compared to time spent in front of TV, travelling, etc. mobile usage is minimal.
No-frills MVNOs will spread across Europe. Vodafone's MVNO strategy is to keep MVNOs small and allow them for specific markets. T-Mobile are very pro MVNOs - using partners to drive up traffic and drive down acquisition costs. He doesn't like "fucking Orange" very much. 3 believe themselves to be different - John Strand can't see a difference between 2.5G and 3G.
EasyMobile launched into the UK; Strand consulted to them on the launch. Fresh countered them very well. No frills will be 20-25% of the UK market in the next 2-3 years. In the UK, Orange market share and ARPU will fall; Vodafone will lose share but increase ARPU, and will concentrate on the corporate market. They will write off PAYG customers to drive up their ARPU figures. T-Mobile will increase their market share through partner selling and their ARPU will fall thanks to low ARPU of new customers. O2 will slightly increase market share and ARPU will fall.
Virgin behave like an operator, not an MVNO. They will continue to be huge. Tesco (via O2) will be interesting - making money on ongoing revenue, not on contract sales.
[ Slides on operator focus in Denmark, Germany - which I've not made notes on because my fingers are bleeding ]
Unusual MVNOs in these territories:
- PePtalk, slogan "admit your addiction", targeting 300k Dutch dope smokers!?
- Another addressing the Turkish market in Germany
- eplus MVNO: acquisition cost per customer is 10 euros, compared to normal 400-500 euros
There will be 60+ providers of mobile telecomms in Germany. It will be like electricity: you won't know or care where it comes from. This is nothing new: KTF in Korea did the same thing with 12 different sub-brands to address different markets with different supporting sites and portals. Similarly, Drama brand targeting women. So this allows operators to address different segments with different services, instead of the one size fits all male-dominated portal design we see so far.
This seems to make sense: consider segmentation by sex. Why do we expect all users to have the same portfolio of services? We don't expect them to consume the same media through other channels.
How about female sub-brands a la Kvinders.net? The folks behind this went on to launch Gaymobile.dk. They'll shortly launch FCK mobile (FCK is a big footy club in Denmark) too.
Brand strategy is changing. MVNOs, sub-brands, etc. get more common at the same time as we move towards 3G.
Operators have a brand focus, with wide appeal, and are campaign-driven. Compare this to content providers (PSMS, off-portal) focus on transactions, mass market, cost benefit, and making money from day 1. Operator content businesses are lousy by comparison. JS has yet to meet an operator whose portal is a profitable business in its own right: even in Brazil, a 187m market adding 5000 customers/hour.
If supermarkets acted like these operators, they'd have their own cows, fields, dairies, factories, etc. I don't get this analogy: operators don't create everything themselves, they outsource much of their content. Supermarkets are basically logistics and distribution and are very profitable on low margins compared to those of operators.
Telenor don't run their own portal; they outsource this to partners, who run it on a rev share basis. Operators will move back in the value chain, like supermarkets. This will stimulate the overall market.
- Walled gardens need investment in marketing platforms, services, employees. They have longer production times, fewer services, high CAPEX
- Open gardens need investment in billing, APIs, legal aid, partners. They have low CAPEX, fast production times, many services, focus on market.
PSMS is an example of the latter; operators step back, take a revenue share, and see a much larger market of services.
This all leads to fragmentation: 4 operators, 20 service providers, 200 portals
PSMS gives access to the whole customer-base. There's no alternative micropayment solution which does this, but the ease of use and widespread nature of PSMS means that even when users have the option of paying less by CC, they choose PSMS.
Streaming video: price for 10mins video is higher than that of buying a cinema ticket. It will be a significant part of 3G traffic. Data traffic should be sold to content providers at wholesale prices, and content providers factor the cost of transmission into their pricing. Customers get a single price for a piece of content: well understood.
Operators in future will not have a single portal: it's like making a newspaper that everyone wants to read. They're expensive to run and not successful. Sub-brand portals will win out instead, then segmented portals, all outsourced by operators.
The market will change in other ways; SMS is simple, but future technologies aren't: MMS, WAP billing, device diversity, etc. On devices the battle is moving from the operating system to the user interface (completely agree). Symbian market share is falling, apparently... Linux will be big here. TrollTech have more contracts with more handset vendors than Symbian, and specialise in Linux on handsets (are these the KDE/QT guys?)
Operators will try to control UIs through proprietary solutions, skin-based stuff, Flash Lite (cough widgets cough) or browser-based UIs where the underlying functionality is linked from the browser.
Businesses selling content to operators are operating in an increasingly congested market - they don't have a future. He would never invest in a wireless startup focused on operators as business case. Operators will sell network-centred services (e.g. ring-back tones, as opposed to ringtones) but not content themselves, directly.
How will Vodafone rebuild their credibility after the dip yesterday?
Question: are you saying that 3 don't make money on their music downloads?
John: so they make 75p on each download after paying licenses back. Reckons they've lost money considering marketing and operational costs. They'd planned to build a brand but are now competing not just against other traditional operators but against 20 MVNOs in some territories. 3 is trying to convince the market that they are a media company.
The future of mobile is who can get lowest pricing, because the industry is still mainly about voice and SMS.
Chris, Systematic Design: Is there much future for thin client applications on mobile phones?
John: It's important to reach as many devices as possible. An app for Symbian phones will reach 10% of handsets if you're lucky, 10% of them may use it - so your audience is 1% of everyone. What will marketing costs be for this? Higher than the money you can make. What is a thin client? SMS, MMS, browser works in all phones. The Java game market is huge - in some countries, greater than the ringtone or console game market (though at a lower price). Either target narrow segments or as many as possible; balance distribution and marketing costs vs revenue generated.
It's fascinating to hear such a contrary position. I find myself starting to agree with him when he talks about segmentation of portals and outsourcing of them.