On 1st December 2010 US ad network Millennial Media officially announced its expansion into Europe, entering into a fairly crowded mobile ad network space, which also includes Google (which acquired AdMob in 2010), Apple, Smaato, Yahoo, Microsoft, 4th Screen Advertising, Unanimis, Yoc, Sofialys, and DaDa among others. Strategy Analytics was invited to its launch presentation to hear more about its plans and ambitions. Globally, the Millennial Media mobile ad network is currently delivering 16 billion page impressions monthly, with Europe generating 2 billion (just 12.5%) of that. With Ofcom today indicating that 26%, 21% and 18% of cellular users in Italy, Spain and the UK respectively owns a smartphone, there is clearly still potential for growth in Europe, as more mobile phone owners substitute feature phones and expensive pay as you use data tariffs with smartphones tied to generous data plans. Indeed, Strategy Analytics also believes there is growth opportunity in Europe, and predicts strong growth in mobile display advertising with advertiser expenditure rising ten fold $600 million in 2010 to $6 billion 2015, as more users drive mobile web page impressions. So where does Millennial Media believe it will fit in to the existing mobile advertising market place? Well, it’s aiming to find the middle ground between premium ad networks like 4th Screen Advertising, and Orange owned Unanimis, which aim to maximise inventory return for premium publishers to get high CPMs, and blind ad networks aimed at filling large volumes of unsold inventory where its all about low CPMs and volumes (see figure above). Millennial Media does not intend to compete with the higher value mobile marketing campaigns from Blyk, Hipcricket or mobile operators like O2 Media. Personally, I’m a bit sceptical this gap really exists. So ultimately I do expect Millennial to fall into the blind ad network bucket over time. On the other hand in these tough economic times brand advertisers are increasingly looking for metrics to prove advertising ROI, in which case Millennial Media will be well positioned to grow. Either way, validating Millennial Media’s claim is something we hope to do as we continue to conduct more research into this area. Nitesh Patel

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

• it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
• it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

 

David Kerr

dkerr@strategyanalytics.com

September 23, 2010

While there has understandably been a lot of attention given to consumer apps post iPhone and the plethora of application stores that have emerged, business mobility and enterprise mobility offer huge potential from horizontal to vertical applications and from smartphones to iPads and tablets to superphones.

In both NA and W. Europe, business customers account for under 30% of users but are the dominant streams of both revenue and profits for operators. On the device side, premium priced models from RIM, Nokia, and Microsoft Mobile licensees as well as the iPhone have long been key drivers of profits in a market where low single digit margins are the norm.  The explosion of smartphone choices has led to the battle ground moving beyond the corner office, to other executive and now increasingly the midlevel manager.

With a new range of devices competing for space in the corporate market, the issue of corporate versus individual liable has become an increasing priority for IT decision makers. Add on the complexity of managing an expanding list of OS (Android, iPhone, Windows Mobile, Symbian, Palm, MeeGo, Bada from Samsung) and the growing importance of mobile portable devices with access behind the firewall and one can already feel a corporate migraine forming…. And that’s before we even discuss device management, mobility policy, device retirement etc. etc.

I am looking forward to CTIA Fall (San Francisco October 5-7) and in particular to the Enterprise Mobility Boot Camp moderated by Philippe Winthrop of the Enterprise Mobility Foundation. The boot camp spread over two days will address many of the issue listed above with our own Andy Brown featured in an analyst roundtable on October 6^th.  I look forward to meeting you there. Don’t hesitate to contact Philippe for passes to this the deep dive enterprise mobility event.

David Kerr

David Kerr
Snr. VP - Global Wireless Practice
Tel: +1 617 614 0720
Mob: +1 262 271 8974

Is there any benefit for Vodafone making its LBS software open source? I’m sure developers will love to get their hands on this code and use it to develop appealing location enhanced applications. But other than attracting developers to write compelling location services that can be distributed through Vodafone’s 360 application store, the move surely falls short of Vodafone’s initial intentions after gobbling up Wayfinder in December 2008 for $29 million. Up until this point, Vodafone had been the only carrier to have acquired a location based service application developer in an attempt to move into other parts of the LBS value-chain beyond providing user location and managing subscriber privacy. Vodafone decided to close down Wayfinder in March 2010, after Google and then Nokia launched free mobile navigation in December 2009 and February 2010 respectively, eroding Vodafone’s prospects of charging a premium for Vodafone Navigator, its turn-by-turn location application. Prior to this open source announcement, it seems likely that Vodafone would have attempted to sell the unit. However, given the shift to a free business model for navigation, I strongly suspect that interest would have been very low. Although maps will continue to work on Vodafone 360 Samsung H1 and M1 devices, its branded search application, Vodafone Locate, will be discontinued. Vodafone Locate is no longer available in the iTunes App Store or the 360 Apps Shop, nor has it been embedded in devices since Vodafone announced the intended closure of Wayfinder. Vodafone Navigation is also being phased out, with a final decision on when and how to be made. Vodafone Navigation is no longer available in the 360 Apps Shop, nor has it been embedded on any devices since Vodafone announced the intended closure of Wayfinder. Vodafone will now offer navigation through a partner, a more profitable approach to running their own navigation service, as highlighted in our report ‘Nokia & Google Shake Up $3.8 B Handset Navigation Market.’ This withdrawal by Vodaofne underlines the broader challenge that operators face in competing on services with internet giants like Google, whose business model is based on advertising and handset vendors, like Nokia, Apple and RIM that recognise the importance of delivering well integrated services in order to drive further growth in handset market share. Nitesh Patel

The great thing about sitting on an industry award judging panel is that now and again entrants provide data points or insights that we as analysts can use as assumptions or estimates. In this instance I was honoured to be sitting on the MEFFY judging panel for Technology Innovation, an award that was presented at the Meffys Gala Awards Ceremony on 21st June 2010. One entrant, a mobile ad company which shall not be named, provided stats about its interactive mobile video adverts, which made for interesting reading. Interactive video delivers the advert in a software player that can be customised and made interactive by the advertiser by adding menu options and links to websites or advertising micro portals. Client: Vehicle manufacturer Cost of campaign: €37,606 Number of impressions: 3,497,920 Click on the video: 55,735 (CTR 1.6%) Number of video advert views: 47,525 (eCPM €791) The first thing to note is that the effective CPM for interactive video, which is over €791 in this case, has some way to fall before we begin to see its widespread use and adoption by media brands. Our average CPM estimate for a mobile video ad (which is generated following discussions with mobile advertising companies) is around $7, significantly below the €791 premium for interactive video adverts. The second interesting point is that 15% of consumers that clicked to play the video advert did not watch it. We can speculate why these might be, (see below) but most of the likely problems could likely be solved if the advertising network worked alongside the operator for better device, network and user targeting: 1) The devices/lack of targeting: i.e. they didn't target the ad at people with video-capable devices, or they didn't create the video in all formats so it wouldn't play on some devices. Can operators can provide more detailed information about target handsets and restrict this failure rate? 2) The network: Failed download due to limited bandwidth or connectivity. Operators should be able to provide information to the service provider to adapt their video rate to the current capability of the network. 3) Users not on data plans: An operator could prevent the user running away screaming by zero-rating. While there is much innovation for advertising outside the carrier ecosystem, in my view operators can indeed play an important role in smoothing over any cracks and help enable a potentially lucrative mobile advertising industry for all parties. Nitesh Patel

 

 

 

The inevitable movement to tiered pricing which started with Verizon Wireless acknowledging its plans to do so for LTE and has been accelerated with the much anticipated data plan announcement by AT&T this week.  So, what next?

• Will we see significant priced based competition for mobile data among the top US operators?
• Will we see significant movement in share of adds for AT&T as iPhone wannabees are tempted by a plan of only $15?
• What impact will lower data plans for smartphones have on AT&T’s Quick Messaging Devices and Verizon Wireless equivalent?
• How long before we see family data plans and shared usage across multiple devices?

The move by AT&T is a smart play to extend the smartphone momentum as the low hanging fruit of Apple aficionados, multimedia techies and style seekers willing to pay top dollar has been significantly penetrated.

There is no doubt that the iPhone remains the coolest device on the marketplace and the end to end user experience remains easily the best in class. So, reducing the TCO to attract the next 20% of customers to a paid data plans while educating customers about data usage levels and managing the traffic risk is very smart business in my opinion.

The lower price points will help AT&T maintain its current leading share of smartphone users and may be attractive to casual social networkers

• Although the 50 photos allowance is not exactly generous! For casual messenger, and social network status checking and moderate email the new DataPlus plan is quite attractive overall and will likely attract a portion of customers who would otherwise opt for a Quick Messaging Device from AT&T or a competitive offering from Verizon Wireless.

I do expect to see some modest price competition among the big operators

• with T-Mobile most likely to drive prices lower given their need for scale and to protect their predominantly youth centric customer base. but also expect an increasingly strong Verizon Wireless handset line up to compete strongly.

The impact on Quick Messaging Devices is in my opinion likely to be modest

• as a traditional qwerty remains overwhelmingly the input of choice for heavy messengers in the US although there is definitely room for lowering the $10 mandatory data plan on featurephones

Family data plans and data plans which allow access across multiple devices are in the pipeline

• but will probably not make an appearance until 2012+ as part of LTE offerings.

From a device vendor perspective, the move to lower priced iPhone plans is likely to put further pressure on vendors like LG who have yet to make a credible offer in this space as well as RIM who will find more competition in the consumer space.

The lower pricing on data plans will be music to the ears of ambitious new entrants like Huawei, ZTE who plan to bring mass market priced devices to the US & Europe. The lower TCO of smartphones as a result of downward pressure on service prices boost their addressable market.

The industry has long talked about operators evolving into smart pipes by exposing a variety of network based assets for developers to use in their services and applications. The pressure on carriers to do so is certainly mounting. Smartphone sales are blazing and the market for mobile phone applications and browsing is going gangbusters, yet other than revenue from selling data operators are not seeing a lot of the action, particularly as app sale growth is happening through OEM stores rather than carrier portals. Take Telecom Italia just as one example:

• For the first three months of 2009 it reported a 27% drop in content revenue over the same period the previous year from €343m to €250m. This compares to 13% growth in browsing revenue from €469m to €530m.

Therefore increasingly, operators are considering how they can enter the value-chain of applications and services delivered over the top of their networks by exposing network capabilities such as their charging platforms, user location, presence, and user profile information to developers via APIs. There certainly seems to be demand for it if the Mobile Entertainment Forum’s Smart Enablers web seminars have been anything to go by. During these presentations the BBC and Yellow Pages, among other content providers, clearly stated that they hope in future to be able to access carrier information such as network latency for video streaming and user location data.

The stumbling block remains how operators commercialize these assets in a way to make it worth their while, while not employing a model that discourages the developer community. Alcatel-Lucent (ALU), a company that usually sells equipment, has come up with what it believes is a solution. Its Open API service, which will be discussed in more detail in an up coming Insight titled, Commercial Model A Stumbling Block To Alcatel-Lucent's Open API Service, proposes a revenue share model to compensate operators for sharing network based data with developers.

ALU proposes developers take between 60%-75% of application revenue, operators between 7%-10%, 3% to ALU to cover costs and the remainder to any third-party API providers such as advertising networks.

ALU claims to have already signed up some operators to Open API, but my initial thought is that at 7%-10% carrier revenue share represents a significant discount on the 30-70% operators currently receive from billing. Although I believe this type of revenue sharing agreement and API aggregation model is the way forward, the big questions are whether operators see it that way, and importantly, whether or not they are prepared to lower their lucrative 30-70% revenue share?

Nitesh Patel

 

May you live in interesting times as the old Chinese proverb goes. Well in the information, communication and entertainment industry we certainly do. Some very interesting questions face our industry whether we look at:

• the outcome of much delayed Indian 3G auction or
• the battlegrounds around HSPA+ and LTE or
• the surging Android ecosystem vs. weakening Symbian or
• the upside potential for WebOS under it new owners
• the potential disruption caused by mobile cloud phones and device

Every major technology advancement has lead to a massive disruption in the handset and infrastructure vendor community.

• In 3G, Motorola’s slim myopia led to its near ruin and has provided huge growth for Samsung and a foothold in international markets for LG and SEMC.
• On the infrastructure side 3G was expertly grasped by Huawei and ZTE leading to a new wave of M & A and a new world order which counts Nortel as a victim and seriously challenges ALU.

So how will the migration to 4G change the playing field?

• Who will benefit most on the operator/service provider side?
• Will Cloud Phones be disruptive in LTE?
• Will operators find a path to realign the traffic/revenue mix with mobile broadband devices?

I would welcome your thoughts on these key questions. Also don’t forget to join our client webinar on Thursday May 27.

 

David

Returning from CTIA in Las Vegas last week and with only 2 days before going off on vacation to Florida, I found myself reflecting that two of the most interesting meetings I had at the show were with mobile operators.

During CTIA I spent some time with AT&T emerging devices and T-Mobile M2M teams and was impressed with how both these units had managed to cut (or at least untie) the cord to the mother ship and avoid having innovation stifled by the Borg up at Corporate.

• AT&T’s efforts to encourage a broad range of new applications and devices has definitely paid dividends with Mr. Lurie and his team adding an impressive 1M users in Q409 as a result of new device categories (mostly PND and EBR).
• T-Mobile revealed a somewhat unheralded pedigree in M2M.

Partnership is the order of the day.

AT&T highlighted partner applications ranging from location enabled pet collars (Apisphere) to glow cap bottles to aid compliance with medication schedules (Vitality) to a very cool new tablet from Openpeak which is very different to the announced but apparently supply side challenged iPad.  Verizon Wireless and Sprint are of course also praying at the alter of open development but perhaps with less public presence.

When I think of enterprise mobility, AT&T and Verizon Wireless are top of mind but T-Mobile has in fact quietly been developing strong competency in the M2M space over the last 7-8 years.

T-Mobile offers four different SIM form factors to suit specific applications and have enjoyed triple digit growth for the last four years. T-Mobile US has quietly activated “hundreds” of different device types on its network with only a handful of devices being rejected or pulled due to network unfriendly characteristics. These devices span Telematics, Connected Energy, Telemedicine and several other applications.

So what is the common DNA of two very different operators that has allowed them to innovate and focus on new opportunities? Separation and operational autonomy to facilitate and open funnel approach to partners and speed of execution not normally associated with US carriers.

In the case of AT&T, the Emerging Devices group was chartered with developing a new space and freed from the legacy of voice & data consumer tariffs and prepaid/postpaid categories which just don’t cut it in the new connected reality where users will have multiple devices connected but used in very different ways. Mr. Lurie and his team have been able to streamline device certification and experiment across the spectrum of business models for new connected applications.

For T-Mobile, speed of certification (days not months) and the independence of being a self-contained unit (own engineers, own sales although linked to broader enterprise group) reporting to Finance & Strategy have allowed them to pursue their “easiest to do business with” approach to the M2M markets.

So, the takeaway? Innovation is alive and well at US operators but separation from the collective corporate mind is essential.

David Kerr

When I saw last week’s latest NFC payments trial announcement by the GSMA, I have to confess my immediate thought was - So what? Another day, another contactless payment trial.

In 2006 I estimated that by 2011 mobile would facilitate $35 billion worth of contactless transactions, which has clearly been wildly off the mark! I hold my hand up and admit that I underestimated how slowly it would take to roll out mobile contactless payments. Despite this, it remains my opinion that handset based contactless payments will eventually support billions of transactions, driven mainly by strong convenience motives. Ever decided not to bother buying a snack or a magazine at a newsagent after seeing the length of the queue? Well, contactless payments should mean faster movement of queues; less waiting and greater likelihood you will complete your transaction. Importantly for businesses it will scale down cash handling costs. Yes, there are some competing contactless instruments, like contactless cards, but why bother thumbing through several cards in your wallet when you can just whip out your phone and be on your way?

The technology implementation of contactless payments on handsets has been agreed on by operators and device vendors through the GSMA Paybuy initiative. Furthermore, facilitating contactless payment is part of the strategy of leading payment companies (banks and credit cards) like MasterCard, and Barclays. So what’s preventing full deployments? Operators are waiting for the handsets from vendors. The handset vendors are waiting to see when retailers upgrade their terminals to accommodate contactless payments. Meanwhile, merchants won’t invest in contactless technology until they see evidence of wider deployments of contactless payment instruments, so we're in a deadlock situation. To their credit (pardon the pun) banks and major credit card companies are taking the lead by distributing and marketing contactless payment cards. Over time this will lead to growing adoption of contactless infrastructure among merchants and remove one of the barriers to take off.

However, critical business model issues still need to be resolved. Operators want compensation for subsidising these new payment instruments into the market and they are in a position of control because payment applications will reside on SIM cards issued by them. Within an established ecosystem for payment accommodating an extra few mouths to feed will remain a key challenge, and an area which we intend to investigate further in up coming reports on contactless payments later this year.

Nitesh Patel