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

Rumors abound that Qualcomm has cancelled its direct to consumer Flo TV service. Before delving in to the implications of such a decision it is important to note that as of now Qualcomm’s white label service it sells to carrier partners is still intact even if it is next on the chopping block.

Qualcomm’s decision to kill its never commercially viable direct to consumer Flo TV should come as no surprise. Many of the challenges were discussed in a report published in December 2009. The service suffered a number of hurdles to adoption:

1. The cost of FLO TV dedicated hardware
2. The cost of FLO TV service
3. The linear nature of the FLO TV service

The challenge in winning consumers was not unexpected but there are important lessons that carriers can take from Qualcomm’s inability to drive market demand for mobile broadcast TV services if they in fact plan to continue offering mobile broadcast services and most of these challenges are the same as Qualcomm faced in their direct to consumer play.

1. The cost of mobile TV enabled phones. Of the 4 AT&T phones that offer mobile TV service (mostly featurephones with touchscreens) only one is free while the others range in price from $49.99 - $149.99. Compare this to the 20+ free phones available to consumers and the reasons users may opt against mobile TV enabled phones are clear. As smartphones continue to gain momentum in established markets feature phones are attractive to a more communication/cost-centric audience. Therefore an increase in hardware cost to the carrier must translate to an increased cost to the end user. Therefore the increased cost of hardware featuring mobile TV makes the devices less attractive.
2. The cost of the service. Despite carriers testing various models – such as giving away broadcast channels for free or offering free service for a few months – the price of the service remains too high for the value it offers. If in fact the type of user opting for a feature phone is not multimedia inclined even then even a nominal fee – in this case $10 which is more than nominal – could be enough to scare away potential subscribers.
3. The demand for linear TV services. This will always be an issue for Flo services and in the increasingly on-demand world full of alternative video options paid mobile linear services simply don’t make sense for users.

In countries – such as South Korea – where most phones have mobile broadcast chipsets combined with free robust services adoption can even be deemed modest successes and the revenue for content owners in such a scenario remains unclear. But it does so only because it is free. Just because Qualcomm is retreating from the direct to consumer space doesn’t necessarily mean its white label service will also be a failure. One potential albeit unlikely side effect carrier should be wary of is that Qualcomm’s content partners – recognizing the limited opportunity the market offers combined with the limited success of these services could abandon mobile TV limited the amount of content available.

This only underscores the challenges that carriers in developed regions are facing. In an era where the carrier is becoming increasingly marginalized for phone services they must decide where to invest and right now that investment in both development, marketing should be behind their own branded app stores.

Qualcomm on the other hand should decide what other services the FLO spectrum can be used for. One opportunity regularly touted was aftermarket accessories for smartphones that could receive Flo broadcasts – but that too would have inevitably failed so now Qualcomm must go back to the drawing board. After spending a reported billion dollars on FLO technology and spectrum it may be worth Qualcomm considering licensing the spectrum for some other use..

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

Amazon has announced that over the past 12 months purchases made from mobile devices generated US$1 billion in sales, representing almost 3.5% of its total net sales during that period. $1 billion is clearly a large amount of money and 3.5% not an insignificant share. Furthermore, Jeff Bezos indicated that smartphones have had a strong role in driving mobile commerce to date, which is not surprising given the larger screen size and better resolution provides an improved product browsing experience over standard phones:- "The leading mobile commerce device today is the smartphone, but we're excited by the potential of the new category of wireless tablet computers. Over time, tablet computers could become a meaningful additional driver for our business." Unfortunately, there was little further information relating to the type of products being purchased via mobile, e.g. whether or not it includes the sale of ebooks, or the % mix between digital content (e.g. MP3) versus physical goods? However, this announcement, combined with the increasing volume of web traffic generated by mobile phones, and the fact that that the global smartphone installed base is set to expand from 458 million in 2010 to 1.1 billion by 2015, has a clear implication for web retailers that are seeing increasing mobile traffic to their sites: Integrate mobile to your digital sales process, because a growing share of consumers are using their phones to buy stuff! Perhaps not surprisingly, Amazon has been ahead of the curve with respect to mobile commerce for sometime. It currently offers dedicated smartphone applications for the major smartphone platforms (Android, Blackberry, iPhone, and iPod Touch) in the US. The absence of support for Symbian is clearly a consequence of Symbian’s low penetration in the US. Amazon has also designed mobile optimised sites for smartphones and in June 2009 Amazon’s subsidiary A9.com acquired Snaptell, a company focused on image recognition and visual search technology which allows users to take photos of products and find pricing information, rather like Google’s Goggles (still Beta) and ScanBuy. Linking the image capture capability on camera phones with off-board product recognition, price comparisons and product reviews can help to convert the handset into a powerful commerce device in my opinion. Perhaps most importantly though, Amazon allows users to register their payment details to their account and to make purchases using a single click, through its 1-Click ordering system, which eliminates the inconvenience of manually entering payment details. For many web retailers adapting for mobile is not likely to be a priority yet – few will have forgotten the dotcom bubble bursting. However, I believe this announcement by Amazon provides an indication of the potential size of the missed opportunity if they do fail to address evolving consumer behaviour. 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.

Forecasting can be a tricky business. Every so often, a truly paradigm shifting event occurs that requires a wholesale re-think of how emerging markets will develop. Such is the case with Facebook Zero – a stripped down version (no pictures, videos, etc.) of the social network offered to non-data subscribers in emerging markets for free at 0.facebook.com.

It has been reported, and our newly updated draft social networking forecast (to be published in July) confirms that about half of all page views on the mobile web are social networking related. Facebook Zero should tip the balance further in favor of social networking in emerging markets.

The impact of the 50 carrier, globally supported Facebook Zero will be huge for users, carriers, and competitors.

1. Locking users in. Using its size, Facebook has been able to negotiate deals with carriers that other social networks or start-ups will not be able to rival. As individuals, their friends, and their families sign up for the free service the network effect will take hold and position Facebook as the de facto social network.

2. Reach. According to Strategy Analytics’ Global Smartphone Sales Forecast by Country: Asia Pacific & Emerging Markets and the Worldwide Cellular User Forecasts, 2010-2015, the number of mobile users in India in 2009 was 389.9m with just under 6 million smartphone owners or 1.5% of the mobile population using a smartphone. While not all these non-smartphones millions more users will have access to Facebook now than in the past expanding Facebook’s reach exponentially. And India is just one of the dozens of countries being deployed to (see chart below for the rest).

3. Advertising. A key revenue driver will be advertising. Facebook will have a sticky user that relies exclusively on its service to share personal information and location data which is necessary for targeted advertising to hundreds of millions of users in emerging markets. However, if carriers are not sharing in the revenue opportunity they risk missing out on the more than $7b in browsing revenue associated with social networking in 2010, according to the Global Mobile Social Networking Forecast 2006-2013.

4. Data Upgrades. While many users in emerging regions may not be prepared to sign up for data services yet, enticing users by showing what the mobile web offers with a stripped down version of Facebook could be a sufficient appetizer to winning their business in the future.

5. Boxes out competitors. The very hot mobile social networking space, which we have analyzed Here, Here, and Here will be owned by Facebook in emerging markets if Facebook can effectively roll out its geo-location it has touted. Facebook has just went from the 800lb gorilla in mature markets to the 2 ton gorilla

The service is also important for Facebook which has recently been banned in Pakistan and faces competition from feature phone staple – text messaging which serves as a crude social network in some emerging regions. What this means for partners – be it carriers, content owners, advertising networks, or others – is that Facebook is the partner companies will need to work with to immediately reach into emerging markets.

Mobile social networks: Loyalty, Publishing, and Revenue: Oh My! You may think that because we have ushered in the digital age there will be fundamental shifts in human behavior. You’d be wrong. Services such as Gowalla, Foursquare, Loopt, and even Yelp are finally at the tipping point of success because they tap into latent human desire. And then make acting on those desires simple. Much like the loyalty programs that offered a tenth sandwich after getting nine purchases punched on a card new social networks are offering benefits for loyalty firmly merging the physical and digital world. The aforementioned services are mobile social networks – allowing users to check-in to locations, earn badges for visiting pre-determined locales, and net loyalty rewards (such as free drinks) for particular achievements. The availability of smartphones and the opening up of mapping API’s will help these solutions succeed where other have failed. For greater insight see David MacQueen’s Insight Nokia Strides Forward in Online Location and Navigation. The most amazing part of these networks is the willingness of brick and mortar companies to participate. Becoming a Mayor (by visiting a place the most) on Foursquare and earning a free burger can only be achieved if the establishment opts in. And they are opting in. But free fare is just the beginning. In the last few weeks Foursquare has partnered with the American television network Bravo – allowing Blackberry users to earn special Bravo badges when they visit pre-determined locations, which one can assume will complement Bravo’s programming. Another Foursquare partnership with Canada’s Metro newspaper will provide location aware content from the newspaper’s nightlife section and eventually other sections as well. Finally, Foursquare most recently partnered with Zagat, allowing users to earn special Foodie badges at Zagat rated restaurants as well as offering restaurant tips. So, what does this all mean? Is it just a passing fad? In short, no. It seems like this is the new era in customer loyalty. While the social networking aspect of it remains new the ultimate goal is to drive user behavior. And open user’s wallets. While the players may change the fundamental merging of the physical and digital world is happening. Just this week OpenTable announced it had seated more than 2 million restaurateurs through its mobile applications. GyPSii is also building location based applications that offer location specific advertising such as coupons. While publishing companies will tout solutions such as the iPad as saving their businesses the truth is, services like location aware social networks could be the true path to salvation by driving consumer to spend identifiable real world dollars on real world goods.

In many ways, convergence between online and mobile is already here. For some types of content, convergence with mobile was something that just happened. Take music; as soon as phones became music players, “convergence” was already in place. Strategy Analytics’ consumer research shows 83% of Western Europeans and Americans have used their phone as a music player, with 37% using the devices as their regular portable music player (although only 6% have actually purchased music on their phone, but that’s a different story… see Can Nokia Challenge Apple's Digital Music Dominance).  For media companies and internet brands, it’s no longer about whether or not they should have a mobile presence, but rather what form that mobile presence takes. An optimized web page? An app in the App Store? A deal with an operator? These are all options, sure, but for me it’s a shame that most of the discussion around convergence is simply about making the same content available on the mobile device. Rather than focus on convergence, which is clearly the direction media markets are heading (if they haven’t already arrived, as in the case of music), I’d like to look instead at what I see as step 2 – divergence. By divergence, what do I mean? I’m talking about the unique factors of mobile; what is it that makes the mobile environment different, and how can that be used to provide a better user experience - and thus, ultimately, greater revenues? Yes, there is a smaller screen size, lower processing power, and of course a mobile experience has to be designed around these limiting factors, but there are also some strongly positive characteristics about mobile usage which can actually be used to improve the experience. One of the first things that people might expect me to talk about here is the idea of targeted advertising. However, I’m not going to go down that route – aside from the fact that you’ve almost certainly heard it all before, targeted advertising is not something that enhances the user experience. It’s simply a tool to attempt to generate slightly higher advertising revenues. I’m not talking about the content either – made for mobile content has rarely been popular, and it seems that what consumers want is traditional content. So what am I talking about? It’s the experience, not the content, which has to be “made for mobile”. An example of a media type where mobile actually adds something new is social networking. The constantly updating nature of social networks along with the “always on, always with you” nature of the mobile phone is a match made in heaven. Strategy Analytics conducted a survey of MySpace users, and found that more users accessed MySpace Mobile daily than the main MySpace.com website. With such high levels of mobile usage, it seems remarkable that the most popular social networks (MySpace and facebook) have yet to monetize this traffic. Usage patterns were quite different – sessions were shorter and tended to be limited to status updates and comments (see Mobile Social Networking - Strategies for Success ). Mobile isn’t exactly converging with online, it’s diverging – mobile will become the main use case for social networks, and the usage will be different from how it has been in the online world. To make the most of this opportunity, social networks need to think about how mobile is different, not just simply try and replicate the desktop experience on mobile. Context is another way in which mobile is very different from online. If I’m accessing a website from my desktop, I am at my desk. If I’m accessing a website from my mobile, I could be anywhere, and the place I am at matters. Taking a simple example, if I’m in town and I’m searching for a movie, I almost certainly want cinema listings close to where I am located. I’m unlikely to want to go to the movie’s own website, or the IMDB page (typically these will be the top 2 search results). Location clearly matters, and this is why both Nokia and Google have been investing so heavily in maps products. Google has a huge head-start online, as not only are Google Maps available through Google's own web properties, they are available on many other websites. This has given Google a 44% share of the local search market (comScore, July 2008). In terms of handsets, Nokia has something of a lead as it pre-installs Ovi Maps on Nokia smartphones. In just 3 years, Nokia went from being non-existent in this market to being the world’s largest manufacturer of GPS devices. The location capabilities of phones add divergence from the fixed, online world – optimizing search results for my location is one way to really enhance the user experience, but it has the potential to add all sorts of richness to other media (see Nokia Strides Forward in Online Location and Navigation and Crowd Sourcing Model to Disrupt Premium Mobile Navigation Market) Take social networking, where as I discussed earlier, mobile is already driving usage. Nokia announced a deal with facebook, and facebook users with Ovi Maps on their device can now post their location. Users can tag photographs uploaded from phones with GPS coordinates. There’s really quite a number of ways in which the mobile experience can actually add something new and I really believe that these early examples are just the tip of the iceberg. Now that people can access the same content online and on mobile (and the iPhone has proven that) we already have convergence. What is going to be exciting to watch, and where we’ll see the really exciting innovation, is actually the divergence of mobile. - David MacQueen, Director, Wireless Media Strategies

News in a nutshell:

- Co-developed Android devices which will include Google apps, and will also be open to 3rd party apps

- Devices will include Android Marketplace (App store), Google Maps, YouTube, and Google Voice (VoIP)

- 2 devices initially to be launch in next few weeks

- Did not mention who is actually making the hardware, except to say that it's not Google

- Does not necessarily impact strategy with other devices/OS, Verizon Wireless (VZW) will still have plenty of other devices/OS in portfolio

You could feel the love on the conference call between VZW and Google. I bet Microsoft is not feeling the love, however; they paid VZW $550m in guarantees to be Verizon's search partner.

With this deal, VZW has opened the door for device/OS vendors to put their own content and services on the handset, a significant shift in strategy from its previous "walled garden", VCast-only services environment for feature phones. Although VWZ has to date exerted less control over smartphones in its portfolio, e.g. its customers can buy Blackberry smartphones or a number of Windows Mobile powered devices with no restrictions to getting third-party applications and content onto those devices, it has been able to tolerate this while those devices have accounted for a relatively small volume of sales. However, with the smartphone installed base forecast set to reach 170 million in North America (47% cellular user penetration) by 2013, VZW has clearly felt the need to exert some degree of control, rather than allow vendors to run the show entirely.

It's not as simple as open versus closed, but rather that there are degrees of openness, and through this agreement Verizon has definitely opened the door further. It's like opening Pandora's box, though, and there's no shutting it again.

 

As guest speakers David Kerr and I have just returned from the the inaugural Metaplaces location based services conference in San Jose 22nd-23rd September 2009. The event was attended by companies across the LBS value-chain. Among others, content providers such as Inrix, USA Today, WCities; Digital mapping companies Tele Atlas, Navteq, Waze, Open Streetmap; LBS application publishers uLocate, Wavemarket, Loopt, Google; LBS solution vendors Openwave, Sense Networks, 1020 Placecast, and Qualcomm. Notably, there was an absence of operators and advertisers, with only US carrier MetroPCS and Publicis representing respectively. The fact that so few carriers were in attendance underlines why they are losing their position in LBS, yes pun intended sadly, and suggests that LBS remains off their list of priorities.  

The three main standouts for this event for us were:

1. Waze: We were most impressed by the social digital mapping company Waze, who proclaimed it has recently expanded its application to Symbian and Windows Mobile platforms, and has just reached a critical mass of 160,000 users in Israel. Waze offers a free turn-by-turn (TBT) navigation application based on digitized census map data. This basic map is being constantly improved by a community of users whom allow their handsets to be tracked as they drive. Further user participation involves users actively annotating details to the map (e.g. notifying Waze of new roads, new one-way signs and changes to traffic flows, etc within the application). Making the process of user feedback as pain free as possible is clearly imperative to enhance participation levels. Overall, the model relies on an appealing trade off. Firstly, the user gets a free TBT application, and their incentive to improve the map and offer information is that their free TBT application will improve further in quality. Secondly, the benefit for Waze is rather than invest billions of dollars to collect map data, a la Nokia, its community is doing so on its behalf. According to Waze 1% of cellular users per market is sufficient. Armed with an improving digital map Waze can to some extent compete with TeleAtlas and Navteq in licensing of digital map data. Everyone is a winner, and although the quality of the maps are unlikely to compete with Tele Atlas or Navteq, the success of Wikipedia underlines the potential of user or community generated content.   
2. Uncertainty around monetization: We were looking forward hearing case studies about how companies had started to use location data to make money - the tag line for the event was 'How to Monetize Location Data & Services,' so can you blame us? Despite numerous innovative ideas about how location can be used, it is clear that most players in the LBS industry are still trying to figure out what business models will prevail, and many are pinning their hopes on advertising. There's little disputing that user location data can improve ad targeting if cleverly combined with other relevant data about the consumer. However, Sense Networks claims to have gone a step further. Its analytical tools allow it to categorize cellular users into classic (and not so classic) consumer segments based on tracking their movements over the course of a few months. This solution clearly addresses the problem that carriers have collecting data about their prepaid customer bases, and kills two birds with one stone. Firstly, carriers with large prepaid subscriber bases (in markets like Italy and many emerging markets) can learn more about their customers and adjust their own service marketing accordingly. Secondly, carriers with ambitions of becoming a smart pipe are in a stronger position to provide consumer targeting information to advertisers. Oh yes, as you'd expect, discussion about privacy implications was a key feature during the entire conference.      
3. US carrier bottleneck: US operators remain a bottle neck to location based service availability. While owners of smartphones integrated with GPS are able to use the rising number of location enabled applications that are available through vendor application stores, the majority of non-smartphone users are restricted to the services the carriers make available through their portals. To provide an example of how slowly US operators are moving regional US cellular operator MetroPCS is only just about to make location look ups available to third party applications that are distributed through its portal. It is yet to consider opening up user look ups on a wholesale basis. While US operators continue to guard the location data of their customers, carriers will continue to fall behind and LBS innovation will continue without them.

While innovation continues in the LBS sector, mainly outside the carrier channel, the unanswered question remains - where is the money?