Telco apps: What works?

Introduction

Part of STL Partners’ (Re)connecting with Consumers stream, this report analyses a selection of successful mobile apps run by telcos or their subsidiaries. It explains why mobile apps will continue to play a major in the digital economy for the foreseeable future before considering the factors that have made particular telco apps successful. Most of the apps considered in the report are from Asia, primarily because operators in that world have typically been more aggressive in pursuing the digital services market than their counterparts elsewhere. Note, the list of apps analysed in this report is far from exhaustive – there are other successful telco-run apps on the market.

The ultimate goal of this report is to explain how apps can engage customers and give telcos greater traction with consumers. Although many apps are rarely used and quickly discarded, the most popular apps, such as Instagram, Spotify and YouTube, have become an integral part of the daily lives of hundreds of millions of people. Some apps, such as Uber and Google Maps, regularly provide people with services and/or information that make their lives much easier – getting a taxi or navigating through an unfamiliar city is now much easier than it used to be. Indeed, a well-designed app dedicated to a specific service can deliver both relevance and revenues.

This report builds on previous STL research, notably:

Can Netflix and Spotify make the leap to the top tier?

AI in customer services: It’s not all about chatbots

AI on the Smartphone: What telcos should do 

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Why apps matter for telcos

Telcos’ most successful digital services, notably SMS, pre-date the smartphone app era.  Even more recent triumphs, such as the M-Pesa, the ground breaking mobile money service in Kenya, were originally designed to work on feature phones.  Many similar services, such as MTN Money and Orange Money, aimed at the large numbers of people without bank accounts in Africa and developing Asia, continue to be accessed largely through text-based menus via SIM toolkit.

But the widespread adoption of smartphones in developed and developing markets alike mean that telcos everywhere need to ensure all the consumer services they offer can be accessed via well-designed and intuitive apps with graphical user interfaces. By the end of 2017, there were 4.3 billion smartphones in use worldwide, according to Ericsson’s estimates. Moreover, smartphone adoption continues to rise rapidly, particularly in Africa, India and other developing countries. Ericsson reckons the number of smartphone subscriptions will reach 7.2 billion in 2023 (see Figure 3).

Figure 3: The number of smartphones in use is rising steadily across the world

Global App take up

Source: Ericsson Mobility Report, June 2018

Subscriptions associated with smartphones now account for around 60% of all mobile phone subscriptions, according to Ericsson, which says that 85% of all mobile phones sold in the first quarter of 2018 were smartphones.

With smartphones the default handset for people in developed markets and many developing markets, apps have become a major medium for interactions between consumers and service providers across the economy. Now approximately ten years old, the so-called app economy is worth tens of billions of dollars per annum.

Although there has been a backlash, as people’s smartphones get clogged up with apps, the sector still has considerable momentum.

The most popular apps, such as Uber and Amazon Shopping, combine ease of access (straightforward authentication), with ease-of-use and ease-of-payment, enabling them to attract tens of millions of users.

With some justification, proponents contend that apps will continue to be one of the main drivers of the digital economy for the foreseeable future. The broader app economy will be worth $6.3 trillion by 2021, up from $1.3 trillion in 2016, according to App Annie. Note, those figures include in-app ads and mobile commerce, as well as the revenues generated through app stores. In other words, this is the total value of the business conducted via apps, rather than the revenue accrued by app stores and developers. This dramatic forecast assumes the ongoing shift of physical transactions to the mobile medium continues apace: App Annie expects the value of mobile commerce transactions to rise from $344 per user in 2016 to $946 by 2021.

Although most of the leading apps are free, many do generate a subscription fee or one-off sales. Annual consumer spending in app stores is set to rise 18% between 2016 and 2021 to reach $139 billion worldwide, according to specialist app analytics firm App Annie, which also forecasts the total time spent in apps will grow to 3.5 trillion hours in 2021, up from 1.6 trillion in 2016.

In reality, some of these aggressive forecasts may prove to be too bullish, as consumers begin to make greater use of messaging services and voice-activated speakers to interact with local merchants and purchase digital content and services.  Even so, it is clear that the leading mobile apps will continue to be a major consumer engagement tool for many brands and merchants well into the next decade. In some cases, such as Spotify or the fitness app Strava, the user has typically put significant effort into creating a personalised experience, helping to cement their loyalty.

In developed countries, some telcos, notably AT&T and Verizon, have belatedly and expensively acquired a major presence in the app economy by buying leading digital content producers and service providers. With the $85.4 billion acquisition of Time Warner, AT&T is now the owner of HBO Now, which was the third highest app by consumer spend in the US in 2017, according to App Annie. HBO Now also ranked fifth in Mexico and eighth in the world on this measure. Having acquired Yahoo! and AOL apps over the past few years, Verizon ranked eighth among companies in terms of downloads in the US in 2017.

The delicate transition from SIM toolkit to app

But expensive acquisitions are not the only way into the app economy. For telcos that have developed consumer services from the ground-up, the rise of the smartphone offers opportunities to provide much richer functionality and a more intuitive interface, as well cross-selling and up-selling. In Kenya, Safaricom has been expanding the mobile money transfer service M-Pesa into a much broader financial services proposition, while prodding users to switch from the SIM toolkit to the app, which can properly highlight M-Pesa’s wider proposition. At the same time, the telco has integrated M-Pesa into its customer service app, mySafaricom, helping it to promote its broader telecoms offering to frequent users of its mobile money services.

However, Safaricom is well aware that it needs to tread cautiously, continuing to cater for those customers who are comfortable with the SIM toolkit experience. Its softly-softly approach is to reassure Kenyans that they can always fall back on the SIM toolkit, if they don’t like the app.  In a Safaricom-sponsored article from August 2017, Emmanuel Chenze wrote the following on the online site, Android Kenya:

“For over a year now, Safaricom has had the mySafaricom application available on the Google Play Store for users to be able to better manage the services they receive from the telecommunications company. However, it wasn’t until March this year when the application was updated to include M-PESA.

“With M-PESA finally integrated, the over 1 million smartphone users can now take full advantage and transact even faster thanks to the app. While good ol’ SIM toolkit still works wonders and remains a good backup option when you’re not connected to the internet or when the mySafaricom app is acting up, using the application, which has since been updated to reflect Safaricom’s recent rebranding, is way better than using the otherwise cumbersome SIM toolkit.”

If they can make their apps straightforward and easily accessible, Africa’s telcos could still become major players in the app economy – as Figure 4 indicates, the number of smartphones in use in sub-Saharan Africa could double between now and 2023. That gives telcos a major opportunity to promote their apps to first-time smartphone users as they buy their new handsets. Pan-Africa operator MTN is pursuing this strategy with its MTN Game+ , Music+ and video apps (see Figure 4).

Figure 4: MTN is pushing its entertainment apps to new smartphone users

Safaricom app chart

Source: MTN interim results presentation for the six months ended June 2018

In Asia, some telcos have successfully developed widely used apps from scratch, notably in the customer care space, as explained in the next section (continued in full report).

Table of Contents

  • Executive Summary
  • Introduction
  • Why apps matter
  • The delicate transition from SIM toolkit to app
  • Telcos can build on customer care
  • My AIS – a top ten app in Thailand
  • Takeaways
  • Information apps have traction
  • Call management apps prove popular in South Korea
  • T Map in top ten apps in South Korea
  • Takeaways
  • Telcos’ entertainment apps go regional
  • PCCW’s Viu plays in sixteen markets
  • Liberty Global
  • Takeaways
  • Turkcell: Using apps to up engagement
  • Competitive in communications
  • Takeaways

Table of Figures

  • Figure 1: Alternative routes for telcos to build out their app proposition
  • Figure 2: Overview of the telco-owned apps covered in this report
  • Figure 3: The number of smartphones in use is rising steadily across the world
  • Figure 4: MTN is pushing its entertainment apps to new smartphone users
  • Figure 5: My AIS supports payments and loyalty points, as well as usage monitoring
  • Figure 6: The True iService app has a clear and straightforward graphic interface
  • Figure 7: True Digital’s app portfolio covers everything from coffee to communications
  • Figure 8: WhoWho helps user manage incoming calls on phones and wearables
  • Figure 9: SK Telecom’s T map app for public transport covers trains, buses and taxis
  • Figure 10: KKBOX Claims Strong Customer Base Among iPhone Users
  • Figure 11: Turkcell’s broad portfolio of apps covers content and communications
  • Figure 12: Turkcell’s BiP Messenger is designed to be fun
  • Figure 13: Turkcell is focused on how much time customers spend in its apps
  • Figure 14: Turkcell’s foreign subsidiaries are much smaller than its domestic operation

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Telco 2.0: The $50bn Enterprise Mobility Opportunity: What’s stopping telcos winning 500% more business?

Overview of Key Findings

STL Partners believe that mobility – the use of mobile data, new devices, new applications and communications services – is one of the most disruptive forces in today’s enterprise market. We think that a business philosophy to embrace mobility as a strategic asset and opportunity, rather than simply a technical challenge, will be a critical success factor for all businesses moving forward. Telcos can be a key enabler and business partner in this transformation, but to do so they will need to significantly change their approaches to working with enterprise customers.Key findings

Our new global research, independently produced by STL Partners and kindly sponsored by SAP, shows that many telcos are both ideally positioned but underprepared to exploit this fast emerging and evolving opportunity. We found that among the 101 global enterprise and 44 telco executives we surveyed:

  • Mobility works – 80% of enterprise execs thought their mobile app based initiatives had met or exceeded expectations
  • There’s big latent demand for telcos – 5 times as many enterprises (i.e. over half the total) would buy services and solutions from telcos than currently do
  • But telcos need to address credible capability issues such as security, product portfolio, app development, and process and industry expertise
  • And most telcos are underprepared – only 16% have a defined market offer or strategy, and internal adoption of mobility lags many other industries, with only 45% of telcos we surveyed offering internal apps compared to 61% in the enterprise sample.

Figure 1:  What would enterprises consider buying from a telco?
Figure 1: What would enterprises consider buying from a telco?

Source: STL Partners, On-line research, Enterprise >250 employees, Feb 2014(n=101)

Introduction

Background – the Business Context of Enterprise Mobility

Four major trends in demand are transforming the Enterprise Information and Communication Technology (ICT) market today:

  1. In pursuit of greater agility, new sources of revenue, improved efficiency, and closer customer relationships, enterprises are exploring opportunities to mobilise strategic aspects of their business.
  2. Enterprises are increasingly exploiting big-data, cloud, and mobile strategies to innovate and transform.
  3. To focus on their core businesses, they are outsourcing IT infrastructure and technology services.
  4. As employees increasingly use new digital technologies and services, enterprises have started to reduce spend on traditional telecoms services.

In response, telcos are looking to identify alternative ways to grow revenues from enterprise customers. This includes tools for the development, deployment, and management of enterprise apps, and managed infrastructure and technology services that offer flexibility and economies of scale.

In December 2013, STL Partners conducted a sizing study of the Enterprise Mobility market and identified a global opportunity of $50 billion (see Telco 2.0™ Executive Briefing: “The $50Bn Enterprise Mobility Opportunity: four steps for telcos to take today”).  This precipitated further exploration into:

  • Enterprises’ opportunities and priorities for mobile solutions
  • Their drivers and expectations vis-à-vis Enterprise Mobility, and their attitudes towards telcos as a prospective partner
  • The practical and perceptual inhibitors causing telcos to arrive comparatively late to the Enterprise Mobility party
  • How telcos can achieve the greatest value for their customers – and themselves – by developing or assimilating the Enterprise Mobility capabilities they lack today

New Research

In the first quarter of 2014, STL Partners carried out a combined research programme consisting of:

  • a survey of 101 enterprises worldwide (organisations with 250+ employees)
  • a quantitative study of 44 telcos
  • in-depth qualitative interviews with strategists and proposition owners representing 11 telcos

Figure 2: Enterprise customers – on-line survey respondents, per region

Figure 2: Enterprise customers - on-line survey respondents, per region

Figure 3: Telco – on-line survey respondents, per region

Figure 3: Telco - on-line survey respondents, per region

Table 1: In-depth qualitative interviews – contributing companies

Table 1: In-depth qualitative intervews - contributing companies

 

All the interviews were conducted on a confidential basis. Information and insights shared by the interviewees have therefore been anonymised.  Names and titles have also been withheld.

The findings – which suggest telcos are even further adrift of a robust Enterprise Mobility proposition than initially thought – are detailed in this report, together with recommendations on steps telcos can take to accelerate their go-to-market strategy and make up for the early momentum they have lost.

Overview – the enterprise perspective 

As demand for access to information on the go via mobile platforms is increasing, Enterprise Mobility is one of the hottest topics in IT. Mobile apps are fast becoming a business imperative to support better ways of working and business transformation. Enterprises must react quickly to harness the potential of mobile apps, while satisfying themselves that security, governance, and compliance across data, applications, and devices are fit for purpose.

Most Enterprises have started mobilising 

Our study revealed that most enterprises have already mobilised at least some of their organisation’s processes and interactions, generally starting from the inside out by prioritising internal initiatives over customer-facing ones.

Figure 4: Business processes already mobilised by enterprises

Figure 4: Business processes already mobilised by enterprises

Though we observed variations in adoption by sector and country that may indicate relevant differences (see Appendix – Industry and Regional Splits, page 48), the commonality of fundamental demand across regions and sectors is more significant.

Sales is the current lead application – but there’s more to come

Findings: field sales has always been a natural candidate area for mobilisation, borne out by the fact that more than half of enterprises in the study already had some form of sales app.  While the Shop Floor currently has experienced the lowest adoption of enterprise apps, it is also one of the areas of greatest potential for mobilisation, with 41% of enterprises contemplating mobilising their production facilities, concourse, or retail environment.  The highest levels of mobilisation or intent to mobilise were seen in Aftermarket Field Service, Transportation & Delivery, and Equipment Maintenance.

Figure 5: Internal / B2E mobile apps enterprises already have or are considering

Figure 4: Internal / B2E mobile apps enterprises already have or are considering

Opportunity: administrative apps are now a relatively mature, horizontal process market. Some telcos have had success selling these and it is an important area in which to have a compelling offering. However, such apps have lower price points and margins, whereas other sales and operational apps offer the potential for higher growth and greater business impact. Moreover, there is also potential for a new generation of intelligent sales apps to change sales performance in a more fundamental fashion.

Key Question: how can telcos best develop the agility and depth of ICT skills to sell and support both horizontal process apps and deeper vertical / operational needs?

Options: telcos have broad options to develop this internally, partner, or choose not to support these segments and their needs. See Four key enterprise mobility competencies for telcos, page 42.

In B2C: information first, marketing next

Findings: the customer-facing processes that had most typically been already mobilised were identified as Information & Reference (53%) and Paying Bills/Checking Balances (52%). The areas of greatest untapped interest in mobilisation were Social Media Sharing (33%), Marketing Offers (32%), and Scanning Barcodes/QR Codes (31%).

Figure 6: Customer-facing processes enterprises have mobilised or are planning to mobilise?

Figure 6: Customer-facing processes enterprises have mobilised or are planning to mobilise?

Opportunity: as an increasing volume of purchases are researched or made via mobile devices, traditional mobile marketing and shopping experiences in developed economies are likely to continue to evolve significantly.

Key Question: how can telcos develop and support the next generation of customer-facing mobile apps?

Options: again, telcos have broad options to develop this internally, partner, or choose not to support these segments and their needs. See Four key enterprise mobility competencies for telcos, page 42.

 

  • Executive Summary
  • Introduction
  • Overview: the enterprise perspective
  • Most Enterprises have started mobilising
  • Issues for Enterprises managing Enterprise Mobility
  • The results: 80 % of initiatives met or beat expectations
  • More than half the enterprise market would buy from telcos: 500% more than today
  • So why don’t enterprises buy from telcos now?
  • The telco perspective
  • Stages of mobile maturity among telcos
  • 70% of telco execs found EM a ‘very attractive’ opportunity
  • Telcos are not ‘drinking their own champagne’
  • Only 16% of telcos have a defined strategy or market offer
  • Enterprises want apps, but are telcos listening?
  • Shifting culture: new markets needs new mind-sets, models and metrics
  • What sort of strategy to balance speed and risk/reward?
  • Enterprise Mobility success factors
  • Four key enterprise mobility competencies for telcos
  • Should telcos partner – and what are the criteria?
  • Steps to defining the strategy for telcos
  • Appendix – Industry and Regional Splits
  • Adoption and barriers by Sector and Region

 

  • Figure 1: Enterprise customers – On-line survey respondents, per region
  • Figure 2: Telco – On-line survey respondents, per region
  • Figure 3: Business processes already mobilised by enterprises
  • Figure 4: Internal / B2E mobile apps enterprises already have or are actively considering
  • Figure 5: Customer-facing processes enterprises have mobilised or are planning to mobilise?
  • Figure 6: Capabilities enterprise employees and customers are using
  • Figure 7: BYOD – Prevalence of corporate and employee devices
  • Figure 8: Number of devices across the surveyed enterprises’ workforces 16
  • Figure 9: Top challenges and obstacles in Enterprise Mobility
  • Figure 10: How do Enterprises manage app development?
  • Figure 11: How many enterprises use platform-based applications?
  • Figure 12: Strategic mobility enablers currently in place in enterprises
  • Figure 13: Presence of a formal enterprise mobility strategy vs. number of devices across the workforce
  • Figure 14: Success of Enterprise Mobility deployment(s) to date
  • Figure 15: Success of Enterprise Mobility deployment(s) to date – per role
  • Figure 16: What would enterprises consider buying from a telco?
  • Figure 17: What would enterprises consider buying from a telco – by role
  • Figure 18: Enterprises which would consider buying from a telco or already have
  • Figure 19: Why wouldn’t enterprises buy from a telco?
  • Figure 20: Enterprise Mobility maturity stages in telcos
  • Figure 21: Telcos’ concerns about core revenue declines
  • Figure 22: How attractive an opportunity is Enterprise Mobility to telcos?
  • Figure 23: Telcos are somewhat well-informed around Enterprise Mobility trends and development in mobile applications
  • Figure 24: Types of apps currently used within telcos
  • Figure 25: Processes / workflows telcos have mobilised or plan to mobilise with apps
  • Figure 26: Maturity of telcos’ own mobility programme
  • Figure 27: Telcos’ Internal enterprise app store deployment
  • Figure 28: Mobile portfolio management
  • Figure 29: Telcos’ biggest challenges or obstacles to internal mobilisation
  • Figure 30: Products and services telcos are currently offering, or plan to offer
  • Figure 31: Comparison between services enterprises would consider buying from telcos vs. services telcos are currently offering, or plan to offer
  • Figure 32: Telcos’ target market
  • Figure 33: Telco Barriers to taking Enterprise Mobility offerings to market
  • Figure 34: A hybrid approach can enable Telcos to achieve multiple concurrent stages of mobility evolution
  • Figure 35: Potential ‘Roadmap’ decisions for telcos addressing Enterprise Mobility
  • Figure 36: Business processes already mobilised by enterprises by industry sector
  • Figure 37: Internal mobile apps the utilities sector already have or are actively considering
  • Figure 38: Enterprise device landscape
  • Figure 39: Enterprise device landscape by region
  • Figure 40: Top THREE biggest challenges and obstacles in Enterprise Mobility by region
  • Figure 41: Enterprise mobile apps development / acquisition – per region
  • Figure 42: Enterprise mobile apps development / acquisition per industry
  • Figure 43: Platform-based applications per region
  • Figure 44: Enterprise app store penetration
  • Figure 45: Reasons Enterprises would not consider obtaining Enterprise Mobility services from a telecoms provider – per region
  • Figure 46: Reasons Enterprises would not consider obtaining Enterprise Mobility services from a telecoms provider – per industry

Facebook + WhatsApp + Voice: So What?

Introduction

In 2010, we predicted in our analysis Facebook: Moving into Telco Space? that Facebook would inevitably decide to move further into the communications space in order to sustain and grow its valuation. In 2011 we published a major strategy report “Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon”, which charted the complex and inter-related battles and relationships between the main internet giants of the western world. It showed how they’re disrupting numerous fields, including communications, commerce, marketing – and not least each other.

In 2014 we’re launching an extension of this research into an ongoing stream of analysis on the key players to help strategists and senior decision makers navigate these complex waters. As a precursor, Facebook’s acquisition of WhatsApp shows further aspects of, and lessons from this ongoing disruption.

Market Context: two ‘killer apps’

Facebook: constantly chasing the audience

Facebook has already had to re-engineer its business model since the traumatic (and predicted) flop of the IPO. Users flocked away to mobile, and Facebook had to redesign its primary user experience in order to cope. At the same time, the advertisers who are Facebook’s real customers lost interest in the brand-building display pages that were its key advertising product.

Facebook chased the audience, developing new advertising products to fit into the context of a mobile user experience. It worked: post-IPO Facebook has succeeded in getting revenue from its mobile advertising, so much so that it made $523m in net profits on revenue of $2.6bn in Q4. But it’s worth remembering that this represents Facebook concentrating on one very specific niche business: mobile apps discovery.

In the last quarter, 53 per cent[1] of Facebook’s revenue, over $1bn, came from mobile ads. Mobile app downloads are becoming a very important segment of this. As Mark Zuckerberg said in the Q4 earnings call:

We’re finding that people also really want to buy a lot of app install ads, and that’s grown incredibly quickly and is one of the best parts of the ad work that we did over the last year

 

Sheryl Sandberg reiterated it later:

We are very excited about the mobile app space in general. If you look at our mobile app installation ads, we’ve really done a great job working with developers to help users discover and download their apps.

 

This is because app developers can expect to pay as little as $2 in advertising costs[2] for each install.

This is a significant change in the model. In Figure 1, the chart below, note especially that the mobile ads line of business starts immediately after the IPO in June, 2012, when ads in the News Feed were introduced, and accelerates further in early 2013, when mobile app ads were introduced.

Figure 1: Facebook’s rapidly growing mobile revenues
Facebook’s rapidly growing mobile revenues March 2014

This implies that revenue equivalent to roughly a quarter of app sales[1] through Apple’s iTunes App Store is going to Facebook just for ads, and much of it is advertising for apps. How long will Apple, whose app store it is, or Google, fundamentally an advertising business, put up with that before they launch something that competes?

The problem is summed up quite simply here:

“This exposes the strategic fallacy behind Facebook, which was the idea that there was going to be a monopoly on the social graph, and that Facebook was going to own it,” said Keith Rabois, a partner at venture capital firm Khosla Ventures. “That’s not true, and I don’t believe Facebook will constantly be able to buy its way out of this structural challenge.”

This pattern has been visible for a while. Rather than big multi-functional platforms, suddenly it seemed that leaner, focused, task-specific apps were in demand, notably Instagram, Snapchat, ask.fm, and Vine. It should come as no surprise that Unix-based iOS and Linux-based Android both seem to encourage app developers to do “one thing well” in the classic tradition of the core Unix/Linux utilities, with the unifying platform being the OS itself. So Facebook chased its audience again, buying Instagram.

Meanwhile, users sought out a new generation of mobile instant-messaging apps, which saw astonishingly fast growth and shocked the carrier industry with the hit to their SMS revenues. And Facebook has chased the audience again, with the WhatsApp acquisition.

WhatsApp: disrupting by doing one thing really well

WhatsApp’s user-base acceleration has been outstanding, as shown in Figure 2.

Figure 2: WhatsApp User Growth
WhatsApp User Growth March 2014

Source: Facebook

Its usage stats are equally impressive (Figure 3), as are the comparisons between WhatsApp’s and Facebook’s user engagement (Figure 4)

Figure 3: Average monthly minutes of use by market

Average monthly minutes of use by market March 2014

Source Mobidia May 2013

Figure 4: Average user screen time Facebook vs. WhatsApp (per month)
Average user screen time Facebook vs. WhatsApp (per month) March 2014

Source: Mobidia Q4 2012

WhatsApp is nothing if not a lean, focused, task-specific app that does one thing well. Its USP could be summarised as “instant messaging done right”. Its business model is simplicity itself, asking users for a dollar a year, rather than seeking advertisers or volume-billing. The simplicity, as with most simplicity, is founded on engineering excellence – WhatsApp holds the record for the most concurrent TCP sockets, 2 million, on a FreeBSD Unix server. It’s because they spent the time and money developing their highly customised fork of the open-source ejabberd XMPP server that they kept costs down to the level where their business model made sense. (There is much more information on WhatsApp technology in this High Scalability post.)

Across Europe, WhatsApp and the proliferation of other IM apps has dragged SMS pricing down until it has become a bundled, unlimited service. Vodafone, for example, bundles unlimited messaging with 1GB of data at its €29 price point.

While its appeal is not all about price, WhatsApp and other Over The Top (OTT) messaging apps capitalise on high priced markets, with much higher adoption in the markets with higher priced that we analysed in our recent Future Value of Voice and Messaging report (see Figure 5 below).

Figure 5: SMS Price vs. penetration of Top OSP Messaging Apps

SMS Price vs. penetration of Top OSP Messaging Apps March 2014

Source: Onavo, Ofcom, CMT, BNETZA, TIA, KCC, Telco accounts, STL Partners

But, as we point out in the report, price is only part of the story. Price drove the acquisition of customers, but quality retained them. WhatsApp offers a searchable, conversation-based chat history and a one-tap voice messaging function; it remains shocking to this day that it took Apple to show SMS messages as threaded conversations like e-mail.

 

  • Executive Summary
  • Analysis: one plus one equals…?
  • $19bn: a lot of money …or is it really?
  • Two Fundamentally Different Social Models
  • What does Facebook want to do with WhatsApp?
  • Conclusions: disruptors of the world, unite…
  • Facebook, the hub for social apps that scale?
  • Telcos: victory is empty but there are lessons in defeat
  • So what for the rest of the digital ecosystem?
  • STL Partners and the Telco 2.0™ Initiative

 

  • Figure 1: Facebook’s rapidly growing mobile revenues
  • Figure 2: WhatsApp User Growth
  • Figure 3: Average monthly minutes of use by market
  • Figure 4: Average user screen time Facebook vs. WhatsApp  (per month)
  • Figure 5: SMS Price vs. penetration of Top OSP Messaging Apps
  • Figure 6: Facebook’s share price March 2013 – February 2014
  • Figure 7: AT&T, Vodafone and Telefonica share prices Vs. Facebook
  • Figure 8: Voice and Messaging revenue scenarios

Telco 2.0: The $50bn Enterprise Mobility Opportunity: four steps for telcos to take today

Executive Summary

In pursuit of agility, efficiency, new revenue sources and closer customer relationships, enterprises are turning to mobility to transform the way employees work with engaging mobile apps that harness device-specific functions and capabilities. These apps generally need to connect to and exchange data with back-office systems, many of which pre-date the mobile era. As a result, organisations are looking to partners to provide the tools, technologies and skills to customise and develop apps, do the heavy lifting of deployment and lifecycle management, and accelerate business value. STL Partners estimates the value of this opportunity to be around $50 billion worldwide.

As enterprises reduce spend on traditional telecom services, telcos have a timely opening to take an enterprise mobility proposition to market. However, to date, deployments have been niche and opportunistic rather than part of a long-term strategy. STL Partners has identified a four-step structured approach that telcos can embark on today, and gain competence and confidence as they move up the enterprise mobility stack to higher value offerings. The four levels of evolution involve:

  • Level 1 – mobilising their own operations and internal processes
  • Level 2 – offering a managed environment to enterprises for their apps, whether on premise or in the cloud
  • Level 3 – providing hosted mobility together with off-the-shelf enterprise apps, with the option to add “last mile” customisation to the enterprise’s specific requirements and provide an enterprise app store
  • Level 4 – providing hosted mobility and developing bespoke, highly differentiated apps that solve customers’ unique business challenges

However, building out these capabilities will require substantial commitment and investment – not only in platforms and tools but also in people, via a transfusion of talent from related industries.

What next?

The purpose of this paper is to stimulate telcos’ thinking around the development of a structured, short-term approach to enterprise mobility opportunities that can be transitioned to a more sustainable, higher-yield strategy.

Having highlighted the stark choices available, STL Partners are inviting telcos to participate in a research study which will delve deeper into telcos’ appetite for, and the practical considerations of, establishing a foothold in the enterprise mobility market. Among the big questions for exploration will be:

  • Why are telcos arriving relatively late to the enterprise mobility party?
  • What do they need to keep pace with enterprise mobility trends?
  • What successes have telcos achieved to date – but at what cost and effort, and what could be done differently or better to create a repeatable framework and reusable approach?
  • What are the shortest, most effective routes into specific markets and segments and what use cases should telcos be targeting?
  • What are the barriers to success in the app market and how can they be overcome?
  • Where, along the four-stage evolution, do telcos want to end up and why?
  • What can and should mobility vendors be doing to support telcos’ efforts to commercialise their enterprise mobility propositions?

Our forthcoming paper will reveal the findings and outline the “recipe” for advancing through each of the four levels of enterprise mobility maturity.

 

  • Joining the enterprise mobility revolution
  • The enterprise opportunity
  • The telco opportunity
  • Level 1 – ‘Drink your own Champagne’
  • Level 2 – Offer a managed environment for enterprise apps
  • Level 3 – Provide hosted mobility plus off-the-shelf apps
  • Level 4 – Hosted mobility plus development of proprietary enterprise apps
  • Barriers and inhibitors
  • What next?
  • About SAP
  • About STL Partners

 

  • Figure 1 – The enterprise mobility framework
  • Figure 2 – The four levels of enterprise mobility evolution
  • Figure 3 – Key opportunities for internal applications of mobility
  • Figure 4 – Example Use Cases of Off-the-shelf enterprise apps

Telco Opportunities in the ‘New Mobile Web’?

Summary: The transformed mobile web experience, brought about by the adoption of a range of new technologies, is creating a new arena for operators seeking to (re)build their role in the digital marketplace. Operators are potentially well-placed to succeed in this space; they have the requisite assets and capabilities and the desire to grow their digital businesses. This report examines the findings of interviews and a survey conducted amongst key industry players, supplemented by STL Partners’ research and analysis, with the objective of determining the opportunities for operators in the New Mobile Web and the strategies they can implement in order to succeed. (September 2013, Foundation 2.0, Executive Briefing Service.) Operator Opportunities in the “New Mobile Web”

This report explores new opportunities for telecom operators (telcos) in Digital, facilitated by the emergence of the “New Mobile Web”. The New Mobile Web is a term we have used to describe the transformed mobile Web experience achieved through advances in technology; HTLM5, faster, cheaper (4G) connectivity, better mobile devices. This paper argues that the New Mobile Web will lead to a shift away from native (Apple & Android) app ecosystems to browser-based consumption of media and services. This shift will create new opportunities for operators seeking to re(build) their digital presence.

STL Partners has undertaken research in this domain through interviews and surveys with operators and other key players in the market. In this report, we present our findings and analysis, as well as providing recommendations for operators.

The New Mobile Web

The emergence of the New Mobile Web is creating a new arena for operators seeking to (re)build their role in the digital marketplace. Many telecoms operators (telcos) are looking to build big “digital” businesses to offset the forecasted decline in their core voice and messaging businesses over the next 5-7 years. Growth in data services and revenues will only partly offset these declines.

In general, despite a lot of effort and noise, telcos have been marginalised from the explosion in mobile Apps and Content, except insofar as it has helped them upgrade customers to smartphones and data-plans. Most notably, there has been a shift in market influence to Google & Apple, and spiralling traffic and signalling loads from easy-to-use interactive apps on smartphones.

Technical developments, including the adoption of HTML5, better mobile devices and faster networks, are transforming the user experience on mobile devices thereby creating a “New Mobile Web”. This New Mobile Web extends beyond “pages”, to content that looks and behaves more like “apps”. By having such “Web-apps” that work across different operating systems and devices – not just phones, but also PCs, TVs and more – the Web may be able to wrest back its role and influence in mobile Apps and Content.

The Key Opportunities for Operators

This new digital arena is in turn creating new opportunities to support others; STL’s research found that respondents felt the key opportunities for operators in the New Mobile Web were around: Monetisation, Discovery, Distribution and Loyalty.

Figure 1 – Operators see the New Mobile Web creating most value around Payments, Monetisation and Loyalty
Operators see the New Mobile Web Creating most value

Telcos can leverage their assets

Telcos have the requisite assets and capabilities to succeed in this area; they are strong candidates for assisting in monetisation, discovery, distribution and loyalty, especially if they can link in their other capabilities such as billing and customer-knowledge.

This report sets out some of the existing activities and assets that operators should seek to exploit and expand in pursuing their ambitions in the New Mobile Web:

Strategic Options for telcos to succeed

Operators that are aiming to become ‘digital players’ need to adopt coherent strategies that exploit and build on their assets and capabilities. This report identifies 5 broad strategic options that operators should look to pursue and it sets out the rationale for each. These strategies are not necessarily mutually exclusive and can be combined to develop clear direction and focus across the organisation.

Seizing the opportunity

Although many operators believe that they urgently need to build strong digital businesses, most are struggling to do so. Telcos are not going to get too many chances to re-engage with customers and carve-out a bigger role for themselves in the digital economy. If it fulfils its promise, the New Mobile Web will disrupt the incumbent mobile Apps and Content value networks. This disruption will provide new opportunities for operators.

The operator community needs to participate in shaping the New Mobile Web and its key enabling technologies. Telcos also need to understand the implications of these technologies at a strategic level – not just something that the Web techies get excited about.

If telcos are not deeply involved – from board level downwards – they risk being overtaken by events, once again. Continued marginalisation from the digital economy will leave operators with the prospect of facing a grim future of endless cost-cutting, commoditisation and consolidation. This should not be inevitable.

Report Contents

  • Preface
  • Executive Summary
  • Introduction to the New Mobile Web
  • Meeting Operators’ strategic goals
  • Key opportunities in the New Mobile Web
  • Operators have plenty of existing assets and could add more
  • Case Studies
  • Telco Strategies in the New Mobile Web
  • Appendix 1: The New Mobile Web – “Rebalancing” from “Native”

Table of Figures

  • Figure 1: On-line survey respondents
  • Figure 2: Key opportunities in the New Mobile Web.  Enabling…
  • Figure 3: Areas of Value for Operators
  • Figure 4: Telco assets that should be used to address the opportunity
  • Figure 5:  Operator Strategies
  • Figure 6: Drivers of the New Mobile Web
  • Figure 7: Data growth alone will not fill the gap in declining Voice and Messaging Revenue
  • Figure 8: Survey results on operator ambitions
  • Figure 9: Asian and MEA operators are the most ambitious
  • Figure 10: Telcos in native app dominated geographies are more likely to believe that their ambitions could not be met in the current world. However, as stated above, there are notable exceptions…
  • Figure 11: Key opportunities in the New Mobile Web.  Enabling…
  • Figure 12: Operators see the New Mobile Web creating most value around Payments, Monetisation and Loyalty
  • Figure 13: A vast display ecosystem enables Web content providers to indirectly monetise their content
  • Figure 14: Within Digital, operators see most value in Self-care, Mobile Payments and Banking, Video and Music
  • Figure 15: Existing operator assets to build a role in the New Mobile Web
  • Figure 16: iRadio Overview
  • Figure 17: Tapjoy Overview
  • Figure 18: Mozilla Firefox OS Overview
  • Figure 19: Globe Telecom promotion
  • Figure 20: Financial Times Overview
  • Figure 21: AppsFuel Overview
  • Figure 22: Summary of the 5 Broad Strategies
  • Figure 23: Percentage of (US) smartphone and tablet users’ time by application area
  • Figure 24: The industry is beginning to see a “re-birth of the Web”
  • Figure 25: HTML5 seeks to bring the best of both Web and app worlds:
  • Figure 26: Telcos see most HTML5 value in reducing the cost of service & maintenance and improving the time to market.
  • Figure 27: The Industry sees the dominance of existing ecosystems as the biggest barrier to HTML5’s success

HTML5: market impact and telco strategies

Content

  • The web vs. the app: a shifting battlefield
  • The run-anywhere utopia
  • Hybrid web+native apps
  • HTML5 appstores
  • HTML5, consumer electronics & PCs
  • HTML5 & mobile phones
  • Not all HTML5 devices are created equal
  • The Internet (not-telco) actors in HTML5
  • W3C
  • Mozilla
  • Google
  • Telco initiatives around HTML5
  • WAC (Wholesale Application Community)
  • Former OMTP BONDI
  • Boot to Gecko
  • Risks and threats
  • HTTPS and SPDY: secure but opaque
  • Why WebRTC is transformative
  • A new generation of competitors in apps?
  • Innovative threat example – HTML5 tethering
  • Impact of HTML5 on mobile networks
  • Conclusion & recommendations
  • Recommendations
  • The Telco 2.0™ Initiative

Figures

  • Figure 1 – HTML5 standards scope & status
  • Figure 2 – HTML5 vs. native apps vs. hybrids
  • Figure 3 – HTML5 pro’s and con’s
  • Figure 4 – HTML5 remains fragmented in implementation
  • Figure 5 – Browsers remain imperfect for HTLM5 but are improving fast
  • Figure 6 – Google Chrome is a major catalyst for HTML5
  • Figure 7 – Operator involvement in HTML5 is centred on WAC

Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon (Updated Extract)

Executive Summary (Extract)

This report analyses the strategies behind the success of Amazon, Apple, Facebook, Google and Skype, before going on to consider the key risks they face and how telcos and their partners should deal with these highly-disruptive Internet giants.

As the global economy increasingly goes digital, these five companies are using the Internet to create global brands with much broader followings than those of the traditional telecoms elite, such as Vodafone, AT&T and Nokia. However, the five have markedly different business models that offer important insights into how to create world-beating companies in the digital economy:

  • Amazon: Amazon’s business-to-business Marketplace and Cloud offerings are text-book examples of how to repurpose assets and infrastructure developed to serve consumers to open up new upstream markets. As the digital economy goes mobile, Amazon’s highly-efficient two-sided commerce platform is enabling it to compete effectively with rivals that control the leading smartphone and tablet platforms – Apple and Google.
  • Apple: Apple has demonstrated that, with enough vision and staying power, an individual company can single-handedly build an entire ecosystem. By combining intuitive and very desirable products, with a highly-standardised platform for software developers, Apple has managed to create an overall customer experience that is significantly better than that offered by more open ecosystems. But Apple’s strategy depends heavily on it continuing to produce the very best devices on the market, which will be difficult to sustain over the long-term.
  • Facebook: A compelling example of how to build a business on network effects. It took Facebook four years of hard work to reach a tipping point of 100 million users, but the social networking service has been growing easily and rapidly ever since. Facebook has the potential to attract 1.4 billion users worldwide, but only if it continues to sidestep rising privacy concerns, consumer fatigue or a sudden shift to a more fashionable service.
  • Google: The search giant’s virtuous circle keeps on spinning to great effect – Google develops scores of free, and often-compelling, Internet services, software platforms and apps, which attract consumers and advertisers, enabling it to create yet more free services. But Google’s acquisition of Motorola Mobility risks destabilising the Android ecosystem on which a big chunk of its future growth depends.
  • Skype: Like Facebook and Google, Skype sought users first and revenues second. By creating a low-cost, yet feature-rich, product, Skype has attracted more than 660 million users and created sufficient strategic value to persuade Microsoft to hand over $8.5bn. Skype’s share of telephony traffic is rising inexorably, but Google and Apple may go to great lengths to prevent a Microsoft asset gaining a dominant position in peer-to-peer communications.

The strategic challenge

There is a clear and growing risk that consumers’ fixation on the products and services provided by the five leading disruptors could leave telcos providing commoditised connectivity and struggling to make a respectable return on their massive investment in network infrastructure and spectrum.

In developed countries, telcos’ longstanding cash-cows – mobile voice calls and SMS – are already being undermined by Internet-based alternatives offered by Skype, Google, Facebook and others. Competition from these services could see telcos lose as much as one third of their messaging and voice revenues within five years (see Figure 1) based on projections from our global survey, carried out in September 2011.

Figure 1 – The potential combined impact of the disruptors on telcos’ core services

Impact of Google, Apple, Facebook, Microsoft/Skype, Amaxon on telco services

Source: Telco 2.0 online survey, September 2011, 301 respondents

Moreover, most individual telcos lack the scale and the software savvy to compete effectively in other key emerging mobile Internet segments, such as local search, location-based services, digital content, apps distribution/retailing and social-networking.

The challenge for telecoms and media companies is to figure out how to deal with the Internet giants in a strategic manner that both protects their core revenues and enables them to expand into new markets. Realistically, that means a complex, and sometimes nuanced, co-opetition strategy, which we characterise as the “Great Game”.

In Figure 3 below, we’ve mapped the players’ roles and objectives against the markets they operate in, giving an indication of the potential market revenue at stake, and telcos’ generic strategies.

Figure 3- The Great Game – Positions, Roles and Strategies

The Great Game - Telcos, Amazon, Apple, Google, Facebook, Skype/Microsoft

Our in-depth analysis, presented in this report, describes the ‘Great Game’ and the strategies that we recommend telcos and others can adopt in summary and in detail. [END OF FIRST EXTRACT]

Report contents

  • Executive Summary [5 pages – including partial extract above]
  • Key Recommendations for telcos and others [20 pages]
  • Introduction [10 pages – including further extract below]


The report then contains c.50 page sections with detailed analysis of objectives, business model, strategy, and options for co-opetition for:

  • Google
  • Apple
  • Facebook
  • Microsoft/Skype
  • Amazon

Followed by:

  • Conclusions and recommendations [10 pages]
  • Index

The report includes 124 charts and tables.

The rest of this page comprises an extract from the report’s introduction, covering the ‘new world order’, investor views, the impact of disruptors on telcos, and how telcos are currently fighting back (including pricing, RCS and WAC), and further details of the report’s contents. 

 

Introduction

The new world order

The onward march of the Internet into daily life, aided and abetted by the phenomenal demand for smartphones since the launch of the first iPhone in 2007, has created a new world order in the telecoms, media and technology (TMT) industry.

Apple, Google and Facebook are making their way to the top of that order, pushing aside some of the world’s biggest telcos, equipment makers and media companies. This trio, together with Amazon and Skype (soon to be a unit of Microsoft), are fundamentally changing consumers’ behaviour and dismantling longstanding TMT value chains, while opening up new markets and building new ecosystems.

Supported by hundreds of thousands of software developers, Apple, Google and Facebook’s platforms are fuelling innovation in consumer and, increasingly, business services on both the fixed and mobile Internet. Amazon has set the benchmark for online retailing and cloud computing services, while Skype is reinventing telephony, using IP technology to provide compelling new functionality and features, as well as low-cost calls.

On their current trajectory, these five companies are set to suck much of the value out of the telecoms services market, substituting relatively expensive and traditional voice and messaging services with low-cost, feature-rich alternatives and leaving telcos simply providing data connectivity. At the same time, Apple, Amazon, Google and Facebook have become major conduits for software applications, games, music and other digital content, rewriting the rules of engagement for the media industry.

In a Telco2.0 online survey of industry executives conducted in September 2011, respondents said they expect Apple, Google, Facebook and Skype together to have a major impact on telcos’ voice and messaging revenues in the next three to five years . Although these declines will be partially compensated for by rising revenues from mobile data services, the respondents in the survey anticipate that telcos will see a major rise in data carriage costs (see Figure 1 – The potential combined impact of the disruptors on telcos’ core services).

In essence, we consider Amazon, Apple, Facebook, Google and Skype-Microsoft to be the most disruptive players in the TMT ecosystem right now and, to keep this report manageable, we have focused on these five giants. Still, we acknowledge that other companies, such as RIM, Twitter and Baidu, are also shaping consumers’ online behaviour and we will cover these players in more depth in future research.

The Internet is, of course, evolving rapidly and we fully expect new disruptors to emerge, taking advantage of the so-called Social, Local, Mobile (SoLoMo) forces, sweeping through the TMT landscape. At the same time, the big five will surely disrupt each other. Google is increasingly in head-to-head competition with Facebook, as well as Microsoft, in the online advertising market, while squaring up to Apple and Microsoft in the smartphone platform segment. In the digital entertainment space, Amazon and Google are trying to challenge Apple’s supremacy, while also attacking the cloud services market.

Investor trust

Unlike telcos, the disruptors are generally growing quickly and are under little, or no, pressure from shareholders to pay dividends. That means they can accumulate large war chests and reinvest their profits in new staff, R&D, more data centres and acquisitions without any major constraints. Investors’ confidence and trust enables the disruptors to spend money freely, keep innovating and outflank dividend-paying telcos, media companies and telecoms equipment suppliers.

By contrast, investors generally don’t expect telcos to reinvest all their profits in their businesses, as they don’t believe telcos can earn a sufficiently high return on capital. Figure 16 shows the dividend yields of the leading telcos (marked in blue). Of the disruptors, only Microsoft (marked in green) pays a dividend to shareholders.

Figure 16: Investors expect dividends, not growth, from telcos

Figure 1 Chart Google Apple Facebook Microsoft Skype Amazon Sep 2011 Telco 2.0

Source: Google Finance 2/9/2011

The top telcos’ turnover and net income is comparable, or superior, to that of the leading disruptors, but this isn’t reflected in their respective market capitalisations. AT&T’s turnover is approximately four times that of Google and its net income twice as great, yet their market cap is similar. Even accounting for their different capital structures, investors clearly expect Google to grow much faster than AT&T and syphon off more of the value in the TMT sector.

More broadly, the disparity in the market value between the leading disruptors and the leading telcos’ market capitalisations suggest that investors expect Apple, Microsoft and Google’s revenues and profits to keep rising, while they believe telcos’ will be stable or go into decline. Figure 17 shows how the market capitalisation of the disruptors (marked in green) compares with that of the most valuable telcos (marked in blue) at the beginning of September 2011.

Figure 17: Investors value the disruptors highly

Figure 2 Chart Google Apple Facebook Microsoft Skype Amazon Market Capitalisation Sep 2011 Telco 2.0

Source: Google Finance 2/9/2011 (Facebook valued at Facebook $66bn based on IPG sale in August 2011)

Impact of disruptors on telcos

It has taken longer than many commentators expected, but Internet-based messaging and social networking services are finally eroding telcos’ SMS revenues in developed markets. KPN, for example, has admitted that smartphones, equipped with data communications apps (and Whatsapp in particular), are impacting its voice and SMS revenues in its consumer wireless business in its home market of The Netherlands (see Figure 18). Reporting its Q2 2011 results, KPN said that changing consumer behaviour cut its consumer wireless service revenues in Holland by 2% year-on-year.

Figure 18: KPN reveals falling SMS usage

Figure 3 Chart Google Apple Facebook Microsoft Skype Amazon KPN Trends Sep 2011 Telco 2.0

Source: KPN Q2 results

In the second quarter, Vodafone also reported a fall in messaging revenue in Spain and southern Africa, while Orange saw its average revenue per user from data and SMS services fall in Poland.

How telcos are fighting back

Big bundles

Carefully-designed bundles are the most common tactic telcos are using to try and protect their voice and messaging business. Most postpaid monthly contracts now come with hundreds of SMS messages and voice minutes, along with a limited volume of data, bundled into the overall tariff package. This mix encourages consumers to keep using the telcos’ voice and SMS services, which they are paying for anyway, rather than having Skype or another VOIP service soak up their precious data allowance.

To further deter usage of VOIP services, KPN and some other telcos are also creating tiered data tariffs offering different throughput speeds. The lower-priced tariffs tend to have slow uplink speeds, making them unsuitable for VOIP (see Figure 19 below). If consumers want to use VOIP, they will need to purchase a higher-priced data tariff, earning the telco back the lost voice revenue.

Figure 19: How KPN is trying to defend its revenues

Figure 4 Chart Google Apple Facebook Microsoft Skype Amazon KPN Defence Sep 2011 Telco 2.0

Source: KPN’s Q2 results presentation

Of course, such tactics can be undermined by competition – if one mobile operator in a market begins offering generous data-only tariffs, consumers may well gravitate towards that operator, forcing the others to adjust their tariff plans.

Moreover, bundling voice, SMS and data will generally only work for contract customers. Prepaid customers, who only want to pay for what they are use, are naturally charged for each minute of calls they make and each message they send. These customers, therefore, have a stronger financial incentive to find a free WiFi network and use that to send messages via Facebook or make calls via Skype.

The Rich Communications Suite (RCS)

To fend off the threat posed by Skype, Facebook, Google and Apple’s multimedia communications services, telcos are also trying to improve their own voice and messaging offerings. Overseen by mobile operator trade association the GSMA, the Rich Communications Suite is a set of standards and protocols designed to enable mobile phones to exchange presence information, instant messages, live video footage and files across any mobile network.

In an echo of social networks, the GSMA says RCS will enable consumers to create their own personal community and share content in real time using their mobile device.

From a technical perspective, RCS uses the Session Initiation Protocol (SIP) to manage presence information and relay real-time information to the consumer about which service features they can use with a specific contact. The actual RCS services are carried over an IP-Multimedia Subsystem (IMS), which telcos are using to support a shift to all-IP fixed and mobile networks.

Deutsche Telekom, Orange, Telecom Italia, Telefonica and Vodafone have publically committed to deploy RCS services, indicating that the concept has momentum in Europe, in particular. The GSMA says that interoperable RCS services will initially be launched by these operators in Spain, Germany, France and Italy in late 2011 and 2012. [NB We’ll be discussing RCSe with some of the operators at our EMEA event in London in November 2011.]

In theory, at least, RCS will have some advantages over many of the communications services offered by the disruptors. Firstly, it will be interoperable across networks, so you’ll be able to reach people using different service providers. Secondly, the GSMA says RCS service features will be automatically available on mobile devices from late 2011 without the need to download and install software or create an account (by contrast, Apple’s iMessage service, for example, will only be installed on Apple devices).

But questions remain over whether RCS devices will arrive in commercial quantities fast enough, whether RCS services will be priced in an attractive way and will be packaged and marketed effectively. Moreover, it isn’t yet clear whether IMS will be able to handle the huge signalling load that would arise from widespread usage of RCS.

Internet messaging protocols, such as XMPP, require the data channel to remain active continuously. Tearing down and reconnecting generates lots of signalling traffic, but the alternative – maintaining a packet data session – will quickly drain the device’s battery.
By 2012, Facebook and Skype may be even more entrenched than they are today and their fans may see no need to use telcos’ RCS services.

Competing head-on

Some of the largest mobile operators have tried, and mostly failed, to take on the disruptors at their own game. Vodafone 360, for example, was Vodafone’s much-promoted, but ultimately, unsuccessful €500 million attempt to insert itself between its customers and social networking and messaging services from the likes of Facebook, Windows Live, Google and Twitter.

As well as aggregating contacts and feeds from several social networks, Vodafone 360 also served as a gateway to the telco’s app and music store. But most Vodafone customers didn’t appear to see the need to have an aggregator sit between them and their Facebook feed. During 2011, the service was stripped back to be just the app and music store. In essence, Vodafone 360 didn’t add enough value to what the disruptors are already offering. We understand, from discussions with executives at Vodafone, that the service is now being mothballed.

A small number of large telcos, mostly in emerging markets where smartphones are not yet commonplace, have successfully built up a portfolio of value-added consumer services that go far beyond voice and messaging. One of the best examples is China Mobile, which claims more than 82 million users for its Fetion instant messaging service, for example (see Figure 20 – China Mobile’s Internet Services).

Figure 20 – China Mobile’s Internet Services

China Mobile Services, Google, Apple, Facebook Report, Telco 2.0

Source: China Mobile’s Q2 2011 results

However, it remains to be seen whether China Mobile will be able to continue to attract so many customers for its (mostly paid-for) Internet services once smartphones with full web access go mass-market in China, making it easier for consumers to access third-parties’ services, such as the popular QQ social network.

Some telcos have tried to compete with the disruptors by buying innovative start-ups. A good example is Telefonica’s acquisition of VOIP provider Jajah for US$207 million in January 2010. Telefonica has since used Jajah’s systems and expertise to launch low-cost international calling services in competition with Skype and companies offering calling cards. Telefonica expects Jajah’s products to generate $280 million of revenue in 2011, primarily from low-cost international calls offered by its German and UK mobile businesses, according to a report in the FT.

The Wholesale Applications Community (WAC)

Concerned about their growing dependence on the leading smartphone platforms, such as Android and Apple’s iOS, many of the world’s leading telcos have banded together to form the Wholesale Applications Community (WAC).

WAC’s goal is to create a platform developers can use to create apps that will run across different device operating systems, while tapping the capabilities of telcos’ networks and messaging and billing systems.

At the Mobile World Congress in February 2011, WAC said that China Mobile, MTS, Orange, Smart, Telefónica, Telenor, Verizon and Vodafone are “connected to the WAC platform”, while adding that Samsung and LG will ensure “that all devices produced by the two companies that are capable of supporting the WAC runtime will do so.”

It also announced the availability of the WAC 2.0 specification, which supports HTML5 web applications, while WAC 3.0, which is designed to enable developers to tap network assets, such as in-app billing and user authentication, is scheduled to be available in September 2011.

Ericsson, the leading supplier of mobile networks, is a particularly active supporter of WAC, which also counts leading Alcatel-Lucent, Huawei, LG Electronics, Qualcomm, Research in Motion, Samsung and ZTE, among its members.

In theory, at least, apps developers should also throw their weight behind WAC, which promises the so far unrealised dream of “write once, run anywhere.” But, in reality, games developers, in particular, will probably still want to build specific apps for specific platforms, to give their software a performance and functionality edge over rivals.

Still, the ultimate success or failure of WAC will likely depend on how enthusiastically Apple and Google, in particular, embrace HTML5 and actively support it in their respective smartphone platforms. We discuss this question further in the Apple and Google chapters of this report.

Summarising current telcos’ response to disruptors

 

Telcos, and their close allies in the equipment market, are clearly alert to the threat posed by the major disruptors, but they have yet to develop a comprehensive game plan that will enable them to protect their voice and messaging revenue, while expanding into new markets.

Collective activities, such as RCS and WAC, are certainly necessary and worthwhile, but are not enough. Telcos, and companies across the broader TMT ecosystem, need to also adapt their individual strategies to the rise of Amazon, Apple, Facebook, Google and Skype-Microsoft. This report is designed to help them do that.

[END OF EXTRACT]

 

Customer Experience 2.0: NFC, the next mobile revolution? (STL Presentation)

Customer Experience 2.0: NFC, the next mobile revolution?,
Presentation by Daniel Gurrola, VP Consumer Mobile Strategy, Orange. NFC should be a platform for a new generation of applications and services that will transform the industry.
Presented at EMEA Brainstorm, November 2011.
Fall of the Telco Empire?

Download presentation here.

Links here for more on New Digital Economics brainstorms and Strategy 2.0 research, or call +44 (0) 207 247 5003.

Example slide from the presentation:

Mobile Advertising and Marketing: Operator and Market Growth Strategies 2010

Summary: The potential of mobile marketing has long been understood and yet unfulfilled. This new report gives our forecasts, plus how Telcos can make the most of the powerful assets available to them to take a valuable role in this market before it is too late. Report extract included.

Context: Mobile Advertising is Hot – Again

With Google’s planned acquisition of AdMob and the launch of Apple’s iAd advertising platform, mobile is back in fashion. But where is the real value in this market and what’s the best role for telcos?

A new Telco 2.0 Executive Briefing report, of which there is an introductory extract below, summarises the current status of Telco-enabled marketing channels, and Operators’ opportunities to grow the market. It was produced, in part, as context for the Telco 2.0 Use Case analysis for the Use Cases Report and the standalone Executive Briefing Mobile Advertising and Marketing: Text-based Local Search Use Case. Our original analysis on this topic is the 100+ Page Telco 2.0 Strategy Report – How to make the Telecoms Advertising Channel work a systematic approach to making it work for brands and profitable for telcos.

The report provides our forecast of the development of the market, and in particular on the near term opportunities for messaging based formats. [NB There will be more on both telco-enabled marketing and consumer data at the 9th Telco 2.0 Brainsrorm in London, April 28-29, 2010.]

Key Advertising Strategy Questions

Mobile advertising has long been touted as a major new revenue stream for the telecommunications industry. The role of fixed operators in online advertising has, so far at least, proved to be limited. Because the mobile device can be traced to an individual, however, mobile operators have substantial information about customers that is of potential value to marketers and advertisers.

So far, however, material mobile advertising revenue has proved to be elusive for operators because they have focused on a vertically integrated strategy that involves making money from advertising inventory that they own and control such as on-portal banner advertising. The problem with this is that the portion of inventory that they control is a small and diminishing portion of the total mobile advertising opportunity. We outline this issue in the chart below as well as the key questions facing operators in terms of increasing their addressable market in mobile advertising.

Can the Telco industry extract value from mobile advertising?

mob%20ad%20opp%20chart%20april%202010.png

The report described here analyses the current strengths and weaknesses and near-term opportunities of mobile advertising. In addition, some customers may also wish to consider participation in our Syndicated Research project, in which we will:

  • further explore differences between the major advertising formats: messaging, banner, video/TV, search, games and widgets
  • produce three different business models for the future mobile advertising and marketing ecosystem
  • map different advertising formats effectiveness in each business model
  • analyse how value would flow through each system as well as forecast potential transaction volumes and prices
  • explore how these different models will be deployed in different geographies within Europe and the US and the factors which will drive their uptake

For more information please see Defining the Telco 2.0 Ecosystems or email Chris Barraclough at contact@telco2.net.

Mobile Advertising Report Extract – Introduction

We’ve been here before: Lots of media attention

The mobile advertising and marketing hype appears to be starting up once again.  A few headlines illustrate the point:

  • ‘Like It Or Not, Mobile Advertising Is Coming’[1]
  • ‘Mobile phones a bright spot for Advertising’[2]
  • ‘Mobile Advertising – The Next Big Thing in Travel Marketing’[3]
  • ‘Mobile web adspend expected to reach $2B a year by 2014’[4]
  • ‘Mobile marketing has potential to grow in Asia Pacific, says MMA’[5]

Things have been quiet for a while after the great promises made for mobile advertising in 2006 but media interest is clearly picking up. 

The economic crisis and greater mobile marketing maturity

Mobile marketing is back in the spotlight for a couple of reasons:

1.     The global recession has focused marketers on media campaigns that have a demonstrable return on investment.  As it has become harder to generate sales, so marketing budgets have moved towards activities that can be shown to directly influence the customer’s purchase decision.  For example, in the UK online search advertising grew three times as fast as display advertising between 2007 and 2008 despite already being three times the size.

Figure 1: Internet search and display advertising sectors in the UK

 

Size, £ Millions
Growth
Format

2007
2008
£ Millions
%
Search

1,619
1,987
368
23
Display

592
637
45
8
Source: Internet Advertising Bureau

SMS advertising (including coupons and vouchers) is the biggest mobile segment and has similar characteristics to online search and traditional ‘direct response’ marketing in that an immediate customer action is sought and measured.  Display can, theoretically, do this too (by measuring clicks) but has tended to be used for raising awareness about a brand or product. 

Many companies have, therefore, turned to mobile to maximise sales during these tough times. High profile campaigns of this sort include Coca Cola, who ran a campaign in the UK in May and June 2009 with digital vouchers for free bottles of Fanta, Sprite and Dr. Pepper being sent to the mobile phones of around 100,000 targets. Recipients of the voucher simply had to text ‘YES’ and their date of birth to a specific number and would instantly receive a text with a code enabling them to redeem the voucher. Participating retailers would key the code into their Paypoint terminal (used for paying utility bills and toping up prepay mobile accounts) which would register the redemption. The use of Paypoint enabled Coca Cola to both monitor redemption rates real-time (87% over the course of the campaign) and pay the retailer within seven days.

Figure 2: Coca Cola’s SMS campaign for 10,000 stores and 100,000 consumers

Fig%202%20Coca%20cola%20SMS%20campaign%20Apr%202010.png

Source: www.presscentre.coca-cola.co.uk

2.     The mobile marketing and advertising market is maturing:

a.     There is greater demand from end users for mobile media:

  i.          The rise in flat rate data plans has increased the volume of media consumed on devices and removed the issue of subscribers potentially being charged to receive marketing and advertising;

   ii.          Mobile devices continue to become more sophisticated – more and more phones now have browsers.  This is important:  the volume of  smartphones in the market is directly correlated to web browsing adoption and usage and to data plan take-up;

   iii.          The combination of i. and ii. above has resulted in a substantial increase in mobile browsing in key markets.  Such browsing increased by 52% in the US from November 2007 to November 2008 and by 42% in the largest European markets (UK, France, Spain, Germany and Italy) according to comScore;

   iv.          SMS marketing has reached critical mass in the last eighteen months.  For example, in the US SMS marketing accounted for 60% ($192 million) of the $320 million spent on mobile advertising in 2008 (according to emarketer.com). Similarly, a survey in the US by the Direct Marketing Association in July 2008 found that 70% of consumers had responded to a text ad over a two month period:

Figure 3: Percentage of responders to a mobile offer

Fig%203%20Ad%20report%20percentage%20bar%20chart%20Apr%202010.png

Source: Direct Marketing Association

b.    There has been more industry-wide activity from the operator and advertising communities:

  i.          The Mobile Marketing Association has developed a mobile advertising code of conduct and guidelines and the Direct Marketing Association has also developed guidelines and ‘help notes’ to standardise mobile approaches for marketers;

  ii.          At the time of publication, the GSMA mobile metrics programme is on the cusp of delivering a complete and standardised picture of mobile internet usage in the UK (and later Germany) so that marketers have a 360º view of audience behaviour across mobile and can plan and buy campaigns accordingly;

c.     There has been more effort and activity (including acquisitions) from individual operators seeking to capitalise on this new revenue source, including:

  i.           In late 2007, Telefonica and Vodafone took minority stakes in Amobee a provider of solutions for operators to deliver ad-funded content and services;

  ii.          Vodafone Egypt bought the digital media agency Sarmardy Communication (Sarcom) in August 2008;

  iii.          In August 2009, Orange bought Unanimis, the digital media aggregator to extend its advertising reach;

  iv.          In May 2009, Vodafone announced that it had successfully rolled out mobile advertising to 18 markets in 18 months.  Services include incoming voice/text alerts, branded applications and location-based advertising.;

  v.          Microsoft paid Verizon Wireless around $600m in early 2009 for the right to supply local internet search and mobile advertising services to Verizon’s customers.

This increased activity, of course, leads observers to beg the question ‘why is mobile deemed to be so valuable and where does it fit into the wider marketing mix’?

Mobile as a part of the Marketing Mix

A framework for customer marketing

Traditionally the ‘marketing mix’ has been described in terms of the four levers that marketers can change to drive the success of their product or service: Product, Place, Price and Promotion (the ‘4 P’s).  More recently, advertising agency Ogilvy has suggested that these should be revised to the ‘4 E’s’ to reflect the impact of digitalisation: Experience (instead of Product), Everyplace (Place), Exchange (Price) and Evangelism (Promotion).

However, to understand the role that mobile can play for marketers it is perhaps more helpful to focus on the customer adoption process for a product or service and explore how mobile can enhance the interventions made by marketing during this process.  Again, there are several models exploring how customers first become aware of a product through to the time they are loyal customers.  We have amalgamated several approaches into 6 A’s: Awareness (& Interest), Assessment, Attempt, Adoption, Advocacy and Abandonment (outlined below).

Figure 4: The 6 A’s of a Customer Lifecycle

Stage

Description

Typical customer engagement

Awareness (& Interest)

Making the customer aware of (and interested in) a brand or product or service.

TV, Radio, Billboards, Internet banners

Assessment

Customer evaluates product or service against substitutes.

In-store, comparison websites, peer reviews

Attempt

Customer trials product or service.

In-store promotion, Direct mail, Internet search

Adoption

Customer regularly uses product or signs up for service.

Store, Direct mail, Telesales, Website

Advocacy

Customer is loyal and promotes product or service.

Refer-a-friend, social media viral growth

Abandonment

Customer stops buying product or does not renew service.

Telemarketing, Direct mail

Source: STL Partners/Telco 2.0

Mobile is a particularly interesting medium for marketers because it is ubiquitous and delivers a message to an individual that virtually guarantees their attention.  If marketers can deliver a relevant message or offer to the individual according to their 6 A’s stage via mobile, then they have a good chance of inducing a positive response.  And mobile can also provide a response channel for the individual enabling them to transact directly using the handset.  Of course, the quid pro quo of using a personal medium like mobile for marketing is that there is a real risk of upsetting customers who feel intruded upon or, worse, spammed.  We discuss this in more detail in the sections below on customer data and customer privacy.

Mobile advertising and marketing formats

The range of formats available on mobile also means that marketers can engage with customers in different ways through the lifecycle.  Other media have relatively few formats.  TV, for example, has traditionally been dominated by the commercial break although, more recently, direct TV sales channels and product placement within programmes have increased from a low base.  Mobile, by contrast, has a wide range of formats.

The key formats outlined in the body of the report are: SMS, MMS, Mobile Internet Banners,Apps & Widgets,QR Codes, Mobile TV & Video, Ad-Funded Content, Mobile Search.

The Relative Strengths of Telco-Enabled Marketing Media are Analysed in the Report

Picture1.jpg

Source: Telco 2.0 Mobile Advertising Growth Strategies Report

To read the rest of the report, covering…

  • The strengths and weaknesses of the various forms of mobile media
  • Applicability: How mobile supports customer engagement
  • Media Richness is inversely proportional to Reach
  • Mobile marketing forecasts by advertising format
  • Operator-centric vs ‘OTT’ approaches
  • Customer data and metadata
  • Customer Privacy: issues and approaches
  • The Operator as service provider or service enabler

…and including…

Figure 1: Internet search and display advertising sectors in the UK

Figure 2: Coca Cola’s SMS campaign for 10,000 stores and 100,000 consumers

Figure 3: Percentage of responders to a mobile offer (March & April 2008)

Figure 4: The 6 A’s of a Customer Lifecycle

Figure 5: Important mobile advertising and marketing formats

Figure 6: Blyk Connexions case study example

Figure 7: Arsenal Mobile: for fans of the mighty Gunners

Figure 8: Mobile marketing and advertising applicability: summary

Figure 9: SMS/MMS marketing: currently the most important format

Figure 10: US Mobile Advertising Market, $ Millions

Figure 11: Lots of data but not necessarily complete, accessible, shareable

Figure 12: Sense Networks’ clustering of users based on their location patterns

Figure 13: Customer data approaches for five example services

Figure 14: Technical approaches to addressing privacy

Figure 15: The two-sided Telecoms business model opportunity

Figure 16: Core Telco 2.0 principles followed in this use case

Figure 17: Telco 2.0 ‘Use Case’ Methodology

…Members of the Telco 2.0TM Executive Briefing Subscription Service and the Dealing with Disruption Stream can download the full 33 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for for £995, and here to buy a license for up to 5 people for £1,450. Corporate-wide licenses are also available – please email contact@telco2.net or call +44 (0) 207 247 5003.

Special Offer

We reommend that non-member readers looking for a comprehensive overview of new Telco Business Models enabling advertising and marketing also consider the Telco 2.0 Briefing report Mobile Advertising and Marketing: Text-based Local Search Use Case and the special report Can Telcos Unlock the Value of their Consumer Data? Each report is available individually for single, group and corporate users, and a also in a package of all three reports at a 33% discount – £1,900 for a single user and £2,900 for all three reports for 5 users. Please email contact@telco2.net or call +44 (0) 207 247 5003 for more on these packages and interest in corporate-wide licenses.

Footnotes:


[1] www.informationweek.com

[2] www.inquirer.net

[3] www.travelmole.com/stories/1138044.php

[4]www.fiercemobilecontent.com/story/mobile-web-adspend-expected-reach-2b-year-2014/2009-08-25

[5] www.velti.com/index.cfm?page=1411&articleID=19334292