Tag: Spotify

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

Introduction

This is the first of two reports analysing the market position and strategies of four global technology companies – Netflix, Spotify, Tesla and Uber – that might be able to make the leap to become a top tier consumer digital player, akin to Amazon, Apple, Facebook or Google. The two reports explore how improvements in digital technologies and consumer electronics are changing the entertainment and automotive markets, allowing the four companies to cause significant disruption in their sectors.

The first part of this report considers Netflix and Spotify, which are both trying to disrupt the entertainment market. For more on the increasing domination of online entertainment by the big Internet platforms, read the STL Partners report Amazon, Apple, Facebook, Google, Netflix: Whose digital content is king?

This report considers how well Netflix and Spotify are prepared for the likely technological changes in their markets. It also provides a high-level overview of the opportunities for telcos, including partnership strategies, and the implications for telcos if one of the companies were able to make the jump to become a tier one platform.

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STL Partners is analysing the prospects of Netflix, Spotify, Tesla and Uber because all four have proven to be highly disruptive players in their relevant industries.

The four are defined by three key factors, which set them aside from their fellow challengers:

  • Rapid rise: They have become major mainstream players in a short space of time, building world-leading brands that rival those of much older and more established companies.
  • New thinking: Each of the four has challenged the conventions of the industries in which they operate, leading to major disruption and forcing incumbents to completely re-evaluate their business models.
  • Potential to challenge the dominance of Amazon, Apple, Facebook or Google: This rapid success has allowed the companies to gain dominant positions in their relative sectors, which they have used as a springboard to diversify their business models into parallel verticals. By pursuing these economies of scope, they are treading the path taken by the big four Internet companies (see Figure 1). Google, Apple, Facebook and Amazon have come from very diverse roots (ranging from an Internet search engine to a mobile device manufacturer), but are now directly competing with each other in a number of areas (communications, content, commerce and hardware).

Figure 1: How the leading Internet companies have diversified

Source: STL Partners

The evolution of online entertainment

As broadband networks proliferate and households are served by fatter pipes, telecoms networks are carrying more and more entertainment content. While there are major players in every country and region, there are essentially only six online entertainment platforms meeting this demand on a global scale – Amazon, Apple, Facebook, Google, Netflix and Spotify. These six companies are delivering increasingly sophisticated real-time entertainment services that are generating a growing proportion of Internet traffic, at the expense of traditional web browsing, file sharing, download services and physical retail entertainment.

The six are building global economies of scale that can’t be matched by national/regional media companies and telcos. Global distribution is becoming increasingly important in the media industry, given the prohibitive costs of sourcing content and then packaging it and distributing it across multiple different devices and networks.

Scale is also important for another reason. As the volume of digital content proliferates, consumers increasingly rely on recommendations. The platform capturing the most behavioural data (people who watched this, also watched this) should be able to offer the best recommendations.

Although the platforms with scale have a competitive advantage, they are still vulnerable to disruption because the online entertainment market is evolving rapidly with providers, including rights owners, experimenting with new formats and concepts.

As outlined in the STL Partners report Amazon, Apple, Facebook, Google, Netflix: Whose digital content is king?, most of this experimentation relates to the following six key trends, which are likely to shape the online entertainment market over the next decade.

  1. Greater investment in exclusive content: The major online platforms are increasingly looking to either source or develop their own exclusive content, both as a competitive differentiator and in response to the rising cost of licensing third parties’ content. Exclusive content may be anything from live sports programming to original drama series and even blockbuster movies. This is an area in which both Netflix and Amazon Video have heavily invested, making the two direct competitors for talent in this space.
  2. Growing support for live programming: People like to watch major sports events and dramatic breaking news live. Some of the online platforms are responding to this demand by creating live channels and giving celebrities and consumers the tools they need to peercast – broadcast their own live video streams.
  3. The changing face of user-generated content: Although YouTube, Facebook and other social networks have always relied on user-generated content, advances in digital technologies are making this content more compelling. If they are in the right place, at the right time, even an amateur equipped with a smartphone or a drone can produce engaging video pictures.
  4. Increasingly immersive games and interactive videos: As bandwidth, latency, graphics processing and rendering technology all improve, online games are becoming more photorealistic making them increasingly akin to an interactive movie. Furthermore, virtual reality will enable people to adopt different viewpoints within a 360-degree video stream, enabling them to choose the perspective from which to watch a movie or a live sports event. For more info, please see the STL Partners’ report: AR/VR: Won’t move the 5G needle.
  5. Rising use of ad blockers and mounting privacy concerns: Many consumers are looking for ways to avoid video advertising, which is more intrusive than a static banner ad and uses more bandwidth. At the same time, many national and regional regulators are becoming increasingly alarmed by the privacy implications of the data mining of consumer services and products, leading to clashes between the major online advertising platforms and regulators.
  6. Ongoing net neutrality uncertainty: In many jurisdictions, net neutrality regulation is either still under development or is vaguely worded as regulators struggle to balance the legitimate need to prioritise some online services with the equally important need to ensure that small content and app developers aren’t discriminated against.

To read on about Netflix and Spotify’s strategies and implications for telcos, please login and download the report, or contact us to subscribe.

Contents:

  • Executive Summary
  • Netflix: much loved, but too narrow
  • Spotify: leading a formidable pack
  • Lessons for telcos
  • Conclusions for telcos
  • Introduction
  • The evolution of online entertainment
  • Netflix: Keeping it original
  • Right time, right proposition
  • Competitive clouds gathering
  • Economies of scale, but not scope
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Spotify: The power of the playlist
  • Smaller than Netflix, but more rounded
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Takeaways for telcos
  • Lessons for telcos
  • Next steps for telcos

Figures:

  • Figure 1: How the leading Internet companies have diversified
  • Figure 2: Netflix revenue and paid subscriber growth, 2015-2017
  • Figure 3: Netflix has grown much faster than its rivals in the US
  • Figure 5: Netflix from a monolithic website to a flexible microservices architecture
  • Figure 6: Netflix: SWOT analysis
  • Figure 7: Tailoring movie artwork to the individual viewer
  • Figure 8: Netflix’s addressable market is growing steadily
  • Figure 9: The number of mobile broadband connections is rising rapidly
  • Figure 10: How studio films aim to make money using release windows
  • Figure 11: Hulu’s broad proposition is a challenge to Netflix
  • Figure 12: Growth in digital music is now offsetting declining sales of physical formats
  • Figure 13: Spotify’s rapid revenue and paid subscriber growth
  • Figure 14: Spotify’s fast-growing premium service is the profit engine
  • Figure 15: A SWOT analysis for Spotify
  • Figure 16: Spotify has significantly lower ARPU and costs than Netflix
  • Figure 17: Spotify’s losses continue to grow despite rapid revenue rises
  • Figure 18: Spotify’s costs are rising rapidly
  • Figure 19: YouTube is a major destination for music lovers

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Music Lessons: How the music industry rediscovered its mojo

Introduction

The latest report in STL Partners’ Dealing with Disruption stream, this paper explores what telcos and their partners can learn from the music industry and its response to disruptive forces unleashed by the Internet.

Music was among the first industries to see its core product (compact discs) completely undermined by the Internet’s emergence as the primary distribution mechanism for content and software, throwing the record labels into a long standing struggle to maintain both relevance and revenues. After almost two decades of decline, sales of recorded music are growing again and, in developed markets, at least, the existential threat posed by piracy seems to have abated. Although the music industry still has problems aplenty, the success of streaming services has steadied the ship.

This report outlines how the music industry has regained its mojo, before considering the lessons for telcos and other digital service providers. The first section of the paper considers why music streaming has become so successful and whether the model will be sustainable. The second section of the paper explores the lessons companies from other sectors, notably telecoms, can draw from the ways in which the music industry responded to the Internet’s disruptive forces.

This paper builds on other entertainment-related reports published by STL Partners, including:

Apple’s pivot to services: What it means for telcos
Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed?
Amazon: Telcos’ Chameleon-King Ally?
Can Telcos Entertain You? Vodafone and MTN’s Emerging Market Strategies (Part 2)
Can Telcos Entertain You? (Part 1)

Music bounces back

Over the past 20 years, the rise of the Internet has shaken the music industry to the core, obsolescing its distribution model, undermining its business model and enabling new forms of piracy. Yet, the major record labels have survived, albeit in a consolidated form, and the sector is now showing some tentative signs of recovery. In 2013, the global music industry began to grow again for the first time since the turn of the Millennium. It continues to recover and will grow at a compound annual growth rate of 3.5% between now and 2021, according to research by PwC, fuelled by growth in both the recorded music and the live music sectors (see Figure 1).

Figure 1: The global music industry has returned to growth

The global music industry has returned to growth

Source: PWC and Ovum

For most of the past two decades, revenues from recorded music have been shrinking, leaving the industry increasingly reliant on ticket sales for live performances. Widespread piracy, together with the growing obsolesce of CDs, appeared to be turning recorded music into a form of advertising for concerts and tours.

But in 2015, global recorded music revenues began to grow again. In 2016, they rose a relatively healthy 5.9% to US$15.7 billion (about one third of the industry’s total revenue), according to a report by the International Federation of the Phonographic Industry (IFPI). For music industry executives, that growth marks an important milestone. “We got here through years of hard work,” Michael Nash, executive vice president of digital strategy at Universal records, told the Guardian in April 2017, adding that the music industry was still going through a “historical transformation. The only reason we saw growth in the past two years, after some 15 years of substantial decline, is that music has been one of the fastest adapting sectors in the digital world.”

Contents:

  • Executive Summary
  • Introduction
  • Music bounces back
  • What has changed?
  • Is streaming the final word in music distribution
  • Lessons to learn from music’s recovery

Figures:

  • Figure 1: The global music industry has returned to growth
  • Figure 2: The way people buy recorded music is changing dramatically
  • Figure 3: YouTube pays particularly low rates per stream
  • Figure 4: YouTube is a major destination for music lover
  • Figure 5: Music is one of the slowest growing entertainment segments
  • Figure 6: Spotify’s losses continue to grow despite the growth in revenues
  • Figure 7: Spotify’s subscription service is growing rapidly
  • Figure 8: Concert ticket revenues are up sevenfold since 1996 in North America
  • Figure 9: Major concert tickets sell for an average of $77 apiece

Partnering 2.0 – How TeliaSonera Makes Beautiful Music with Spotify

Introduction

An agile approach to building and managing complex partnerships is one of the key elements of becoming a Telco 2.0 organisation. As discussed in our previous report on Digital Partnering Strategies, we see two new trends in telco approaches to digital services partnerships:

  1. The focus on partnering as a core competency of the telco organisation;, and
  2. The increasing complexity of telco partnership ecosystems, as digital services, enabling technologies, and service delivery value chains continue to evolve.

The increasing complexity of digital services partnerships, and the related trend for larger partnership ecosystems with many partners participating from different levels of the value chain, require telcos to take a different and more flexible approach. To be effective, this approach needs to take into account, and support, the particular characteristics of digital businesses:

  • Need for scale: A potential digital services partner will usually want to build global scale and so is likely to have several telco partners.
  • Need for speed: Digital services partners will in many cases move at very different speeds from telcos in terms of decision-making and processes,
  • Need for flexibility: particularly for channels and business models. Digital services partners (especially those with consumer propositions) are likely to use a variety of distribution channels, some of which will bypass, or compete with, the telco partner (particularly for OTT B2C content services such as Spotify). For both B2B and B2C partnerships, business models and revenue sharing arrangements are likely to be fluid and to involve multiple parties.

Based on our observations from TeliaSonera’s long-term relationship with Spotify, and from our earlier analysis of AT&T’s successful Drive connected car ecosystem, we have identified a set of key success factors, and major barriers, for effective digital services partnerships between operators and third parties.

In this report, we evaluate the TeliaSonera-Spotify partnership against this framework, as well as looking at the drivers for the partnership, the quality of execution, and the evidence of its success.

 

  • Executive Summary
  • Introduction
  • TeliaSonera’s partnership with Spotify: Overview
  • A B2C single-focus partnership
  • TeliaSonera’s rationale for the deal: Part of being a ‘New Generation Telco’
  • Evidence of the partnership’s success
  • Drivers and key success factors for the TeliaSonera-Spotify partnership
  • Drivers and objectives for TeliaSonera
  • Benefits of the TeliaSonera partnership for Spotify
  • Key success factors for TeliaSonera’s partnership with Spotify
  • External/Market-Driven (demand-side) factors
  • Internal / organisation (supply-side) factors
  • Organisation structure and the approach to managing joint activities have been important
  • Challenges to successful digital services partnering – lessons from other music partnerships
  • Barriers to successful partnering: framework
  • Spotify vs Deezer: the tale of tape

 

  • Figure 1: Characteristics of single-focus digital services partnership models
  • Figure 2: Spotify Key Metrics, 2014-2016
  • Figure 3: TeliaSonera-Spotify 7-year partnership timeline
  • Figure 4: Spotify Global Monthly Active Users and Premium (Paid) Subscribers, 2009-2015
  • Figure 5: Telia Denmark Mobile and Multiplay Packages With Spotify Premium Options, February 2016
  • Figure 6: Spotify Business (Soundtrack Your Brand) promotion, Feb. 2016
  • Figure 7: Drivers and key objectives for TeliaSonera-Spotify Partnership
  • Figure 8: Key success factors and barriers for TeliaSonera-Spotify Partnership

Digital Partnering: Success Factors and AT&T Drive Case Study

Introduction

As communications services providers continue their push to develop and monetise digital services, partnering is proving a critical element of strategy, and a key enabler for telco agility. While some telco-digital player partnerships have been successful in achieving their objectives, many have languished, and failed to deliver value to one or both parties within the partnership.

In this report, we examine the different types of digital services partnerships that operators are engaged in; discuss the key success factors for the various partnering approaches and strategies; and look more deeply at a successful partnership strategy: AT&T’s Drive connected car initiative, which is an example of a broad vertical-focused partnership ecosystem. Our follow-on report will provide a case study of TeliaSonera’s successful digital music partnership with Spotify, an example of a single-focus collaboration for digital services.

Telcos are increasingly recognising the importance of partnerships for achieving their potential as true digital services companies. Partnering between telcos and third parties to deliver new services or target new markets is, of course, not a new phenomenon. Two things are new, however: the focus on partnering as a core competency of the telco organisation, and the increasing complexity of telco partnership ecosystems, as digital services, enabling technologies and service delivery value chains continue to evolve. An agile approach to building and managing complex partnerships is one of the key elements of becoming a Telco 2.0 organisation.

Figure 1: The Telco 2.0 Agility Framework

Source: STL Partners

Partnering is being defined as a telco ‘core competence’

A number of operators have now enshrined the objective of successful partnering in their corporate strategy. Deutsche Telekom, for example, has made partnering one of its ‘four pillars’. The clearly-stated objective in DTAG’s case is to attract (and learn from) companies that have adopted the agile, rapid-response, high-energy approach found in Silicon Valley and other global tech hubs such as Israel. DTAG hopes to offer these partners, access to its customers and channels across the twelve DTAG European markets, as well as the ability to leverage DTAG’s network and corporate resources:

“The list of companies we have been working with for many years is long. But how we cooperate, that has changed. We are more open and faster. We focus on our core competence – our best net – and add specific offers of the partners. Take for example the eReader tolino: We not only provide the eReader, but also the technical platform on which Bertelsmann, Hugendubel, Thalia and Libri are able to distribute their eBooks. Together with the German book trade, we established the tolino as a model of success in the eReader market.

In the area Smart Home, we work together with Miele, Samsung, EON and EnBw, amongst others. We have started the system platform QIVICON, which our product DT Smart Home is based on. Together with our partners, we develop the vision of a connected house.”

Thomas Kiesling, Former Chief Product and Innovation Officer, Deutsche Telekom AG1

Partnering and partnerships are becoming more complex

The DTAG example highlights our second point about new aspects of partnering. The increasing complexity of digital services partnerships, and the growing trend for larger partnership ecosystems with many partners participating from different levels of the value chain, requires telcos to take a different and more flexible approach.

A potential digital services partner will usually want to build global scale and so is likely to have several telco partners. Digital services partners will in many cases move at very different speeds from telcos in terms of decision-making and processes, and are likely to use a variety of distribution channels, some of which will bypass, or compete with, the telco partner (particularly for OTT B2C content services such as Spotify). For both B2B and B2C partnerships, business models and revenue sharing arrangements are likely to be fluid and to involve multiple parties.

B2B (and B2B2C) services are increasingly being supported by more extensive and complex partnership ecosystems, rather than single partnerships. Telcos may lead the development of such ecosystems – as AT&T does in the case of Drive – or simply participate. The growth of wider ecosystem partnering relationships has been especially prevalent in the development of M2M/IoT propositions. These may require a variety of platforms, applications, devices and integration elements, as well as a high level of openness in terms of open-source and accessible platforms, APIs, analytics etc.

These trends present challenges for traditional telco approaches to partnering, which have favoured exclusive relationships and ‘what’s-in-it-for-me’ approaches to building joint revenue streams. Many telcos have set up digital or innovation arms with the goal of developing new digital propositions together with third parties in a more flexible manner. However, for such propositions to succeed, they need clear buy-in from one or more of the main divisions of the telco. In the case of AT&T, the successful partnering effort we profile here was ultimately rolled back into a main division of the operator, rather than continuing to sit within an innovation division.

Based on our observations from AT&T’s success and the partnership case study we cover in our follow-up report (TeliaSonera’s long-term relationship with Spotify), we have identified a set of key success factors, and major barriers, for effective digital services partnerships between operators and third parties (see Figure 2).

Figure 2: Key success factors and barriers for successful digital services partnering

Source: STL Partners

While it isn’t the case that all of the key success factors above must be present in successful operator partnering initiatives, our analysis suggests that several external and internal ones should be present in any digital services partnership.

In the next section, we discuss drivers for digital services partnering, approaches operators have used in partnering, key success factors and barriers; and evaluate the approach that AT&T has taken to partnering with the connected car.

Motivations for partnering in digital services

There are several compelling reasons for telcos to partner when exploring and growing digital services opportunities. The most important of these drivers are shown below in Figure 3. Each driver supports a set of higher-level objectives for telcos, comprising revenue growth, revenue retention, branding and positioning, and organisation transformation and/or agility.

Figure 3: Major drivers for telco digital services partnering initiatives

Source: STL Partners

Drivers linked to the objectives of revenue growth and retention may appear to be most compelling to telcos, given their obvious short-term impact; but those linked to transformation/agility and branding/positioning have been at the forefront of the AT&T partnership initiative we profile here as well as the TeliaSonera-Spotify partnership we profile in our follow-on report. The most successful partnerships support several telco objectives: part of their success is thus attributable to the support they engender from across the telco organisation.

As discussed in the following sections, beyond clearly defining the objectives of the partnership, and the assets that both parties bring to the table, there are a number of other soft elements that contribute to (or hinder) the success of telco digital services partnerships. The existence of clear market demand for the partnership’s products and services is also a key, though sometimes overlooked, element of success.

 

  • Executive Summary
  • Introduction
  • Partnering is being defined as a telco ‘core competence’
  • Partnering and partnerships are becoming more complex
  • Motivations for partnering in digital services
  • 4 digital services partnership approaches
  • Single-focus collaboration is easiest to manage and has best track record but impact is likely to be limited
  • Broader vertical focus requires greater commitment and has a greater market and implementation risk but can yield big benefits
  • General strategic partnerships appear to have had limited success
  • Key success factors for digital services partnerships
  • External/Market-Driven (demand-side) factors
  • Internal / organisation (supply-side) factors
  • Challenges to successful digital services partnering
  • External (demand side) challenges
  • Internal (supply-side) challenges
  • AT&T’s Drive Connected Car Ecosystem – A B2B2C Vertical Area Partnership
  • Background and context for the partnership
  • AT&T’s Drive Ecosystem
  • Key objectives and fit with the operator’s digital services strategy
  • Partnership approach and evolution
  • Organisation structure and framework for the partnership
  • Evidence of success
  • Key success factors and challenges
  • Barriers to successful partnering: challenges for Sprint and Verizon’s connected car initiatives

 

  • Figure 1: The Telco 2.0 Agility Framework
  • Figure 2: Key success factors and barriers for successful digital services partnering
  • Figure 3: Major drivers for telco digital services partnering initiatives
  • Figure 4: Telco Digital Services Partnership Models
  • Figure 5: US Connected Car Shipments, 2014-2020
  • Figure 6: AT&T Drive: Key End User Applications
  • Figure 7: AT&T Drive Studio, 2015
  • Figure 8: Drivers and objectives for AT&T’s connected car partnerships
  • Figure 9: AT&T Drive Platform Core Functionality and Applications
  • Figure 10: Opel OnStar Service Features, 2016
  • Figure 11: AT&T Drive Partnerships, Dec. 2015
  • Figure 12: AT&T connected car net adds are accelerating
  • Figure 13: Key Success Factors for AT&T Drive Partnerships (GM)

Valuing Digital: A Contentious Yet Vital Business

Introduction

Tech VC in 2014: New heights, billion-dollar valuations

Venture capital investment across the mobile, digital and broader technology sectors is soaring. Although it stumbled during the 2008/9 financial crisis, the ecosystem has since recovered with 2013 and 2014 proving to be record-breaking years. Looking at Silicon Valley, for example, 2013 saw deals and funding more than double compared to 2009, and 2014 had already surpassed 2013 by the half-year mark:

Figure 1: Silicon Valley Tech Financing History, 2009-14

 

Source: CB Insights Venture Capital Database

As Figure 1 shows, growth in funding has outstripped growth in the number of deals: consequently, the average deal size has more than doubled since 2009. In part, this has been driven by a small number of large deals attracting very high valuations, with some of the highest valuations seen by Uber ($41bn), SpaceX ($12bn), Dropbox ($10bn), Snapchat ($10-20bn) and Airbnb ($13bn). Similarly high valuations have been seen in Silicon Valley tech exits, with Facebook’s $19bn acquisition of WhatsApp and Google’s $3.2bn acquisition of Nest two high-profile examples. These billion-dollar valuations are leading many to claim that a dotcom-esque bubble is forming: what can possibly justify such valuations?

In some cases, these concerns are driven by a lack of publicly available information on financial performance: for example, Uber’s leaked dashboard showed its financials to be considerably stronger than analysts’ expectations at the time. In other cases, they appear to be driven by a lack of understanding of the true rationale behind the deal. See, for example, the Connected Home: Telcos vs Google (Nest, Apple, Samsung, +…) and Facebook + WhatsApp + Voice: So What? Executive Briefings.

The Telco Dilemma: What is it all worth?

Against this uncertain backdrop, telecoms operators are expanding into such new mobile and digital services as a means to fill the ‘hunger gap’ left by falling revenues from core services. They are doing so through a mixture of organic and inorganic investment, in different verticals and with varying levels of ambition and success:

Figure 2: % of Revenue from ‘New’ Telco 2.0 Services*, 2013

 

Source: Telco 2.0 Transformation Index
* Disclaimer: Scope of what is included/excluded varies slightly by operator and depends upon the ability to source reliable data
Note: Vodafone data from 2012/13 financial year 

However, this is a comparatively new area for telcos and many are now asking what is the real ‘value’ of their individual digital initiatives. For example, to what extent are Telefonica’s digital activities leading to a material uplift in enterprise value?

This question is further complicated by the potential for a new service to generate ‘synergy value’ for the acquirer or parent company: just as Google’s $3.2bn+ valuation of Nest was in part driven by the synergy Nest’s sensor data provides to Google’s core advertising business, digital services have also been shown to provide synergy benefits to telcos’ core communications businesses. For example, MTN Mobile Money in Uganda is estimated to have seen up to 48% of its gross profit contribution generated by synergies, such as core churn reduction and airtime distribution savings, as opposed to standard transaction commissions.

Ultimately, without understanding the value of their digital businesses and how this changes over time (capital gain), telcos cannot effectively govern their digital activities. Prioritisation, budget allocation and knowing when to close initiatives (‘fast failure’) within digital is challenging without a clear idea of the return on investment different verticals and initiatives are generating. Understanding valuation was therefore identified as the joint most important success factor for delivering digital services in STL Partners’ recent survey of telco executives:

Figure 3: Importance of factors in successfully delivering digital services (out of 4)

 

Source: Digital Transformation and Ambition Survey Results, 2014, n=55

Crucially, however, survey respondents also identified developing this understanding as more than two years away from being resolved. In order to accelerate this process, there are three key questions which need to be addressed:

  1. What are the pitfalls to avoid when valuing digital businesses within telecoms operators?
  2. How should telcos model the spin-off value of their digital businesses?
  3. How should telcos think about the ‘synergy value’ generated by their digital businesses?

This Executive Briefing (Part 1) focuses on question 1; questions 2 and 3 will be addressed by future research (Part 2).

 

  • Executive Summary
  • Introduction
  • Tech VC in 2014: New heights, billion-dollar valuations
  • The Telco Dilemma: What is it all worth?
  • Challenges in Valuing Any Business (Analog or Digital)
  • DCF: Theoretically sound, but less reliable in practice
  • All models are wrong, but some are more useful than others
  • DCF’s shortcomings are magnified with digital businesses
  • Practical Issues: Lessons from Uber, Google, Skype and Spotify
  • A Conceptual Issue: Lessons from Facebook
  • Proxy Models: An improvement on DCF?
  • The Synergy Problem: A challenge for any valuation technique
  • Synergies are Real: Case studies from mobile money, cloud services and the connected home
  • Synergies are Problematic: Challenges for valuation in four areas
  • Conclusions
  • STL Partners and Telco 2.0: Change the Game

 

  • Figure 1: Silicon Valley Tech Financing History, 2009-14
  • Figure 2: % of Revenue from ‘New’ Telco 2.0 Services, 2013
  • Figure 3: Importance of factors in successfully delivering digital services (out of 4)
  • Figure 4: Sensitivity of DCF valuation to assumptions on free cash flow growth
  • Figure 5: Different buyer/seller valuations support a range of potential sales prices
  • Figure 6: Impact of addressable market and market share on Uber’s DCF valuation
  • Figure 7: Facebook vs. yield businesses, EV/revenue multiple, 2014
  • Figure 8: Facebook monthly active users vs. valuation, Q1 2010-Present
  • Figure 9: Three potential investor approaches to modelling Facebook’s value
  • Figure 10: MTN Mobile Money Uganda, Gross Profit Contribution, 2009-12
  • Figure 11: Monthly churn rates for MTN Mobile Money Uganda users (three months)
  • Figure 12: Conceptual and practical challenges caused by synergy value