Why mobile content is important to mobile phone operators
In light of a recent announcement about Nokia's announcement to launch a wireless content solution I thought it might be worthwhile to comment on the state and future of mobile content.
Mobile Operators have experimented with mobile content since at least 1998 as a means to bump their ARPU numbers. ARPU stands for Average Revenue Per User and is used as a measure of financial strength. ARPU numbers have been battered down as carriers compete to provide customers with a commodity of voice minutes. In order to buoy revenues and combat earnings erosion most mobile operators have turned to mobile content as a solution.
In the early days, carriers introduced "walled gardens" which would limit the content that a customer could view to a carrier defined menu, and tried to elicit slotting fees from content providers to garner access to that menu. Due to limited mobile traffic and the desire to maintain key content providers in tehir walled garden, most slotting fees were dropped.
Looking internationally for guidance, some US carriers followed in the footsteps of successful overseas carriers. AT&T established a direction which reflected the strategy of DoCoMo (the largest Japanese carrier), aiming to provide a platform to allow content providers to plug into their platform and allowing customers to pay for mobile services via their mobile phone bill. It appears as if integration challenges and limited traction slowed that effort considerably.
Another avenue that mobile operators have explored is in the realm of mobile commerce, such as Amazon on a phone. With limited customer interest and relatively high development costs, most carriers have moved away from this strategy in favor of soft goods, which can be delivered via the phone instead of via UPS.
To explore this route, mobile operators started to turn to the J2ME and BREW standards, providing games and other applications that customers could esily pay for over their phone. The biggest initial success of this area was in the area of ringtones, with $1 ringtones flying off the virtual shelf for many carriers.
Unfortunately, even when 1 million ringtones are sold, they still have limited impact on the top line revenue numbers of any of the top carriers. Ringtone downloads has passed the one million mark by far, but they have leveled off recently.
So, what is a mobile operator to do?
Well, we should look at what operators have control over and what drives the use of mobile content. I have always believed that there are three things that are needed for a mobile content plan to work: content, connection speed, and hardware. Operators have been busy trying to improve their networks, but still speeds are rarely above that of a 56k modem. Continued improvement will come, but it will take time and a great deal of money. Hardware is an area where carriers have limited impact. And last the content itself. How do carriers develop the content portion of their mobile phone customers?
The most successful way has been to provide an single open standard (such as the one DoCoMo has implemented) which has a low barrier to entry for content providers to plug into. The reality is that there are many different attempts at creating a standard, leaving content providers to choose sides.
So while the opportunity is large and the need is crucial to combat eroding revenues, the pieces needed to complete the puzzle are not in place at this time. With competing standards, such as the one introduced in the link above, operators and content providers will have a standards war to wage. Despite this gloomy read on the current state of the market, the bright side is that there is consolidation occuring among content providers, carriers continue to invest (albeit at a much slower pace than the late 90's/early 00's) in their networks, and handset developers continue to innovate as well.
Once these areas have been addressed, the growth of this market will make a sharper turn upwards and allow carriers to begin to offset their revenue degradation. As more developments occur, I will likely comment on them as well.
Mobile Operators have experimented with mobile content since at least 1998 as a means to bump their ARPU numbers. ARPU stands for Average Revenue Per User and is used as a measure of financial strength. ARPU numbers have been battered down as carriers compete to provide customers with a commodity of voice minutes. In order to buoy revenues and combat earnings erosion most mobile operators have turned to mobile content as a solution.
In the early days, carriers introduced "walled gardens" which would limit the content that a customer could view to a carrier defined menu, and tried to elicit slotting fees from content providers to garner access to that menu. Due to limited mobile traffic and the desire to maintain key content providers in tehir walled garden, most slotting fees were dropped.
Looking internationally for guidance, some US carriers followed in the footsteps of successful overseas carriers. AT&T established a direction which reflected the strategy of DoCoMo (the largest Japanese carrier), aiming to provide a platform to allow content providers to plug into their platform and allowing customers to pay for mobile services via their mobile phone bill. It appears as if integration challenges and limited traction slowed that effort considerably.
Another avenue that mobile operators have explored is in the realm of mobile commerce, such as Amazon on a phone. With limited customer interest and relatively high development costs, most carriers have moved away from this strategy in favor of soft goods, which can be delivered via the phone instead of via UPS.
To explore this route, mobile operators started to turn to the J2ME and BREW standards, providing games and other applications that customers could esily pay for over their phone. The biggest initial success of this area was in the area of ringtones, with $1 ringtones flying off the virtual shelf for many carriers.
Unfortunately, even when 1 million ringtones are sold, they still have limited impact on the top line revenue numbers of any of the top carriers. Ringtone downloads has passed the one million mark by far, but they have leveled off recently.
So, what is a mobile operator to do?
Well, we should look at what operators have control over and what drives the use of mobile content. I have always believed that there are three things that are needed for a mobile content plan to work: content, connection speed, and hardware. Operators have been busy trying to improve their networks, but still speeds are rarely above that of a 56k modem. Continued improvement will come, but it will take time and a great deal of money. Hardware is an area where carriers have limited impact. And last the content itself. How do carriers develop the content portion of their mobile phone customers?
The most successful way has been to provide an single open standard (such as the one DoCoMo has implemented) which has a low barrier to entry for content providers to plug into. The reality is that there are many different attempts at creating a standard, leaving content providers to choose sides.
So while the opportunity is large and the need is crucial to combat eroding revenues, the pieces needed to complete the puzzle are not in place at this time. With competing standards, such as the one introduced in the link above, operators and content providers will have a standards war to wage. Despite this gloomy read on the current state of the market, the bright side is that there is consolidation occuring among content providers, carriers continue to invest (albeit at a much slower pace than the late 90's/early 00's) in their networks, and handset developers continue to innovate as well.
Once these areas have been addressed, the growth of this market will make a sharper turn upwards and allow carriers to begin to offset their revenue degradation. As more developments occur, I will likely comment on them as well.
posted by Nathaniel McNamara | 10:32 PM
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