Impact of Social Networking and ‘Appification’ on Telecom Revenues


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Frost & Sullivan analyst briefing on Impact of Social Networking and ‘Appification’ on Telecom Revenues

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Impact of Social Networking and ‘Appification’ on Telecom Revenues

  1. 1. Impact of Social networking and ‘Appification’ on Telecom Revenues Presented by: Jayesh Easwaramony Vice President ICT Practice Frost & Sullivan October 2011
  2. 2. Evolution? Now Then The more things change, the more they remain the same - Anonymous
  3. 3. Agenda 1 2 Consumer Behaviour on SNS SNS as a Platform 3 4 Impact Analysis Conclusion
  4. 4. SNS as a Platform What is Social networking? SNS has created a new social paradigm of sharing, interacting and emulating The Social Paradigm <ul><li>The success of Facebook depends on </li></ul><ul><li>People being willing share their lives, with a wide set of people ; </li></ul><ul><li>to have many Facebook friends, </li></ul><ul><li>to have an interest in the day-to-day world of those friends, </li></ul><ul><li>to believe in the value of interaction afforded by virtual modes of contact </li></ul><ul><li>Because of the simplicity and &quot;friendliness&quot; of the interaction , it feels like harmless entertainment </li></ul><ul><li>But strong esteem in being “liked” </li></ul>“… .the way we think about this is that we're just getting started on our goal of connecting everyone” - Zuckerberg, 2009
  5. 5. SNS as a Platform Context – SNS vs. Telco Thus Social Networks are a credible alternative to telcos and handset appstores as platform providers - They have scale, growth and are carrier, handset and OS agnostic <ul><li>Address book </li></ul><ul><ul><li>Facebook for friends </li></ul></ul><ul><ul><li>Linkedin for corporates </li></ul></ul><ul><li>Various forms of communication channels </li></ul><ul><li>One to one, one to many, segmented communication, video conference </li></ul><ul><li>Apps </li></ul><ul><li>Virtual games, personality tests etc </li></ul><ul><li>Color for Facebook, Spotify for Facebook </li></ul><ul><li>Currency </li></ul><ul><li>Credits </li></ul>
  6. 6. SNS as a Platform Scale of social networks Social Networks reach close to a billion “subscribers”, much larger than any individual Telco network… Facebook Users (million, Global) Source: Facebook, Frost & Sullivan Estimates Facebook Penetration (%) <ul><li>Facebook alone has a reach pushing the 1 billion mark – Twitter, Google+ , LinkedIn etc. have a global reach </li></ul><ul><li>Other social media sites like YouTube, Flickr add to the social media traffic and penetration </li></ul><ul><li>With a growth rate of ~50% per annum, social media sites are expected to continue to increase penetration, only constrained by internet (and smartphone) penetration globally </li></ul><ul><li>By 2015, Social media traffic and penetration is expected to increase 2x-3x (conservative estimates), </li></ul><ul><li>Potential user base of 2-2.5bn by 2015 </li></ul>
  7. 7. SNS as a Platform Usage … with an increasing amount of time spent (MoU equivalent) and usage per subscriber… <ul><li>Increasing social media usage has reduced dependence on information dissemination modes such as SMS blasts, voice calls, E-mails etc. </li></ul><ul><li>A large audience of internet users on social networks indicates an easy platform for gaining insights into consumer behavior, needs and complaints (for B2C enterprises) </li></ul><ul><li>The “Like” and “+1” buttons on status updates (and B2C product pages) have become an important gauge of consumer preferences and behaviour </li></ul>>50 million links shared on FB >80 million status updates on FB 200 million tweets on Twitter >2 billion videos on YouTube 2.3 billion “+1”s on Google+ In 24 hours….
  8. 8. SNS as a Platform Context – Scale … driven by a broad and diverse application universe on social networking platforms <ul><li>A large application universe has led to an increased amount of time spent online – Increased opportunity for advertising, marketing and internet-based sales </li></ul><ul><li>Location information may be used to provide location-based services via social networks/SNS applications </li></ul><ul><li>Applications designed to improve brand equity of and brand recognition are increasing (profile badge, automatic status updates) </li></ul><ul><li>From an ISV perspective, creating an Facebook-app (or an app on a smartphone platform) is in direct trade-off with creating an app on a Telco’s platform – Telcos have to compete in the platform space </li></ul><ul><li>>20,000 applications on Facebook </li></ul><ul><li>2.5 million sites integrated with FB </li></ul><ul><li>10,000 sites integrated everyday </li></ul><ul><li>>30,000 servers worldwide </li></ul><ul><li>Developer base in 190 countries </li></ul>Facebook Platform Impact:
  9. 9. SNS as a Platform Interface to a passport … driven by a broad and diverse application universe on social networking platforms And Spotify collated these into a formal statement, Think of it as like a ‘virtual passport’, Designed to make the experience smoother and easier, with one less username and password to remember. You don’t need to connect to Facebook and if you do decide to, you can always control what you share and don’t share by changing your Spotify settings at any time.
  10. 10. SNS as a Platform Platform Capability Evolution SNS will evolve into complete platforms Entertainment Media Social Interaction Platform Primary Communication/ Information Platform One-stop Integrated Network <ul><li>All features from 2012 </li></ul><ul><li>Enterprise application platform </li></ul><ul><li>M-Commerce capabilities </li></ul><ul><li>Every VAS provided by Telcos available in the SNS platform </li></ul><ul><li>Frequent updates, Messaging, Multimedia sharing </li></ul><ul><li>Audio and Video calling/conferencing capabilities </li></ul><ul><li>News Updates, Advertising & Promotion platform </li></ul><ul><li>Productivity/Gaming/Entertainment Application platform </li></ul><ul><li>Website integration capabilities </li></ul><ul><li>B2C Enterprise interest, B2B branding </li></ul><ul><li>Entertainment, Regular social Updates, Mail, Messaging </li></ul><ul><li>Photo Sharing, Social Gaming, Multimedia sharing </li></ul><ul><li>Gaming Platform, website integration </li></ul><ul><li>Location Based Services </li></ul><ul><li>Entertainment Platform </li></ul><ul><li>Communication, Social Updates </li></ul>2008 2010 2015 2012
  11. 11. Agenda 1 2 Consumer Behaviour on SNS SNS as a Platform 3 Impact Analysis 4 Conclusion
  12. 12. Consumer Behaviour Communication Consumers are segmenting and further segmenting their communication behaviour. <ul><li>Consumers generate far more content due to availability of platforms </li></ul><ul><li>However, a chunk of “non-critical” text messages are now sent as FB/Twitter updates and messages; A chunk of “high importance” phone calls now use video chat </li></ul><ul><li>The chunk of text messaging that remains would be that of critical texts (such as notifications between individuals) “ I’m waiting here, where are you? ” </li></ul><ul><li>Voice calls would predominantly be used for short conversations only </li></ul>Source: Frost & Sullivan analysis, (2009) 10 LEVELS OF INTIMACY IN YESTERDAY’S COMMUNICATION 4 LEVELS OF INTIMACY IN YESTERDAY’S COMMUNICATION EMAIL/ LETTER 1 TEXT MSG/IM 2 3 4
  13. 13. Consumer Behaviour Volume of Content … Facebook has more photos and content than ever Videos <ul><li>A diverse and easy-to-use application core on social networks has allowed user-generated multimedia content to burgeon </li></ul><ul><li>From an SP perspective, there is an opportunity loss on MMS revenues, whereas data usage revenue offsets the aforementioned opportunity loss </li></ul>Source: Frost & Sullivan analysis, Adverblog, Facebook Official (June 2011) Photos
  14. 14. Consumer Behaviour Volume of Content … and driven further by gaming, with online gaming social networks outstripping all other platforms 710 million Facebook users Over 50 million playing every day Close to 290 million gamers every month <ul><li>Around 53% of all Facebook users play games on the SNS, making it the largest game platform </li></ul><ul><li>However, 80% are free users of online games. 20% of the subscriber base (~11% overall) pay for online game privileges (such as extra weapons, or life etc.) </li></ul><ul><li>50% of all logins are noted to be gaming related </li></ul><ul><li>Over 900 million hours of cumulative game time in a month </li></ul>Source: Frost & Sullivan analysis, (2010)
  15. 15. Consumer Behaviour Volume of Content Voice and video calling minutes on Skype paint a similar picture… Source: Frost & Sullivan analysis, Skype (2011) 929 million Skype users Over 65 million login every day 700 million minutes of skype-to-skype free calling PER DAY <ul><li>~300 million video calling minutes per DAY </li></ul><ul><li>~30 million voice call minutes to mobiles/fixed line per day on Skype </li></ul>
  16. 16. Consumer Behaviour Content Segments Close to 80% of all content generated on SNS is a form of one-on-one conversation... <ul><li>Most twitter updates are personal in nature, and close substitutes for 1-on-1 interaction such as SMS messaging – ~79% </li></ul><ul><li>Non-personal updates include News, Promotion, Spam and Links – constitute ~21% of all updates </li></ul><ul><li>Conversational updates constitute 37.5% of all updates – clear SMS $ substitution effect </li></ul><ul><li>Generic low-value updates also eat into SMS volume share (especially in unlimited-SMS type packages) </li></ul>Source: Frost & Sullivan analysis, Pear Analytics (2009)
  17. 17. Consumer Behaviour Brand Related ..and a large number of global internet users use Facebook to connect with brands they use <ul><li>34% of internet users (according to a survey) use FB to connected with their brands – customer service, support, promotions and feedback </li></ul>Number of internet users using platform to connect with brands Source: Frost & Sullivan analysis, CMB (2010); Brand names are purely illustrative
  18. 18. Agenda 1 2 Consumer Behaviour on SNS SNS as a Platform 3 Impact Analysis of SNS on Mobile Operators 4 Conclusion
  19. 19. Impact Analysis Whats up or down? <ul><li>“… .changing consumer behavior, where mobile apps provide a data based alternative to the regular voice and SMS services” </li></ul><ul><li>Eelco Blok, CEO, Q2 2011 </li></ul><ul><li>(on 10% drop in SMS revenue in 2010, 11% drop in net profit) </li></ul>Apps are now creating SMS revenue declines
  20. 20. Impact Analysis SMS/MMS … exemplified by dropping SMS volumes on breaching a threshold smartphone penetration SMS vol. growth goes negative KPN <ul><li>Around 30% smartphone penetration, SMS volumes are noted to drop (global Telco case studies noted above) </li></ul>30% Source: Frost & Sullivan smartphone research and analysis, Reported data Verizon Wireless SMS vol. growth goes negative
  21. 21. Impact Analysis Impact analysis can be divided into direct substitution and opportunity loss Direct Substitution Opportunity Loss VOIP usage with Facebook as the address book Voice SMS Status update and other apps Revenue / Valuation loss due to telcos inability to capture ‘platform’ based revenues
  22. 22. Impact Analysis SMS/MMS – What part of the market can SNS capture? Immediate Information Messages Personal Emergency messages Business messaging Urgency Criticality (Need for reliability) Number of Participants Mobility Need High High Medium-High Low High Medium Low-medium Medium-High High High Low-medium High Generic messaging (boredom or event driven) Low-Medium Low-medium Low-medium Medium Generic and information messaging has the risk of replacement by social networks… High risk of replacement Volume Share** 50-60% 10-15% 5-10% 25-30% *Frost & Sullivan Estimates
  23. 23. Impact Analysis SMS/MMS Drivers Volume Impact Financial Impact Whatsapp and other SNS based -equivalents Doomsday Scenario – ALL substitutable messages are substituted In a realistic scenario, volume drop is expected to be 7-8% Telco Revenue loss by 2015 due to SMS substituion ~3-4% Source: Frost & Sullivan analysis
  24. 24. Impact Analysis VoIP Impact – What market can Skype capture? Intra-company calls (mobile) Personal “stay-in-touch” calls Personal Emergency calls Business conference calls Urgency Criticality (Need for reliability) Number of Participants Mobility Need High High Medium-High Limited High Medium Medium-high High Low Low-medium Low-medium Low-medium High High Low-medium High General information calls Medium-High Low-medium Low-medium Medium Personal stay-in-touch calls and Intra-company calls run a risk of substitution by free alternatives.. High risk of replacement
  25. 25. Impact Analysis VoIP Impact <ul><li>Tipping point in 2002 for fixed broadband penetration </li></ul><ul><li>VoIP traffic is 22% of total traffic in 10 years </li></ul><ul><li>Has captured only 0.03% of revenues </li></ul><ul><li>Mobile VoIP to emulate fixed VoIP </li></ul><ul><li>Barriers do exist – Availability, more usage on WiFi networks etc </li></ul>… as exemplified by the shift from fixed-line to fixed VoIP starting 10 years ago. A similar situation is noted in the mobile space Source: Frost & Sullivan smartphone research and analysis, Nokia (2009)
  26. 26. Impact Analysis VoIP Impact on Revenue due to SNS Facebook Phone, Skype for Mobile Drivers Volume Impact Source: Frost & Sullivan analysis 5.4% 2.3% Revenue Impact Scenario 1 <ul><li>Low Case Scenario </li></ul><ul><li>2 bn mobile internet; </li></ul><ul><li>30% active users </li></ul><ul><li>20% voice migration </li></ul>Scenario 2 <ul><li>Major Facebook Effect Scenario </li></ul><ul><li>2.3 bn mobile internet; </li></ul><ul><li>50% active users </li></ul><ul><li>25% voice migration </li></ul>
  27. 27. Impact Analysis Overall Impact on Telcos – Substitution Loss vs. Data Gains Telcos would have to invest heavily for nearly no revenue gains (except by increase in new mobile adopter base – ONLY developing economies)… <ul><ul><li>To limit revenue impact </li></ul></ul><ul><ul><li>Use more Bucket Voice Plans </li></ul></ul><ul><ul><li>Greater flexibility for subscribers – SMS + Voice + Data </li></ul></ul><ul><li>To keep EBITDA margins at current levels moving forward: </li></ul><ul><ul><li>Telcos would have to price data at close to a 30% premium to existing levels </li></ul></ul><ul><li>Invest in platforms </li></ul>Overall revenue loss to Telcos due to substitution effect Overall revenue gains to Telcos due to data spike Overall impact to topline 5.4-8.5% 5-6% - 2.5%
  28. 28. Impact Analysis – Opportunity loss Valuation Impact Source: Frost & Sullivan analysis, Facebook’s valuation of about $75 billion consists of over $45 billion valuation for existing business… Valuation of Existing Business $30 billion (40%) as a Voice/Video and messaging/VAS platform <ul><li>Facebook’s valuation is 40% as a comm. platform and 60% as an advertising, networking and gaming platform </li></ul><ul><li>A Telco’s valuation could be 2.5x by ‘building social network capabilities’ including its entire subscriber base </li></ul><ul><ul><li>A Telco’s Revenue/minute/subscriber is much higher than Facebook or any SNS </li></ul></ul><ul><ul><li>Local advertisers may consider a Telco’s social network a more effective A&P medium </li></ul></ul>
  29. 29. Agenda 1 2 Consumer Behaviour on SNS SNS as a Platform 3 Impact Analysis of SNS on Mobile Operators 4 Conclusion
  30. 30. The evolution <ul><li>Apps are the new mobile internet </li></ul><ul><li>Over 500 k apps available in a short time </li></ul><ul><li>Earlier attempts like WAC meets with limited success </li></ul><ul><li>Resouped portals launched as app stores </li></ul><ul><li>Operator billing for app stores getting popular </li></ul>Making this happen
  31. 31. VAS as variety of appified services Simplify Amplify Modify Service Discovery Social Media Partnership Webify Delivery Model New Services Model Multiply Pricing/Packages Unify Experience
  32. 32. Next Steps <ul><li>Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. ( [email_address] ) </li></ul><ul><li>Join us at our annual Growth, Innovation, and Leadership Congress 2011: Asia Pacific, 13 October 2010, Resorts World Centre, Sentosa, Singapore ( ) </li></ul><ul><li>Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities ( ) </li></ul>
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  35. 35. For Additional Information Donna Jeremiah Corporate Communications Asia Pacific +603 6204 5832 [email_address] Carrie Low Corporate Communications Asia Pacific +603 6204 5910 [email_address] Jayesh Easwaramony Vice President ICT +65 6890 0999 [email_address] Jessie Loh Corporate Communications Asia Pacific +65 6890 0942 [email_address]