Disruptive Mobile Applications and Services 2011-2015
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Analysis of New Disruptive Apps and Growth Forecasts for the Worldwide Mobile Applications Market to 2015 ...

Analysis of New Disruptive Apps and Growth Forecasts for the Worldwide Mobile Applications Market to 2015

With new forecasts and market sizing, the rapidly evolving worldwide mobile applications market is comprehensively reassessed in this exciting market study - with particular focus on the new breed of hugely popular disruptive applications and services (Mobile Video Streaming, Social Networking, Mobile VoIP, Bulk Messaging Services, and Mobile Payments) and the threats and opportunities that they respectively present to mobile operators.

With analysis also of app stores and app development, this 162-page report covers: YouTube, Facebook, Twitter, Skype, Angry Birds, MobiTV, Google+, Nimbuzz, SMS GupShup, Square, Bango, Boku, Apple App Store, Google Android Market, BlackBerry App World, Nokia Ovi Store, Windows Phone 7 Marketplace and much more.

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    Disruptive Mobile Applications and Services 2011-2015 Disruptive Mobile Applications and Services 2011-2015 Document Transcript

    • Disruptive Mobile Applications and Services 2011- 2015 © 2011, Portio Research. All Rights Reserved 1
    • Disruptive Mobile Applications and Services 2011-2015 Portio Research Limited. Published July 2011 by Portio Research Limited © Copyright 2011. www.portioresearch.com info@portioresearch.com Disclaimer and Legal Notices Disclaimer Every care has been taken in the preparation of this study to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at time of publishing. All opinions, suppositions, estimates and recommendations included in this document are solely the opinions of the authors unless otherwise stated. Portio Research Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this document cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Portio Research Limited accepts no liability or obligation to inform the reader of such changes. Portio Research Limited do not promote or endorse any specific companies or products, the views and opinions we express in this document are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Portio Research Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished or reconstituted in any way without the express written permission of the publisher. Forwarding of this electronic document without the correct legal licence is theft. It’s unethical, immoral and against the law. If you have any questions about the legal licence conditions under which this document has been distributed, please contact Portio Research on info@portioresearch.com If you did not buy this document and a colleague or associate has sent it to you, do not assume you are legally entitled to read it, it is your responsibility to ensure you have the correct legal licence to read this document. 2 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Contents Introduction ..............................................................................................................................9 Worldwide Mobile Market ......................................................................................................13 Mobile Applications Market...................................................................................................17 Types of Mobile Applications ............................................................................................................. 17 Growth of Mobile Applications Business ............................................................................................ 18 Evolution of Mobile Applications Market .......................................................................................... 18 Monetising the Mobile Applications Business.................................................................................. 19 Role of Handsets in the Uptake of Mobile Applications...................................................................... 19 iPhone and the Growth of Mobile Applications ................................................................................ 19 Opportunities for Stakeholders .......................................................................................................... 21 Advertisers ...................................................................................................................................... 21 Owners – Smartphone Vendors and MNOs .................................................................................... 21 Developers ...................................................................................................................................... 22 Application Stores ........................................................................................................................... 22 Market Size..............................................................................................................................24 Forecast Methodology ....................................................................................................................... 24 Market Size ........................................................................................................................................ 25 Mobile Application User Base ......................................................................................................... 25 Mobile Application Downloads ........................................................................................................ 28 Mobile Application Revenues – Application Sales, Advertisements and In-app Payments ............. 29 Comparison between new and previous forecasts............................................................................. 35 Value Chain .............................................................................................................................39 Popular Mobile Application Stores.......................................................................................42 Types of Application Stores............................................................................................................. 42 Apple App Store .............................................................................................................................. 43 Google Android Market ................................................................................................................... 45 BlackBerry App World ..................................................................................................................... 47 Nokia Ovi Store ............................................................................................................................... 49 Windows Phone 7 Marketplace ....................................................................................................... 51 Comparison of Application Stores ................................................................................................... 54 Mobile Apps Development ....................................................................................................56 Mobile Apps Market – A Growing Phenomenon ................................................................................ 56 Opportunities for Developers ............................................................................................................. 56 Revenue Model .................................................................................................................................. 57 What Goes into Developing a Successful Mobile App ....................................................................... 58 Success Stories ................................................................................................................................. 59 Case Study: Angry Birds ................................................................................................................. 59 App Development – Is there any money in it? ....................................................................62 Disruptive Applications and Services – Opportunity or Threat to MNOs? ......................66 Mobile Video Streaming ........................................................................................................68 Case Study: YouTube ........................................................................................................................ 69 YouTube Milestones........................................................................................................................ 69 Pricing ............................................................................................................................................. 70 Success Factors .............................................................................................................................. 70 Big Question: Is YouTube an Opportunity or a Threat to MNOs? ................................................... 73 Case Study: MobiTV .......................................................................................................................... 76 MobiTV Milestones .......................................................................................................................... 77 Pricing ............................................................................................................................................. 78 User Base ....................................................................................................................................... 79 Success Factors .............................................................................................................................. 79 Big Question: Is MobiTV an Opportunity or a Threat to MNOs?...................................................... 80 Social Networking ..................................................................................................................82 Case Study: Facebook....................................................................................................................... 83 Facebook Milestones ...................................................................................................................... 84 Features of Facebook ..................................................................................................................... 85 Pricing ............................................................................................................................................. 86 User Base ....................................................................................................................................... 86 Success Factors .............................................................................................................................. 87 Scope/Type of Advertisements ....................................................................................................... 87 © 2011, Portio Research. All Rights Reserved 3
    • Disruptive Mobile Applications and Services 2011-2015 Recent Developments ..................................................................................................................... 87 Big Question: Is Facebook an Opportunity or a Threat to MNOs? .................................................. 88 Case Study: Twitter............................................................................................................................ 90 Twitter Milestones ........................................................................................................................... 91 Features of Twitter .......................................................................................................................... 91 Pricing ............................................................................................................................................. 92 Success Factors .............................................................................................................................. 92 Recent Developments ..................................................................................................................... 92 Big Question: Is Twitter an Opportunity or a Threat to MNOs? ....................................................... 93 Mobile VoIP .............................................................................................................................95 Case Study: Skype ............................................................................................................................ 96 Skype Milestones ............................................................................................................................ 96 Features of Skype ........................................................................................................................... 97 Pricing ............................................................................................................................................. 97 User Base ....................................................................................................................................... 99 Success Factors ............................................................................................................................ 100 Recent Developments ................................................................................................................... 100 Skype and Microsoft Deal ............................................................................................................. 101 Big Question: Is Skype an Opportunity or a Threat to MNOs? ...................................................... 103 Case Study: Nimbuzz ...................................................................................................................... 105 Nimbuzz Milestones ...................................................................................................................... 105 Features of Nimbuzz ..................................................................................................................... 106 Pricing ........................................................................................................................................... 106 User Base ..................................................................................................................................... 107 Success Factors ............................................................................................................................ 107 Big Question: Is Nimbuzz an Opportunity or a Threat to MNOs? .................................................. 108 Bulk Messaging Services ....................................................................................................111 Case Study: SMS GupShup ............................................................................................................ 112 SMS GupShup Milestones ............................................................................................................ 112 Features of SMS GupShup ........................................................................................................... 113 Pricing ........................................................................................................................................... 113 User Base ..................................................................................................................................... 114 Success Factors ............................................................................................................................ 116 Big Question: Is SMS GupShup an Opportunity or a Threat to MNOs? ........................................ 117 Mobile Payments ..................................................................................................................119 Introduction ...................................................................................................................................... 119 Mediums of Mobile Payments .......................................................................................................... 120 Square Mobile Payment Solution .................................................................................................. 122 Mobile Ticketing and Coupons ...................................................................................................... 125 Drivers for Mobile Payments ............................................................................................................ 126 Inhibitors for Mobile Payments ......................................................................................................... 128 Case Studies of Key Players ........................................................................................................... 128 Case Study: Bango ....................................................................................................................... 129 Case Study: Boku.......................................................................................................................... 130 Recent Developments in Mobile Payments ..................................................................................... 131 Conclusions and Future Outlook .......................................................................................133 Appendices ...........................................................................................................................143 Glossary ........................................................................................................................................ 144 Portio Research Classifications ..................................................................................................... 157 Companies Mentioned in this Report ............................................................................................ 158 About the Authors.......................................................................................................................... 163 Also available from Portio Research Limited ................................................................................... 164 4 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Figure 38: Figure 39: Figure 40: Figure 41: Figure 42: Figure 43: Figure 44: Smartphone Shipments – Worldwide (In Million, 2008 – 2015F) ....................................... 11 Smartphone Shipments as a Percentage of Handset Shipments – Worldwide (In Million, 2008 – 2015F) .................................................................................................................. 11 Mobile Subscriber Base – Worldwide (In Million, 2008 – 2015F) ...................................... 13 Mobile Subscriber Base – Regional (In Million, 2008 – 2015F) ......................................... 14 Worldwide Subscriber Base – Regional Contribution (In Percent, 2010) .......................... 15 Worldwide Subscriber Base – Regional Contribution (In Percent, 2015F) ........................ 15 Apple’s App Store – Total Application Downloads (In Million) ........................................... 21 Mobile Applications User Base – Worldwide (In Million, 2009 – 2015F)............................ 25 Worldwide Mobile Application Users – Regional Contribution (In Percent, 2010) ............. 26 Worldwide Mobile Application Users – Regional Contribution (In Percent, 2015F)......... 27 Mobile Applications User Base Growth by Region (In Percent, 2010 – 2015F) ................ 27 Mobile Applications Users as a Percentage of Total Regional Mobile Subscribers – Regional (In Percent, 2010 and 2015F) ............................................................................ 28 Mobile Application Downloads – Worldwide (In Billion, 2009 – 2015F) ............................ 28 Mobile Applications Revenue – Worldwide (In USD Billion, End 2010 – End 2015F) ....... 30 Mobile Applications Sales and Advertisement Revenues – Worldwide (In USD Billion, 2010 – 2015F) .................................................................................................................. 30 Worldwide Mobile Applications Sales and Advertisement Revenues – Regional Contribution (In Percent, 2010) ......................................................................................... 31 Worldwide Mobile Applications Sales and Advertisement Revenues – Regional Contribution (In Percent, 2015F)....................................................................................... 32 Growth of Mobile Applications Sales and Advertisement Revenues by Region (In Percent, 2010 – 2015F) .................................................................................................................. 32 In-app Payment Revenues – Worldwide (In USD Billion, 2009 – 2015F) ......................... 33 Break-out of In-app Payment Revenues by Type – Worldwide (In Percent, 2010) ........... 34 Break-out of In-app Payment Revenues by Type – Worldwide (In Percent, 2015F) ......... 34 Smartphone Shipments Y-o-Y Growth by Region (In Percent, 2009 & 2010)................... 35 Basic Value Chain of the Mobile Applications Market ....................................................... 39 Break-out of Available Mobile Applications by Free and Paid Application Type – Worldwide (In Percent, June 2011)................................................................................... 42 Break–out of Available Applications by Type – Apple App Store (Worldwide, In Percent, June 2011) ........................................................................................................................ 43 Apple App Store – Quarterly App Additions (In Thousands) ............................................. 44 Break–out of Available Applications between Games and Non-Games – Google Android Market (Worldwide, In Percent, June 2011)...................................................................... 45 Google Android Market – Quarterly App Additions (In Thousands) .................................. 46 Break–out of Available Applications by Type – BlackBerry App World (Worldwide, In Percent, June 2011) ......................................................................................................... 47 BlackBerry App World – Number of Downloads per Day (In Million) ................................ 48 Break–out of Available Applications between Games and Non-Games – Nokia Ovi Store (Worldwide, In Percent, June 2011)................................................................................. 49 Nokia Ovi Store – Number of Downloads per Day (In Million) .......................................... 50 Break-out of Available Applications by Type – Windows Phone 7 Marketplace (Worldwide, In Percent, June 2011) ..................................................................................................... 51 Windows Phone 7 Marketplace – Number of Available Applications (In Thousands) ....... 52 Windows Phone 7 Marketplace – Number of Registered Developers .............................. 52 Mobile Applications – Revenue Models ............................................................................ 57 Angry Birds – Number of Downloads (In Millions)............................................................. 60 Apple App Store – Break-out of Paid and Free App Downloads (In Percent, June 2011) 62 Google Android Market vs. Apple App Store – Monthly App Additions (In Thousands) .... 63 Google Android Market – Break-out of Paid App Downloads (In Percent, June 2011) ..... 64 Google Android Market – Break-out of Free App Downloads (In Percent, June 2011) ..... 64 YouTube Milestones ......................................................................................................... 69 Number of Hours of Video Uploaded Per Minute to YouTube .......................................... 70 Number of Views of the Top 5 Most viewed YouTube Videos (In Millions, June 2011) .... 71 © 2011, Portio Research. All Rights Reserved 5
    • Disruptive Mobile Applications and Services 2011-2015 Figure 45: Duration of YouTube Videos viewed across Social Networking Websites per day (In Years, May 2011) ........................................................................................................ 72 Figure 46: Number of Views per day via Mobile Devices (In Millions) ............................................... 73 Figure 47: Break-out of Worldwide Mobile Data Traffic (In Percent, End-2010) ................................ 74 Figure 48: MobiTV Milestones ........................................................................................................... 77 Figure 49: MobiTV – User Base (North America, In Million) .............................................................. 79 Figure 50: Facebook Milestones ........................................................................................................ 84 Figure 51: Features of Facebook for Mobile Users ............................................................................ 85 Figure 52: Facebook – Total User Base (In Million) ........................................................................... 86 Figure 53: Facebook – Mobile User Base (In Million) ........................................................................ 86 Figure 54: Twitter Milestones ............................................................................................................. 91 Figure 55: Features of Twitter ............................................................................................................ 91 Figure 56: Skype Milestones.............................................................................................................. 96 Figure 57: Skype – Active User Base (Worldwide, In Million) ............................................................ 99 Figure 58: Skype – Regional Active User Base (In Percent, 2010).................................................... 99 Figure 59: Valuation of Skype (In USD Billion, 2005 - 2011) ........................................................... 102 Figure 60: Nimbuzz Milestones........................................................................................................ 105 Figure 61: Features of Nimbuzz....................................................................................................... 106 Figure 62: Nimbuzz – User Base (Worldwide, In Million) ................................................................. 107 Figure 63: Number of Downloads from GetJar and Nokia Ovi Store of the Nimbuzz Application (In Million) ............................................................................................................................ 108 Figure 64: SMS GupShup Milestones .............................................................................................. 112 Figure 65: Features of SMS GupShup ............................................................................................. 113 Figure 66: SMS GupShup – User Base (India, In Million) ................................................................ 114 Figure 67: User Base – SMS GupShup vs. Networking Websites (India, May 2011, In Million) ...... 115 Figure 68: SMS GupShup - Number of Messages Processed per Month (India, In Millions) ........... 115 Figure 69: Mobile Payment Opportunities for Key Stakeholders (WIP) ........................................... 119 Figure 70: How NFC Payments work .............................................................................................. 121 Figure 71: Square Card Reader....................................................................................................... 122 Figure 72: How Square Card Reader works .................................................................................... 123 Figure 73: Subscribers using Mobile Applications – Worldwide (In Percent, 2009 – 2015F) ........... 133 Figure 74: Average Number of Mobile Applications Downloaded per User Yearly – Worldwide (2009 – 2015F) ............................................................................................................... 134 Figure 75: SWOT Analysis – Mobile Applications ............................................................................ 135 Figure 76: SWOT Analysis – Mobile Video Streaming ..................................................................... 136 Figure 77: SWOT Analysis – Social Networking .............................................................................. 137 Figure 78: SWOT Analysis – Mobile VoIP ....................................................................................... 138 Figure 79: SWOT Analysis – Bulk Messaging Services ................................................................... 139 Figure 80: SWOT Analysis – Mobile Payments ............................................................................... 140 6 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 List of Tables Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Table 21: Table 22: Table 23: Table 24: Table 25: Table 26: Table 27: Table 28: Table 29: Table 30: Mobile Subscribers – Regional (In Million, 2008 – 2015F) ................................................ 14 Types of Applications Prevalent in the Mobile Applications Market ................................... 18 Mobile Applications User Base – Regional (In Million, 2009 – 2015F) .............................. 26 Mobile Application Downloads – Regional (In Million, 2009 – 2015F) ............................... 29 Mobile Applications Sales and Advertisement Revenues – Regional (In USD Billion, 2010 – 2015F) ........................................................................................................................... 31 Comparison of New and Old Forecasts – Mobile Applications User Base (In Million, 2010 – 2015F) .............................................................................................................................. 36 Comparison of New and Old Forecasts – Mobile Application Downloads (In Million, 2010 – 2015F) .............................................................................................................................. 37 Most Popular Paid and Free Applications, Apple App Store (The US, April 2011) ............ 44 Most Popular Paid and Free Applications, Google Android Market (The US, April 2011) . 46 Most Popular Paid and Free Applications, BlackBerry App World (Worldwide, April 2011) .. ..................................................................................................................................... 48 Most Popular Paid and Free Applications, Nokia Ovi Store (The US, April 2011) ............ 50 Most Popular Paid and Free Applications, Windows Phone 7 Marketplace (The US, April 2011) ................................................................................................................................ 53 Comparison of Application Stores..................................................................................... 54 Facts about Angry Birds ................................................................................................... 59 Success Factors – YouTube ............................................................................................. 72 Pricing – MobiTV Applications .......................................................................................... 78 Success Factors – MobiTV Mobile Application ................................................................. 79 Social Networking Sites – Active Users (In Million, May 2011) ......................................... 82 Success Factors – Facebook Mobile Application.............................................................. 87 Success Factors – Twitter ................................................................................................ 92 Features of Skype............................................................................................................. 97 Skype - Free vs. Paid Features ........................................................................................ 98 Success Factors – Skype ............................................................................................... 100 Skype – Usage Statistics including via Mobile (Worldwide, 2008-2010) ......................... 103 Success Factors – Nimbuzz ........................................................................................... 107 Growth of SMS – Worldwide (In Billion, 2000 – 2015F) .................................................. 111 Success Factors – SMS GupShup ................................................................................. 116 Regional Drivers – An Overview of Mobile Payments..................................................... 127 Inhibitors for Different Mobile Payment Platforms ........................................................... 128 Subscribers using Mobile Applications – Regional (In Percent, 2009 – 2015F).............. 134 © 2011, Portio Research. All Rights Reserved 7
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 1 Introduction 8 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Introduction Disruptive technology can be defined as a high impact innovation which changes the existing market environment. The term “disruptive technologies” is associated with technological innovations which are generally not expected to cause ripples in the marketing ecosystem, but actually do just the opposite and in fact have the capability of completely redefining an industry with their performance. As a result, they represent potent and often unquantifiable threats to incumbent businesses, meaning – in some cases – before incumbents realise it, their businesses are already facing the serious possibility of extinction. Mobile Network Operators (MNOs) are facing a similar threat from disruptive mobile applications and services. MNOs have turned to value-added services in order to counter their falling voice ARPUs (Average Revenue per User) by increasing data ARPUs. In the quest to increase revenue, strategies are witnessing a seismic shift towards a stronger mobile applications focus. Mobile applications and services have taken the mobile industry by storm and have created new opportunities. Applications and services – such as mobile VoIP, social networking, mass messaging apps/websites, mobile payments and usergenerated content – dominate the mobile market. They are transforming the mobile market, and MNOs can ill afford to ignore them. The innovative and new league of apps and services has attracted millions of users worldwide and has helped MNOs to gain subscribers’ loyalty, and this same app revolution is helping to drive the next wave of subscriber acquisition. Data traffic has outpaced voice traffic and has helped MNOs increase their data revenue. Although the strategy seems largely to be working well in the short term, MNOs need to be mindful of the long term ramifications – including that emerging disruptive applications and services threaten to de-value MNOs’ key revenue generators: voice and SMS. Today’s mobile users are getting used to mobile applications, leading to a decline in the time spent by users on mobile voice services. This cycle is impacting the voice revenues that operators can earn. In addition to revenue, MNOs are faced with another big challenge – that of limited network capacity to absorb the ever growing data traffic. Mobile applications, particularly the ones which demand high bandwidth availability, can cause clogging of the bandwidth available for voice calls. Mobile operators have to compromise on the services they offer due to bandwidth issues, which adversely affects the customer experience. Users can encounter poor network performance and face problems such as dropped calls, delayed text messages and sluggish download speeds. Moreover, with every MNO providing these applications and services, it has very much become a commonplace part of every operator’s offering and is often therefore no longer a differentiating factor in terms of competitiveness in the mobile apps market. As such, it has become critical for MNOs to analyse whether these applications and services help them to attract and acquire new subscribers or instead create greater problems without any actual returns. Video services are at the forefront of the disruptive mobile applications that are impacting the voice services of the mobile operators. This segment includes the VoIP services offered by, for example, Skype and online video streaming services – including the wealth of usergenerated content therein – offered by websites such as Youtube.com. The mobile industry is a perfect example of the fact that incumbents can simply not afford to rest on past laurels. The times when voice calling was sufficient to meet communication needs are long gone in virtually all markets worldwide, as user needs have radically changed over time. Services (such as VoIP) have evolved simultaneously with this user metamorphosis, but the vital underpinning infrastructure is still not fully developed across the board. YouTube has become a basic entertainment need in today’s world, and again the service elements in this © 2011, Portio Research. All Rights Reserved 9 MNOs have turned to valueadded services in order to counter their falling voice ARPUs (Average Revenue per User) by increasing data ARPUs. In the quest to increase revenue, strategies are witnessing a seismic shift towards a stronger mobile applications focus.
    • Disruptive Mobile Applications and Services 2011-2015 case are all present. There is neither dearth in the videos being uploaded, nor the videos being streamed, but the limitation is the infrastructure setup. Another such disruptive application is social networking. This has revolutionised the concept of networking, linking it intrinsically with entertainment. As an example, the Facebook application on mobile phones is a huge hit. This app is supported by the handset manufacturers’ and operating system (OS) developers’ strategy of making the user interface for social networking as smooth as possible. Mobile operators are effectively now forced to offer data plans which enable the user to spend maximum time on Facebook – because of its popularity. With the likes of Skype, YouTube and Facebook, mobile operators are facing the heat of these mobile applications combined with a compromised performance in terms of voice services. Mobile applications present themselves as a disruptive technology, and mobile operators will need to think outside of the box to address the fear of plummeting voice revenues. Mobile payments began as a complimentary service to facilitate transactions through a mobile phone, but over recent years has emerged as a separate industry. Mobile phones have become electronic wallets that can store the information required for a financial transaction. They are now capable of completing a financial transaction without any need for credit or debit cards, and consequently mobile payment mechanisms have begun to disrupt the traditional card-based payment market. The innovations taking place around the mobile payments market compelled payment giants such as Visa and Mastercard to enter the mobile market. MNOs have also unveiled initiatives – AT&T, Verizon Wireless and Deutsche Telekom have jointly announced their Isis service. Apple has also marked its entrance with its partnership with Square. Smartphones are majorly responsible for the massive popularity of mobile applications. In 2010, the smartphone market witnessed a staggering year-on-year growth of 74.2 percent to reach 298.7 million shipments. Smartphone shipments are expected to increase to 909.3 million shipments in 2015, growing at a CAGR of 24.9 percent through 2010-2015. The figure on the next page depicts smartphone shipments from 2008-2015. 10 © 2011, Portio Research. All Rights Reserved In 2010, the smartphone market witnessed a staggering year-on-year growth of 74.2 percent to reach 298.7 million shipments. Smartphone shipments are expected to increase to 909.3 million shipments in 2015, growing at a CAGR of 24.9 percent through 2010-2015.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 1: Smartphone Shipments – Worldwide (In Million, 2008 – 2015F) Smartphone Shipments (In Million) 1000 909.3 900 791.6 800 671.7 700 549.0 600 500 420.3 400 298.7 300 147.3 171.5 2008 200 2009 100 0 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted Smartphones are gaining popularity in all regions worldwide. As a result, smartphone shipments as a percentage of handset shipments are expected to increase through 20102015. Share of Smartphone Shipments (In Percent) Figure 2: Smartphone Shipments as a Percentage of Handset Shipments – Worldwide (In Million, 2008 – 2015F) 46.0% 50% 41.9% 37.6% 40% 32.8% 27.7% 30% 21.6% 20% 12.2% 14.7% 10% 0% 2008 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The availability of advanced networks has further fueled the data usage among mobile users. While the emerging markets have started exploring 3G benefits, developed markets are witnessing 3.5G and 4G deployments. © 2011, Portio Research. All Rights Reserved 11 The availability of advanced networks has further fueled the data usage among mobile users. While the emerging markets have started exploring 3G benefits, developed markets are witnessing 3.5G and 4G deployments.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 2 Worldwide Mobile Market 12 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Worldwide Mobile Market The worldwide mobile industry continues to grow at a significant rate. Since inception, this industry’s prolific growth rate has perpetually amazed all, including experts themselves, and will be strengthened further with the ongoing convergence of services with mobile communications, and initiatives by Mobile Network Operators (MNOs). At end-2010, worldwide mobile subscribers stood at nearly 5.4 billion. This subscriber base is now projected to grow at a Compound Annual Growth Rate (CAGR) of 6.8 percent between 2010 and 2015, and is expected to reach nearly 7.5 billion by end-2015. The figure below highlights the growth in worldwide mobile subscriber base during 20082015. Please note that within these new forecasts we have revised our worldwide and regional mobile subscriber base forecasts based on actual, currently-stated subscriber figures for end-2010. Figure 3: Mobile Subscriber Base – Worldwide (In Million, 2008 – 2015F) Mobile Subscriber Base (In Million) 8,000 6,355.1 6,775.2 7,144.8 7,464.2 5,871.0 6,000 5,362.4 4,655.8 4,044.8 4,000 2,000 0 2008 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted Asia Pacific is the largest mobile market worldwide. At end-2010, the region’s mobile subscriber base stood at over 2.6 billion and is forecast to surpass 3.9 billion by end-2015 – growing at a CAGR of 8.5 percent during 2010-2015. Europe is the second-largest region worldwide in terms of subscribers and was nearing 1.1 billion subscribers at end-2010. The next table highlights regional mobile subscriber levels during 2008-2015. © 2011, Portio Research. All Rights Reserved 13 At end-2010, worldwide mobile subscribers stood at nearly 5.4 billion. This subscriber base is now projected to grow at a Compound Annual Growth Rate (CAGR) of 6.8 percent between 2010 and 2015, and is expected to reach nearly 7.5 billion by end-2015.
    • Disruptive Mobile Applications and Services 2011-2015 Table 1: Mobile Subscribers – Regional (In Million, 2008 – 2015F) 1 Mobile Subscribers (In Million) Region 2008 2009 2010 2011F 2012F 2013F 2014F 2015F Europe 999.7 1,038.3 1,066.4 1,102.6 1,128.5 1,149.4 1,166.2 1,179.8 Asia Pacific 1,733.8 2,132.1 2,605.1 2,913.6 3,219.5 3,484.8 3,716.8 3,914.8 North America 291.9 313.5 343.4 361.4 377.7 392.3 405.4 417.0 Latin America 449.5 494.0 549.2 589.9 624.5 655.1 681.8 705.0 Africa and Middle East 570.1 677.9 798.3 903.5 1,004.9 1,093.7 1,174.6 1,247.6 Total 4,044.8 4,655.8 5,362.4 5,871.0 6,355.1 6,775.2 7,144.8 7,464.2 Source: Portio Research Ltd. The figure below is the graphical representation of Table 1 above. Figure 4: Mobile Subscriber Base – Regional (In Million, 2008 – 2015F) Mobile Subscribers (In Million) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2008 Europe 2009 Asia Pacific 2010 2011F North America 2012F Latin America 2013F 2014F 2015F Africa and Middle East Source: Portio Research Ltd. F – Forecasted 1 14 Note: Sum of regional numbers may not equal total due to rounding off errors. © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Asia Pacific’s subscribers constituted 48.6 percent of the worldwide mobile subscriber base in 2010, while the second largest contribution was Europe with 19.9 percent. The figure below depicts regional contribution to the worldwide mobile subscriber base in 2010. Figure 5: Worldwide Subscriber Base – Regional Contribution (In Percent, 2010) 48.6% 6.4% 10.2% 14.9% 19.9% Europe Asia Pacific North America Latin America Africa and Middle East Source: Portio Research Ltd. Between 2010 and 2015, the percentage contribution of the Asia Pacific and Africa and Middle East (AME) regions to the worldwide subscriber base is expected to increase at the expense of the remaining regions, which will see declines during the same period. Asia Pacific will continue to dominate the worldwide mobile market, and in 2015 over 52 percent of worldwide mobile subscribers will originate from this region. The increase in subscriber base share for the Asia Pacific and AME regions can be ascribed to the strong subscriber base growth in the emerging markets. Figure 6: Worldwide Subscriber Base – Regional Contribution (In Percent, 2015F) 2 5.6% 52.4% 9.4% 16.7% 15.8% Europe Asia Pacific North America Latin America Africa and Middle East Source: Portio Research Ltd. F – Forecasted 2 Note: The percentages do not add up to 100 percent because of rounding off errors. © 2011, Portio Research. All Rights Reserved 15 The increase in subscriber base share for the Asia Pacific and AME regions can be ascribed to the strong subscriber base growth in the emerging markets.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 3 Mobile Applications Market 16 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Applications Market Mobile applications are functionalities provided to users by software that performs specific tasks. These applications now come pre-installed on handsets, or can be downloaded by users and installed on their handsets. Mobile applications are rapidly changing the nature of the mobile industry, supporting the ongoing transformation of handsets from simple communication devices into gadgets with powerful information, entertainment and productivity features, as well as boosting the use of mobile data services. The marketplace for mobile applications remains highly fragmented. The mobile applications ecosystem encompasses platform developers, application developers, aggregators, mobile operators, handset and operating system (OS) vendors, and application store owners. Prominent players in the market include Apple (Apple App Store), Google (Android Market), Nokia (Ovi Store), Research In Motion (BlackBerry App World), Microsoft (Windows Phone 7 Marketplace), GetJar and Appia (formerly known as PocketGear), each offering an application storefront to users. Mobile applications can only be downloaded on to handsets that have an operating system and an application programming interface (API) capable of interacting with these third party applications. Some of the popular operating systems are iPhone OS, Android, Symbian, BlackBerry OS, Windows Mobile and WebOS. Some applications also require supporting platforms, such as BREW, Java and FlashLite. A wide variety of mobile applications are available in the market for both the consumer and enterprise segments, offering different features and options, and the extent to which they require network connectivity depends on their functionalities. Types of Mobile Applications To satisfy the varied needs of users, there are numerous free and paid applications available in the market, typically concentrated towards the convenience and entertainment needs of users. Apple alone provides a wide spectrum of over 425,000 applications for iPhone, iPod Touch and iPad users. The table on the next page provides a list of different types of applications prevalent in the mobile applications market. © 2011, Portio Research. All Rights Reserved 17 Mobile applications can only be downloaded on to handsets that have an operating system and an application programming interface (API) capable of interacting with these third party applications.
    • Disruptive Mobile Applications and Services 2011-2015 Table 2: Types of Applications Prevalent in the Mobile Applications Market Games Productivity/ Enterprise Multimedia Communication Travel Utilities Arcade Directory Service Image Viewer Social Networking City Guide Screen Saver/Themes Action Calendar Audio/Video Player E-mail Client GPS/Maps Profile Manager Puzzle/ Word Game LocationBased Service (LBS) Presentation Viewer Instant Messaging (IM) Client Flight/Train Tracking Task Manager Role Playing Calculator Karaoke Player Mobile Internet browser Currency Converter Address Book Strategy Banking and Finance Audio/Video Recorder On–Device Portal Scheduler File Manager Simulation Spreadsheet Radio Sports/Racing Word Processor Casino/Cards News/ Weather Antivirus Search Board Game Source: Portio Research Ltd. Growth of Mobile Applications Business Mobile applications have created a lot of hype in the market and have witnessed huge expansion since the launch of Apple’s App Store in July 2008. Apple owned 99.4 percent 3 of the mobile applications market in 2009, driving much of the growth in the market, and the success of the App Store has prompted others to follow, with MNOs, handset and OS vendors, and independent companies all keen to jump on the app store bandwagon. The primary factors driving the growth of the mobile applications market are the growing popularity of smartphones and consumer demand for such apps. Also, mobile access to high-speed data networks and affordable tariff plans have led to a continuous growth in mobile broadband penetration, providing a much needed impetus to the mobile applications market. In addition, developers are attracted to the mobile applications market with its favourable revenue sharing models and accessible distribution channels for their apps. Evolution of Mobile Applications Market The mobile applications market has evolved from the mobile content market of the past, where open platforms – such as BREW, Symbian, Palm and others – introduced APIs allowing third-party developers to create content for their platforms. However, what was 3 Source: http://arstechnica.com/apple/news/2010/01/apple-responsible-for-994-of-mobile-app-sales-in-2009.ars 18 © 2011, Portio Research. All Rights Reserved The primary factors driving the growth of the mobile applications market are the growing popularity of smartphones and consumer demand for such apps.
    • Disruptive Mobile Applications and Services 2011-2015 missing then was the commercial channel to promote and distribute such content and services. Apple has engineered the success of its App Store by not only allowing developers to produce creative content and applications for consumers, but also by changing the way in which content is distributed, through its direct distribution mechanism that bypasses content aggregators, content retailers and mobile operators. Consumers get the content they need with convenient app search, download and payment features, while developers receive their fair share of revenue. The success of Apple App Store has inevitably led to others in the mobile space following suit and introducing their own application storefronts. Today, there is a rapidly increasing number of app stores in the market, with no signs of the trend slowing. Handset and platform vendors, including Nokia, RIM, Microsoft, Google, Sony Ericsson and others, have launched their application stores; MNOs, including Vodafone, Orange, TIM, O2, Verizon Wireless, China Mobile and others, are quite active in the mobile applications space; and – demonstrating that mobile apps present great opportunity for all – third-party players and independent retailers are also entering the mainframe mobile applications market. Monetising the Mobile Applications Business Business models for mobile applications have also evolved over time, with market players now experimenting with different models to monetise the mobile apps market. Apps are available not only as paid downloads, but also for free as ad-sponsored downloads. In addition, in-app payments are catching on fast, creating new revenue streams for developers. Developers create basic or lite versions of some applications that are launched for free, but which have built-in in-app payment options that facilitate subsequent purchases by the users. In-app payments are expected to be a key tool for facilitating revenue generation in the mobile apps market. Moreover, in-app payment enablers are providing options for operator billing for in-app purchases, which simplifies app purchases – as users no longer require credit cards or other online payment accounts (e.g. PayPal). App stores are experimenting with different payment mechanisms, such as direct billing through payment gateways, operator billing and in-app purchases. While Apple has built its success on direct billing through the iTunes account, operator billing is the most preferred mechanism in the mass market. Role of Handsets in the Uptake of Mobile Applications With a growing demand for data services, mobile users are seeking devices that bring together technology and entertainment, to extend handset functionality beyond just voice calls or messaging. Users’ demands for converged devices with multiple features, such as intuitive touch interfaces, high-resolution cameras, Web browsers, integrated GPS and WiFi, have proliferated the demand for smartphones; and in turn smartphones – with their operating systems enabling app downloads – are helping boost the uptake of mobile apps. iPhone and the Growth of Mobile Applications Apple App Store has been the catalyst for growth in the mobile applications market. Apple has spurred the growth of mobile apps by engaging end users with their compelling devices and backing these up with its extensive library of mobile applications at the Apple App Store. © 2011, Portio Research. All Rights Reserved 19 With a growing demand for data services, mobile users are seeking devices that bring together technology and entertainment, to extend handset functionality beyond just voice calls or messaging.
    • Disruptive Mobile Applications and Services 2011-2015 The Apple App Store became an instant success with 10 million applications downloaded within three days of the store’s July 2008 launch, but the store’s success is inextricably linked to the phenomenal success of Apple’s devices; as of May 2011, Apple has sold 200 million iOS devices 4 including the iPhone, iPod Touch and iPad. The iPhone revolutionised the smartphone market with a large touch screen, engaging interface and exciting features and functionalities, and has transformed the behavior of mobile users and the way people communicate and consume data-based services. There are over 425,000 applications available at the Apple App Store (as of June 2011) and consumers have downloaded more than 15 billion applications 5 (as of early-July 2011) on their Apple devices. It is fair to say that the App Store is promoting sales of iPhones, and that the iPhone is increasing the demand for mobile applications. A similar pattern is now fast developing with Google Android’s application store and Android devices. Apple also changed the game for developers with a simple, yet powerful distribution platform that both reaches a large user base and offers an incentivised revenue share. In addition, the single device API makes the Apple App Store more attractive to developers, as it provides an application marketplace without the need for them to worry about the different device SDKs (Software Development Kits), screen sizes/resolutions, processors, etc. The key factors that determine the success of application stores are the choice of applications available and convenience; this includes convenience for both user and developer communities, in terms of the ease of discovery of applications, one-click download features, trouble-free billing and payment options. The Apple App Store provides a wide choice of applications across different categories, along with application reviews and recommendations, etc. Also, the store is well-managed with convenient billing and payment features. Thus, Apple’s compelling service experience and the application ecosystem is what is keeping both users and developers happy. This is evident from a growing number of downloads at the Apple App Store and the phenomenal success it has achieved since its July 2008 launch. January 2011: “With more than 10 billion apps downloaded in just two and a half years—a staggering seven billion apps in the last year alone—the App Store has surpassed our wildest dreams.” Philip Schiller Senior Vice President, Apple, Inc. The Apple App Store registered more than 15 billion downloads to-date as of early-July 2011. The figure on the next page shows the App Store’s performance since its launch in July 2008. 4 Source: http://www.phonearena.com/news/Apple-has-sold-200-million-iOS-devices-and-distributed-14-billionapps_id19359 5 Source: http://www.apple.com/pr/library/2011/07/07Apples-App-Store-Downloads-Top-15-Billion.html 20 © 2011, Portio Research. All Rights Reserved There are over 425,000 applications available at the Apple App Store (as of June 2011) and consumers have downloaded more than 15 billion applications (as of early-July 2011) on their Apple devices.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 7: Apple’s App Store – Total Application Downloads (In Million) 15,000 Downloads (In Million) 16,000 14,000 12,000 10,000 7,000 8,000 6,500 5,500 4,000 3,000 4,000 2,000 10 Jul-08 Sep-08 1,000 100 Jul-11 May-11 Jan-11 Oct-10 Aug-10 Jun-10 Apr-10 Jan-10 Sep-09 Apr-09 0 Period Source: Apple, Portio Research Ltd. Opportunities for Stakeholders The mobile applications market is highly fragmented, with stakeholders both fighting for market share and seeking ways to monetise applications – all the while as this very competition drives down the prices of paid apps. Advertisers The growing popularity of mobile applications has created attractive opportunities for advertisers. With a mobile application user base of 73.9 million at end-2010, advertisers see the potential for placing adverts in mobile apps. Mobile advertisements covered a critical mass of users and generated estimated revenues of over USD 445 million in 2010, and revenue generated through ad-placements in mobile applications is expected to almost double to USD 982 million in 2011. Adverts can be delivered to consumers in the following ways: • Built into mobile applications such as games, e–books and online TV • Adjoined with downloaded or streaming audios and videos • Placed next to search results • Displayed on web browsers and websites accessed by mobile users • Sent via text and multimedia messages Placing advertisements within a mobile application generates new streams of revenue for application publishers, developers and app stores. This additional revenue helps users in two ways—reduced application prices, or large numbers of free applications and services that are made available to users. Meanwhile, application stores and developers are able to maximise the number of users and increase their reach. Owners – Smartphone Vendors and MNOs Smartphone vendors and MNOs have developed their own developer communities to be able to launch their own application stores. Besides generating new streams of revenue for themselves, the objective of launching their own app stores is to increase customer loyalty © 2011, Portio Research. All Rights Reserved 21 Mobile advertisements covered a critical mass of users and generated estimated revenues of over USD 445 million in 2010, and revenue generated through ad-placements in mobile applications is expected to almost double to USD 982 million in 2011.
    • Disruptive Mobile Applications and Services 2011-2015 and stickiness towards their products and services. Since handsets have become so much more than mere communication devices, mobile applications are now effectively a prerequisite for users, and so owning an application store becomes a requirement for smartphone vendors and MNOs to be able to acquire new customers and concurrently minimise customer churn. Developers To satisfy the ever increasing needs of users and to stay ahead of the competition, application stores are required to add new apps to their portfolios, on a regular and frequent basis; and it is this need for continuous development of new applications that justifies the high demand for developers in the mobile market. Application Stores The phenomenal success of Apple’s App store – recording 15 billion downloads in just three years since its launch – has drawn many other players into the mobile applications market. Application stores offer apps across different types – such as games, productivity, multimedia, travel, communications and utilities – to meet the varied demands of mobile users, and make money from paid applications, advertisements and in–app purchases. 22 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 4 Market Size © 2011, Portio Research. All Rights Reserved 23
    • Disruptive Mobile Applications and Services 2011-2015 Market Size Forecast Methodology Mobile applications are software programs that run on handheld devices such as smartphones, feature phones or tablets. However, the distinction between feature phones and smartphones is the inability of feature phones to install, download or remove external applications – as they are devoid of operating systems (OS). Smartphones have operating systems and independent developers can develop mobile applications for them using a Software Development Kit (SDK) specific to that OS; feature phones sometimes have preinstalled mobile applications provided by the handset manufacturer. Therefore, we have excluded the feature phone handset user base from our study while forecasting the target market for mobile applications, as these devices do not download apps from application stores. Mobile application users are a sub-set of smartphone users and are calculated as a percentage of the worldwide smartphone user base, taking into account regional variations. Various factors – such as differences in technology evolution, availability of smartphones, user awareness, and the state of the market – affect the adoption of mobile apps, and a normalising factor has therefore been assigned to each region while estimating the mobile application user base. To further estimate mobile application downloads, data for some of the major mobile application stores – including Apple, Android, Nokia Ovi, GetJar and BlackBerry – was collected and split across various regions. Total mobile application downloads can be broadly categorised into three categories: • • • Paid-for Applications: These are apps for which download charges are borne by the consumer. Ad-funded Free Applications: These are funded by advertisers. Advertisers post ads on applications and in return pay the mobile application providers for app downloads. They come as free applications for users. Un-monetised Applications: These are provided free of charge to users, irrespective of whether the advertiser is sponsoring it or not. Therefore, a mobile application store earns revenues from either paid-for apps or through ad-funded mobile apps. Revenue for paid-for applications is calculated using the mobile application downloads data and the average selling price of the most popular apps on various application stores. The revenue model of ad-funded applications works in two ways: • Cost per Mille (CPM): It refers to the revenue earned by the mobile application provider per 1,000 views of the advert. • Cost per Action (CPA): It refers to the revenue earned by the mobile application provider when a user undertakes a specified action, such as a click or download, etc. CPM has a broader scope and includes the CPA approach as well, as it counts revenues from views. For the purpose of our study, we have determined the total ad-impressions in ad-funded downloads, and have used the CPM method to calculate revenues from adfunded mobile apps. In addition to the two revenue models described above, another model that is fast emerging is in-app payments. In-app payments are payments made by users within an application for application upgrades, virtual goods, updates, alerts, etc. There has been a surge in in-app 24 © 2011, Portio Research. All Rights Reserved Smartphones have operating systems and independent developers can develop mobile applications for them using a Software Development Kit (SDK) specific to that OS.
    • Disruptive Mobile Applications and Services 2011-2015 payments because of the growing use of apps from categories such as games, social networking and music, which carry various avenues for making in-app purchases. The in-app payment function is enabled within an application with the help of an application programming interface (API), which allows developers to embed a payment platform directly within their apps. Developers implement in-app purchases in their applications using the Software Development Kit (SDK) provided by the platforms and payment enablers. The API connects an application to an operator/vendor billing system for processing payments. After in-app payments are processed, the user is notified and is provided with access to the addon items purchased. In this section, we have provided the new forecasts for the mobile applications market in terms of user base, application revenues, and the number of downloads from 2011 to 2015. Market Size Mobile Application User Base The mobile applications market is gaining momentum worldwide. The evolution of mobile networks and enhanced mobile handset capabilities have enabled high-speed data transfers and thus improved the user experience—resulting in a spur in mobile application downloads and use. The worldwide user base for mobile applications stood at 73.9 million at end-2010. With smartphone vendors, software developers and MNOs making huge investments to improve the quality and utility of mobile apps, the mobile applications user base is expected to grow at a CAGR of 42.8 percent between 2010 and 2015 to reach 438.9 million by end-2015. The reason behind this high number is the widespread availability of free applications, increasing range of applications, affordable data plans and increasing smartphone penetration – especially in the Asia Pacific and Rest of World regions. Worldwide, the percentage of mobile users downloading mobile applications is expected to grow from 1.4 percent at end2010 to 5.9 percent by end-2015. The figure below depicts the mobile applications user base from 2009 to 2015. Mobile Applications User Base (In Million) Figure 8: Mobile Applications User Base – Worldwide (In Million, 2009 – 2015F) 438.9 450 400 340.7 350 300 253.9 250 182.8 200 122.1 150 73.9 100 50 38.7 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted © 2011, Portio Research. All Rights Reserved 25 The mobile applications user base is expected to grow at a CAGR of 42.8 percent between 2010 and 2015 to reach 438.9 million by end2015.
    • Disruptive Mobile Applications and Services 2011-2015 The table below highlights the growth in the number of regional mobile applications users from 2009 to 2015. Table 3: Mobile Applications User Base – Regional (In Million, 2009 – 2015F) 6 Mobile Applications User Base (In Million) Region 2009 2010 2011F 2012F 2013F 2014F 2015F Europe 10.9 20.5 29.5 41.5 54.6 68.4 85.4 Asia Pacific 11.7 22.1 36.1 56.9 86.5 123.1 164.7 North America 14.5 26.6 46.6 65.7 80.5 96.2 112.0 Rest of World 1.6 4.7 9.9 18.7 32.3 52.9 76.9 Total 38.7 73.9 122.1 182.8 253.9 340.7 438.9 Source: Portio Research Ltd. North America had the largest regional user base of mobile applications in 2010, constituting 36 percent of the worldwide mobile application user base. It was followed by Asia Pacific and Europe, with 29.9 percent and 27.7 percent shares respectively. The figure below breaks out the worldwide mobile application user base in 2010 by regions. Figure 9: Worldwide Mobile Application Users – Regional Contribution (In Percent, 2010) 29.9% 36.0% 27.7% Europe Asia Pacific 6.4% North America Rest of World Source: Portio Research Ltd. Asia Pacific’s smartphone shipments and user base witnessed an upsurge during the first quarter of 2011, despite declined demand from the Japanese market due to the devastating Tsunami. Other markets such as China, India and South Korea counterbalanced the Japanese performance. This is leading to a steep rise in Asia Pacific’s mobile applications’ user base. Asia Pacific is expected to outstrip North America and Europe to achieve the largest regional user base of mobile applications in the coming five years. The region will have 37.5 percent of the worldwide mobile applications user base by end-2015, followed by North America with 25.5 percent. 6 Note: Sum of regional numbers may not add up to the total due to rounding off errors. 26 © 2011, Portio Research. All Rights Reserved Asia Pacific is expected to outstrip North America and Europe to achieve the largest regional user base of mobile applications in the coming five years.
    • Disruptive Mobile Applications and Services 2011-2015 The figure below highlights the regional share in the worldwide mobile applications user base in 2015. Figure 10: Worldwide Mobile Application Users – Regional Contribution (In Percent, 2015F) 25.5% 37.5% 17.5% 19.5% Europe Asia Pacific North America Rest of World Source: Portio Research Ltd. F – Forecasted The worldwide mobile application user base is forecast to grow at a CAGR of 42.8 percent between 2010 and 2015. The ‘Rest of World’ (Latin America and AME) is expected to witness the highest percentage growth, since mobile applications user additions in this region will build on a lower existing user base compared with other regions. High growth is anticipated in all regions, as most markets aren’t expected to saturate in the next five years. Figure 11: Mobile Applications User Base Growth by Region (In Percent, 2010 – 2015F) CAGR (In Percent) 80 74.7 CAGR Worldwide = 42.8 % 70 60 CAGR 42.8% 49.5 50 40 33.3 33.0 30 20 10 0 Europe Asia Pacific North America Rest of World Region Source: Portio Research Ltd. F – Forecasted © 2011, Portio Research. All Rights Reserved 27 The ‘Rest of World’ (Latin America and AME) is expected to witness the highest percentage growth, since mobile applications user additions in this region will build on a lower existing user base compared with other regions.
    • Disruptive Mobile Applications and Services 2011-2015 In 2010, in terms of mobile application users as a percentage of the total regional mobile subscriber base, North America recorded the highest level with 7.7 percent, followed by Europe with 1.9 percent. The figure below compares the percentage of mobile applications users in the regional subscriber base at end-2010 with that at end-2015F. Figure 12: Mobile Applications Users as a Percentage of Total Regional Mobile Subscribers – Regional (In Percent, 2010 and 2015F) Mobile Applications Users' Contribution (In Percent) 30 26.9 25 20 15 10 5 7.7 7.2 4.2 1.9 3.9 0.8 0.4 0 Europe Asia Pacific North America Rest of World Region 2010 2015F Source: Portio Research Ltd. F – Forecasted Mobile Application Downloads The increasing number of mobile application downloads reflects the growing uptake of mobile application services. The number of downloads is expected to increase at a CAGR of 54.8 percent in the period between 2010 and 2015, and this is depicted in the figure below. Mobile Application Downloads (In Billion) Figure 13: Mobile Application Downloads – Worldwide (In Billion, 2009 – 2015F) 100 89.4 80 64.9 60 45.3 40 30.1 18.4 20 10.1 2.9 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The next table shows the regional contribution in mobile application downloads over the 2009-2015 period. 28 © 2011, Portio Research. All Rights Reserved The number of downloads is expected to increase at a CAGR of 54.8 percent in the period between 2010 and 2015
    • Disruptive Mobile Applications and Services 2011-2015 Table 4: Mobile Application Downloads – Regional (In Million, 2009 – 2015F) 7 Mobile Application Downloads (In Million) Region 2009 2010 2011F 2012F 2013F 2014F 2015F Europe 853 2,896 4,814 7,181 10,225 13,876 18,304 Asia Pacific 819 2,627 4,832 8,166 13,376 20,805 30,689 North America 1,165 4,200 7,798 12,516 17,066 21,553 26,491 Rest of World 79 344 970 2,239 4,652 8,620 13,890 Total 2,915 10,067 18,413 30,103 45,318 64,854 89,373 Source: Portio Research Ltd. In 2010, North America contributed 41.7 percent of the total mobile application downloads. It was followed by Europe and Asia Pacific amassing 28.8 percent and 26.1 percent respectively. In 2015, Asia Pacific is expected to overtake North America in download-terms, contributing 34.3 percent to the worldwide total, while North America will be accounting for 29.6 percent, followed by Europe with 20.5 percent. The contribution from Rest of World will increase slowly from 3.4 percent in 2010 to 15.5 percent in 2015. Mobile Application Revenues – Application Sales, Advertisements and In-app Payments Mobile applications are helping handset manufacturers to increase their market share, brand loyalty and revenues. Traditionally, handset and accessory sales have accounted for the dominant share in handset manufacturers’ revenues. However, with the emergence of the mobile app market, a new revenue stream has emerged for smartphone vendors. Apps are also helping MNOs to increase their revenues, especially data revenues, and are providing a new growing market for software developers. The figure on the next page provides the revenue forecasts for mobile applications accounting for mobile application sales, advertisements and in-app payments. 7 Note: Sum of regional numbers may not add up to the total due to rounding off errors. © 2011, Portio Research. All Rights Reserved 29 In 2015, Asia Pacific is expected to overtake North America in download-terms, contributing 34.3 percent to the worldwide total, while North America will be accounting for 29.6 percent, followed by Europe with 20.5 percent.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 14: Mobile Applications Revenue – Worldwide (In USD Billion, End 2010 – End 2015F) 70 63.0 Revenue (In USD BIllion) 60 46.9 50 33.6 40 33.8 30 23.6 20 15.4 17.1 11.6 1.6 0 3.6 2.0 9.0 4.3 4.7 7.4 8.0 11.9 16.7 2009 10 24.4 2010 2011F 2012F 2013F 22.5 2014F 29.4 2015F Year Mobile Application Sales and Advertisement Revenues In-app Payment Revenue Source: Portio Research Ltd. F – Forecasted Mobile Applications Revenues – Sales and Advertisements Figure 15: Mobile Applications Sales and Advertisement Revenues – Worldwide (In USD Billion, 2010 – 2015F) 29.4 30 Revenue (In USD BIllion) 25 22.5 20 16.7 15 11.9 8.0 10 4.7 5 1.6 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted 30 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 The table below highlights the growth of regional mobile applications sales and advertisement revenues from 2009 to 2015. Table 5: Mobile Applications Sales and Advertisement Revenues – Regional (In USD Billion, 8 2010 – 2015F) Mobile Applications Sales and Advertisement Revenues (In USD Billion) Region 2009 2010 2011F 2012F 2013F 2014F 2015F Europe 0.46 1.36 2.10 2.85 3.76 4.81 6.03 Asia Pacific 0.44 1.24 2.11 3.24 4.92 7.21 10.10 North America 0.63 1.98 3.40 4.96 6.28 7.47 8.72 Rest of World 0.04 0.16 0.42 0.89 1.71 2.99 4.57 Total 1.58 4.74 8.03 11.93 16.68 22.47 29.42 Source: Portio Research Ltd. In 2010, North America had the highest revenue share (41.7 percent) of worldwide mobile application sales and advertisements, followed by Europe (28.8 percent) and Asia Pacific (26.1 percent). The figure below shows the regional share of worldwide mobile application sales and advertisement revenues in 2010. Figure 16: Worldwide Mobile Applications Sales and Advertisement Revenues – Regional Contribution (In Percent, 2010) 26.1% 41.7% 28.8% Europe Asia Pacific 3.4% North America Rest of World Source: Portio Research Ltd. Asia Pacific is expected to overtake North America in this respect by end-2015, when it will account for 34.3 percent of the worldwide mobile application revenue (excluding in-app payments), against 29.6 percent for North America and 20.5 percent for Europe. The figure overleaf highlights the regional share of worldwide mobile application sales and advertisement revenues in 2015. 8 Note: Sum of regional numbers may not add up to the total due to rounding off errors. © 2011, Portio Research. All Rights Reserved 31 Asia Pacific is expected to overtake North America in this respect by end-2015, when it will account for 34.3 percent of the worldwide mobile application revenue (excluding in-app payments), against 29.6 percent for North America and 20.5 percent for Europe.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 17: Worldwide Mobile Applications Sales and Advertisement Revenues – Regional 9 Contribution (In Percent, 2015F) 29.6% 34.3% 15.5% 20.5% Europe Asia Pacific North America Rest of World Source: Portio Research Ltd. F – Forecasted Worldwide mobile application revenues, excluding in-app payments, are forecast to grow at a CAGR of 44.1 percent between 2010 and 2015, and all regions are expected to record impressive CAGRs. Mobile handset manufacturers, software developers and MNOs have identified the potential in the mobile application market and are aggressively promoting their mobile applications among consumers. In recent times, all major smartphone vendors, OS providers and MNOs have launched app stores either individually or in collaborations, and are also working with payment enablers to ensure secure and user-friendly payment systems. The growth in Rest of World is over double the worldwide average because its starting base was quite small in 2010 as the mobile app industry therein remained nascent. Figure 18: Growth of Mobile Applications Sales and Advertisement Revenues by Region (In Percent, 2010 – 2015F) CAGR (In Percent) 100 95.1 CAGR Worldwide = 44.1% 90 80 70 60 52.2 CAGR 44.1% 50 34.6 40 34.5 Europe North America 30 20 10 0 Asia Pacific Rest of World Region Source: Portio Research Ltd. F – Forecasted 9 Note: The percentages do not add up to 100 percent because of rounding off errors. 32 © 2011, Portio Research. All Rights Reserved The growth in Rest of World is over double the worldwide average because its starting base was quite small in 2010 as the mobile app industry therein remained nascent.
    • Disruptive Mobile Applications and Services 2011-2015 In-app Payment Revenues In-app payments are made by users to migrate from a free (or lite) version of an app to the full premium paid-for version of the app, or to access additional features or content to enhance the user experience of a particular application. With in-app payment feature options available within an application, users can make payments without having to go through a separate payment site, thus ensuring a seamless application experience. Moreover, multiplatform application developers are collaborating with payment enablers to make payments possible across mobile platforms. Enhanced user experiences, combined with the growing awareness and uptake of mobile applications among users, will result in the continuous growth of in-app payment revenues over the next five years. Mobile In-app Payment Revenue (In USD BIllion) Figure 19: In-app Payment Revenues – Worldwide (In USD Billion, 2009 – 2015F) 33.6 35 30 24.4 25 20 17.1 15 11.6 7.4 10 5 4.3 2.0 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted In 2010, mobile gaming applications accounted for a major portion (43.2 percent) of worldwide mobile in-app payment revenues, followed by social networking applications (32.5 percent) and other mobile applications (24.2 percent). © 2011, Portio Research. All Rights Reserved 33 In 2010, mobile gaming applications accounted for a major portion (43.2 percent) of worldwide mobile in-app payment revenues, followed by social networking applications (32.5 percent) and other mobile applications (24.2 percent).
    • Disruptive Mobile Applications and Services 2011-2015 Figure 20: Break-out of In-app Payment Revenues by Type – Worldwide (In Percent, 2010) 10 32.5% 24.2% 43.2% Gaming Social Networking Others Source: Portio Research Ltd. Mobile gaming applications will remain the largest contributor (57.9 percent) to mobile in-app payment revenues in 2015, followed by social networking applications (24.1 percent). Other applications are forecast to account for 18 percent of in-app payment revenues, with the majority of this expected to come from navigation maps, e-books and mobile payment apps. Figure 21: Break-out of In-app Payment Revenues by Type – Worldwide (In Percent, 2015F) 24.1% 57.9% 18.0% Gaming Social Networking Others Source: Portio Research Ltd. F – Forecasted 10 Note: The percentages do not add up to 100 percent because of rounding off errors. 34 © 2011, Portio Research. All Rights Reserved Mobile gaming applications will remain the largest contributor (57.9 percent) to mobile in-app payment revenues in 2015, followed by social networking applications (24.1 percent).
    • Disruptive Mobile Applications and Services 2011-2015 Comparison between new and previous forecasts Between our report Mobile Applications Futures 2010-2015 (published October 2010) and this report, our forecasts for mobile applications users and mobile application downloads have markedly altered. In this report, our applications users and mobile application downloads forecasts for all regions are more aggressive compared to the numbers published last year, except for the mobile applications user base forecast for Europe. The primary reason behind the revision is the unexpected behavior of the smartphone market. During the economic slowdown, smartphone shipments recorded modest growth worldwide which was less than our expectations prior to the crisis. The worldwide market recovered well in 2010. But with more intense market competition and the urge to tap the developing markets of Asia Pacific and Rest of World, smartphone shipments increased beyond expectations in these two regions. North America also showed better growth while Europe recorded mediocre growth owing to its high mobile penetration, which is reaching saturation in the major markets. The figure below shows the regional y-o-y growth of smartphone shipments in 2009 and 2010. Smartphone Shipments y-o-y Growth (In Percent) Figure 22: Smartphone Shipments Y-o-Y Growth by Region (In Percent, 2009 & 2010) 150 121.2 120 90 74.6 72.4 63.1 60 30 24.7 13.6 12.8 11.9 0 Europe Asia Pacific North America ROW Region 2009 2010 Source: Portio Research Ltd. With the growing smartphone penetration, the consumer segment will become even more active in the mobile applications domain and consumer demand for mobile applications is expected to rise in the coming years. Also, the adoption of advanced networks such as 3G, LTE and WiMAX, along with investments being made by operators in infrastructure, led us to scale up our forecasts for worldwide and regional app users and app downloads – except for Europe. The following table highlights the comparison between our new and old forecasts for regional mobile application user bases during 2010-2015. © 2011, Portio Research. All Rights Reserved 35 But with more intense market competition and the urge to tap the developing markets of Asia Pacific and Rest of World, smartphone shipments increased beyond expectations in these two regions.
    • Disruptive Mobile Applications and Services 2011-2015 Table 6: Comparison of New and Old Forecasts – Mobile Applications User Base (In Million, 11 2010 – 2015F) Mobile Applications User Base (In Million) Region 2010 2011F 2012F 2013F 2014F 2015F New 20.5 29.5 41.5 54.6 68.4 85.4 Old 20.0 30.6 45.5 61.4 77.6 93.6 New 22.1 36.1 56.9 86.5 123.1 164.7 Old 17.6 24.3 32.1 41.6 51.7 61.9 New 26.6 46.6 65.7 80.5 96.2 112.0 Old 28.7 41.1 52.1 61.9 68.9 76.0 New 4.7 9.9 18.7 32.3 52.9 76.9 Old 2.8 4.4 6.6 10.0 15.7 24.4 New 73.9 122.1 182.8 253.9 340.7 438.9 Old 69.1 100.4 136.3 174.9 213.9 255.9 Europe Asia Pacific North America Rest of World Worldwide Source: Portio Research Ltd. “Old” refers to forecasts published in the Portio Research report, Mobile Applications Futures 2010-2015. The change in forecasts for mobile app users naturally led to the evolution of our application download forecasts. However, changes here are also accounted for by booming mobile applications usage worldwide – bolstered by the wide range of available applications and supporting network deployments. The table on the next page highlights the comparison between our new and old forecasts for regional mobile application downloads during 2010-2015. 11 Note: Sum of regional numbers may not equal total due to rounding off errors. 36 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Table 7: Comparison of New and Old Forecasts – Mobile Application Downloads (In Million, 12 2010 – 2015F) Mobile Application Downloads (In Million) Region 2010 2011F 2012F 2013F 2014F 2015F New 2,896 4,814 7,181 10,225 13,876 18,304 Old 1,593 2,326 3,280 4,476 6,328 8,460 New 2,627 4,832 8,166 13,376 20,805 30,689 Old 1,989 3,406 5,381 7,938 10,944 14,233 New 4,200 7,798 12,516 17,066 21,553 26,491 Old 3,033 4,918 6,523 8,393 10,209 11,931 New 344 970 2,239 4,652 8,620 13,890 Old 118 476 1,143 1,751 2,134 2,991 New 10,067 18,413 30,103 45,318 64,854 89,373 Old 6,733 11,125 16,327 22,557 29,616 37,615 Europe Asia Pacific North America Rest of World Worldwide Source: Portio Research Ltd. “Old” refers to forecasts published in the Portio Research report, Mobile Applications Futures 2010-2015. 12 Note: Sum of regional numbers may not equal total due to rounding off errors. © 2011, Portio Research. All Rights Reserved 37
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 5 Value Chain 38 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Value Chain The mobile applications ecosystem comprises platform developers, application developers, aggregators, mobile operators, smartphone vendors and application store owners. The following figure explains the generic value chain of the mobile applications market. Figure 23: Basic Value Chain of the Mobile Applications Market Applications OEM Platform Providers Application Developers Aggregators App Stores Consumers Revenue Flow Source: Portio Research Ltd. The value chain consists of the following stakeholders: • • • OEM Platform Providers – They provide the development platform and programming environment to the application developers. OEM Platform Providers do not get any direct revenue share from application sales, but their arrangement with developers helps them build a large application base. Developers are also benefitted from this arrangement as they gain direct access to the OEM’s customer base. OEM Platform Providers can be categorised into the following two segments:  Hardware and Software Services – Companies such as Apple, Microsoft and Google provide developers with hardware and software services.  Smartphone Vendors – Companies such as Sony Ericsson, Samsung and Nokia provide developers with programmatic access to device assets. Application Developers – These individuals or companies develop applications for multiple operating systems, platforms and devices across different application categories. Developers receive up to 70 percent of the revenues from application sales (net amount after the deduction of taxes and billing charges) depending upon their agreement with application store owners. Aggregators – They offer a common platform to both developers and users to respectively upload and download mobile apps that are compatible with different devices. They also simplify users’ search for apps by limiting their need to contact different application stores and mobile operators. They further facilitate billing mechanisms for smartphone vendors and application store owners, and provide payment solutions to users to purchase mobile content and apps. Aggregators act as a channel between mobile operators and developers; in case operators do not wish to © 2011, Portio Research. All Rights Reserved 39 Developers receive up to 70 percent of the revenues from application sales (net amount after the deduction of taxes and billing charges) depending upon their agreement with application store owners.
    • Disruptive Mobile Applications and Services 2011-2015 • 40 invest their time in managing the content or the application developers. Popular mobile aggregators are GetJar, Handmark and Appia. Application Stores – These are online or mobile marketplaces for end consumers to purchase mobile applications. Users can check the applications available in the store, demo these apps on their mobile phones, and download them for free or by paying a certain fee. The three types of app stores are mentioned below:  Device/OS-centric Stores – These app stores are built by device and operating system (OS) vendors, and offer applications which can only run on their respective devices. OS vendor stores include Apple’s App Store, Google’s Android Market, Symbian Horizon, and RIM’s BlackBerry App World; and device vendor stores include Nokia’s Ovi Store, Samsung’s Samsung Apps and Sony Ericsson’s PlayNow Arena. The device/OS vendor stores partner with developers for developing applications for their specific devices. These stores provide direct payment options to users and allow them to pay with credit cards when downloading paid applications. Revenues from application sales are shared between developers and store owners in the ratio of 70:30 respectively (as in the case of Apple’s App Store). Device/OS vendor stores, except for Apple, also provide an option of payment via operator billing. In this case, MNOs receive a share of 30-40 percent from app sales, which in turn reduces the developer’s share.  Operator Stores – MNOs including Vodafone (Vodafone 360), O2 (O2 Litmus) and Orange (Orange App Store) have entered the apps market to offer a complete package of services and build stronger relationships with their customers, and therefore avoid becoming ‘dumb pipes’. MNOs partner with application developers for application development. As operators have direct relationships with mobile customers, it allows them to offer personalised services to a large customer base.  Third–Party/White Label Stores – These are stores operated by third-party providers such as GetJar, Appia, Handmark and Mobango. They are crossplatform application stores and offer apps to users across a wide range of devices and operating systems. White label stores do not own the hosted applications and are operated by a third-party under the client’s brand name. For example, Sprint has outsourced designing, hosting and operational services of their application store to third-party store ‘Handmark’. © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 6 Popular Mobile Application Stores © 2011, Portio Research. All Rights Reserved 41
    • Disruptive Mobile Applications and Services 2011-2015 Popular Mobile Application Stores Application stores are the primary channel to access and download mobile applications. Application stores are classified on the basis of who owns the store (in the value chain), and the different types of app stores are mentioned below: Types of Application Stores • Stores by OS vendors: Google Android Market, Microsoft Windows Phone 7 Marketplace, Symbian Horizon, etc. Stores by handset manufacturers: Apple App Store, BlackBerry App World, Nokia Ovi Store, etc. Stores by MNOs: China Mobile, Vodafone 360, O2 Litmus, Orange App Shop, etc. Third-party app stores: GetJar, Appia, Mobango, Handmark etc. • • • Break-out Between Free and Paid Applications While paid applications have been the primary source of revenue for app stores, free applications have helped stores in attracting users. In some cases, developers make a trial or lite version of an app (with less features than the full version) that is offered free of charge. However, the full version of the application is made available for download through a one-time payment or through a micropayment feature provided inside the app – also known as an in-app payment. The figure below provides the break-out of mobile applications available worldwide – from some of the leading app stores owned by smartphone vendors and OS providers – by free and paid applications. Figure 24: Break-out of Available Mobile Applications by Free and Paid Application Type – Worldwide (In Percent, June 2011) Mobile Applications Break-out (In Percent) 100% 37.5% 80% 52.8% 61.5% 75.8% 60% 40% 62.5% 20% 47.2% 38.5% 24.2% 0% Apple App Store Google Android Market BlackBerry App World Windows Phone 7 Marketplace Mobile Application Stores Free Applications Paid Applications Source: 148apps Metrics, AndroLib 42 © 2011, Portio Research. All Rights Reserved While paid applications have been the primary source of revenue for app stores, free applications have helped stores in attracting users.
    • Disruptive Mobile Applications and Services 2011-2015 Apple App Store Apple launched its ‘App Store’ in July 2008. Highlights • • • • Number of Active Applications: 425,000+ (June 2011) Free and Paid Applications, Worldwide: 38.5% Free, 61.5% Paid (June 2011) Average Price for Paid Applications for iPhone: USD 3.66 (June 2011) Number of Active Developers: 91,350 (June 2011) User Base – 200 million iOS devices (including iPhone, iPod Touch and iPad users, end-May 2011) Application Downloads – 15 billion (early-July 2011) Applications are available under five major types – Games, Books, Entertainment, Education and Lifestyle. The applications such as travel, utilities, music, sports, business, news, productivity, healthcare and navigation are included under ‘Others’. Figure 25: Break–out of Available Applications by Type – Apple App Store (Worldwide, In Percent, June 2011) 7.6% 8.9% 10.8% 44.2% 13.5% 15.0% Games Books Entertainment Education Lifestyle Others Source: 148Apps, Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 43
    • Disruptive Mobile Applications and Services 2011-2015 Figure 26: Apple App Store – Quarterly App Additions (In Thousands) 69.6 Quarterly App Addtions (In Thousands) 70 63.4 60 59.5 Q2 2010 Q3 2010 61.8 60.1 61.0 Q1 2011 Q2 2011 51.5 50 40 34.8 27.4 30 17.5 20 9.5 10 4.7 0 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q4 2010 Period Source: Apple, Portio Research Ltd. Table 8: Rank Most Popular Paid and Free Applications, Apple App Store (The US, April 2011) Paid Applications – Apple iPhone Free Applications – Apple iPhone 1 Angry Birds Rio (Games; Price: USD 0.99) Angry Birds Rio (Games) 2 Angry Birds (Games; Price: USD 0.99) Pickin’ Stix Classic (Games) 3 Tiny Wings (Games; Price: USD 0.99) Stupidness 2 (Games) 4 Air Penguin (Games; Price: USD 0.99) Facebook (Social Networking) 5 Fruit Ninja (Games; Price: USD 0.99) Words with Friends (Games) Source: Distimo, May 2011 44 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Google Android Market Google launched its mobile application store ‘Android Market’ in October 2008, and the store now has commercial operations in 131 countries (as of end-June 2011). Android Market offers the highest percentage of free applications, with 62.5 percent available as free downloads worldwide; the store relies on advertisements for revenue generation. Google, unlike Apple, gives users flexibility to download Android apps from any other source, such as developers’ websites. Highlights • • • • Number of Active Applications: 273,000+ (June 2011) Free and Paid Applications, Worldwide: 62.5% Free, 37.5% Paid (June 2011) Average Price for Paid Applications: USD 3.23 (May 2011) Number of Active Developers: 16,000 (May 2011) User Base – 100 million active Android devices (May 2011) Application Downloads – 4.5 billion+ (May 2011) Google Android smartphones have a pre-installed application, named 'Market, which allows users to access the entire collection of Android applications via their smartphones. Revenue from apps is shared between the developer and Google in the ratio 70:30 respectively. Popular types of applications are games, multimedia, barcode scanners, location-based tools and travel guides. Figure 27: Break–out of Available Applications between Games and Non-Games – Google Android Market (Worldwide, In Percent, June 2011) 84.0% 16.0% Games Other Applications Source: AndroLib, Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 45 Android Market offers the highest percentage of free applications, with 62.5 percent available as free downloads worldwide; the store relies on advertisements for revenue generation.
    • Disruptive Mobile Applications and Services 2011-2015 The below figure depicts the number of applications added every month to Google Android Market. Figure 28: Google Android Market – Quarterly App Additions (In Thousands) Quarterly App Additions (In Thousands) 120 96.0 100 101.5 72.2 80 53.7 60 40.3 40 19.8 20 10.3 5.9 0 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Period Source: AndroLib, Portio Research Ltd. Table 9: Most Popular Paid and Free Applications, Google Android Market (The US, April 2011) Rank Paid Applications Free Applications 1 PowerAMP Full Version Unlocker (Music and Audio; Price: USD 4.99 – 5.18) Google Maps (Travel) 2 Robo Defense (Games; Price: USD 2.99) Kakoa Talk (Communication) 3 Titanium Backup PRO Key Root (Tools; Price: USD 5.93 – 6.07) YouTube (Media and Video) 4 Root Explorer File Manager (Productivity; Price: USD 3.93 – 4.09) Facebook (Social) 5 ROM Manager (Tools; Price: USD 4.99) Flash Player 10.3 (Tools) Source: Distimo, May 2011 46 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 BlackBerry App World Research In Motion launched its ‘BlackBerry App World’ store in April 2009; BlackBerry App World has a presence in 101 countries and is witnessing 3 million application downloads per day (as of March 2011). BlackBerry has introduced device independent user identification, which means that a user can now manage downloaded apps under ‘My World’ or archive them on a micro SD card, so that if the user changes mobile handsets, all the previous apps can be transferred to the new handset using the user’s unique ID. Users can pay for application downloads through credit cards, operator billing and PayPal. Highlights • • Number of Applications: 36,306+ (June 2011) Free and Paid Applications, Worldwide: 24.2% Free, 75.8% Paid (June 2011) User Base – 35 million active users (June 2011) Application Downloads – 800+ million (May 2011) Popular application types are reference and e-books, themes, games, utilities and entertainment. Applications such as business, education, music, productivity, sports, finance, news, photos and videos, and travel are included under ‘Others’. Figure 29: Break–out of Available Applications by Type – BlackBerry App World (Worldwide, In Percent, June 2011) 8.9% 5.5% 24.1% 3.4% 26.5% 31.6% Reference and e-books Themes Games Utilities Entertainment Others Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 47 BlackBerry has introduced device independent user identification, which means that a user can now manage downloaded apps under ‘My World’ or archive them on a micro SD card, so that if the user changes mobile handsets, all the previous apps can be transferred to the new handset using the user’s unique ID.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 30: BlackBerry App World – Number of Downloads per Day (In Million) Number of Downloads per Day (In Million) 3.0 3 2.0 2 1.5 1 BlackBerry App World was launched 1.0 0 Apr-09 Jul-10 Sep-10 Dec-10 Mar-11 Period Source: Portio Research Ltd. Table 10: Most Popular Paid and Free Applications, BlackBerry App World (Worldwide, April 2011) Rank Paid Applications Free Applications 1 PhotoClub (Photo and Video; Price: USD 6.99) BlackBerry Messenger (IM and Social Networking) 2 Sea Storm Animated Theme 2.0 (Themes; Price: USD 1.99) Facebook (IM and Social Networking) 3 Chat for Facebook Pro (IM and Social Networking; Price: USD 0.99) Poynt (Maps and Navigation) 4 A+ Chat for Facebook (IM and Social Networking; Price: USD 0.99) Pandora (Music and Audio) 5 One Touch Flashlight (Utilities; Price: USD 0.99) crunchSMS (IM and Social Networking) Source: Distimo, May 2011 48 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Nokia Ovi Store Nokia launched its mobile application store ‘Ovi Store’ in May 2009. In June 2011, Ovi Store had a presence in more than 224 countries with applications available in 32 languages, and developers from 90 countries distributing their content through the store. Nokia’s strong presence in Europe and growing popularity in Asia and Latin America has helped Nokia to reach 6 million downloads per day (as of June 2011). Highlights • Number of Applications: 71,750+ (May 2011) • Billing Options: Operator billing through 121 operators in 42 countries Credit Card billing in more than 170 countries User Base – Supports 135 mobile device models 250 million Nokia Symbian devices and 650 million Series 40 devices (April 2011) Application Downloads – 1.3+ billion (June 2011) Average number of downloads per active user per month – 8.5 downloads Applications are sold directly to users and revenue is shared between developers and Nokia. However, if operator billing is used, operators also get a share of the revenue. Applications are categorised as games (puzzles, role playing, action, arcade, etc.), audio and video (Podcasts, Videos, etc.), personalisation (Ringtones, wallpapers, etc.) and utilities (business, news, sports, etc). Figure 31: Break–out of Available Applications between Games and Non-Games – Nokia Ovi Store (Worldwide, In Percent, June 2011) 65.0% 35.0% Games Other Applications Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 49 Ovi Store had a presence in more than 224 countries with applications available in 32 languages, and developers from 90 countries distributing their content through the store.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 32: Nokia Ovi Store – Number of Downloads per Day (In Million) Number of Downloads per Day (In Million) 6.0 6 5.0 5 4.0 4 3.0 3 2 Nokia Ovi Store was launched 2.0 1.0 1 0 May-09 Jan-10 Sep-10 Nov-10 Jan-11 Apr-11 Jun-11 Period Source: Portio Research Ltd. Table 11: Most Popular Paid and Free Applications, Nokia Ovi Store (The US, April 2011) Rank Paid Applications Free Applications 1 Joikuspot Premium Wi-Fi Hotspot (Utilities; Price: USD 9.99) High Speed 3D (Games) 2 Farm Frenzy (Games; Price: USD 1.99) Snaptu (Social Networks) 3 ThreadSMS Standard (Utilities; Price: USD 2.99 – 4.99) Bubble Popper XXL (Games) 4 FingerPrint V2.8 (Entertainment; Price: USD 2.99) Opera Mini Web Browser 6.0 (Utilities) 5 True Caller See who is calling (Utilities; Price: USD 2.99) YouTube (Entertainment) Source: Distimo, May 2011 50 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Windows Phone 7 Marketplace In October 2009, Microsoft ventured into the mobile applications market with the launch of Windows Marketplace. In October 2010, Microsoft launched another mobile application store under the brand name ‘Windows Phone 7 Marketplace’. The store offers applications compatible with operating system Windows 7 Phone. Windows Phone 7 Marketplace is now available in 17 countries. The store offers credit card and operator billing payment options to users. Users are required to create ‘Windows Live IDs’ to download or buy apps. Windows Phone 7 Marketplace provides a ‘No Regrets’ option to users, which allows them to return the application if they do not like it – within 24 hours of purchase – and get their money refunded as per Windows Phone 7 Marketplace’s mobile refund policy. Highlights • • • • Number of Active Applications: 25,000+ (June 2011) Free and Paid Applications, Worldwide: 47.2% Free, 52.8% Paid (June 2011) Average Price for Paid Applications: USD 1.48 (June 2011) Number of Active Developers: 6,977 (June 2011) As presently scheduled, Microsoft will shut down its Windows Marketplace for mobile website on 15 July 2011. Windows Marketplace will then reject any app submission for the Windows 6.x platform. Furthermore, users will be unable to browse, buy or download apps for Windows 6.x from the Windows Marketplace for mobile website. Popular application types of Windows Phone 7 Marketplace are games, books and reference, entertainment, tools, and news and wealth. Applications such as social networking, lifestyle, travel, productivity, business, finance, music and video, photo, navigation and sports are included under ‘Others’. Figure 33: Break-out of Available Applications by Type – Windows Phone 7 Marketplace (Worldwide, In Percent, June 2011) 8.4% 11.3% 11.3% 37.2% 12.8% 18.9% Games Books and Reference Entertainment Tools News and Wealth Others Source: WP7applist, Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 51 As presently scheduled, Microsoft will shut down its Windows Marketplace for mobile website on 15 July 2011. Windows Marketplace will then reject any app submission for the Windows 6.x platform. Furthermore, users will be unable to browse, buy or download apps for Windows 6.x from the Windows Marketplace for mobile website.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 34: Windows Phone 7 Marketplace – Number of Available Applications (In Thousands) Number of Applications (In Thousands) 30 25+ 25 20 20 15 15 12 9 10 7 5 3 5 1 0 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Period Source: WP7applist, Portio Research Ltd. Figure 35: Windows Phone 7 Marketplace – Number of Registered Developers Number of Developers 8,000 6,977 6,000 6,000 5,000 4,000 4,000 3,000 2,000 2,000 1,000 0 Nov-10 Dec-10 Jan-11 Feb-11 Apr-11 May-11 Jun-11 Period Source: WP7applist, Portio Research Ltd. 52 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Table 12: Most Popular Paid and Free Applications, Windows Phone 7 Marketplace (The US, April 2011) Rank Paid Applications Free Applications 1 Super Monkey Ball (Games; Price: USD 4.99) YouTube (Music and Video) 2 Fable Coin Golf (Games; Price: USD 4.99) Adobe Reader (Productivity) 3 Need for Speed Undercover (Games; Price: USD 4.99) Facebook (Social Networking) 4 PES 2011 – Pro Evolution Soccer (Games; Price: USD 4.99) Paper Toss (Games) 5 Full House Poker (Games; Price: USD 2.99) Xbox Live Extras (Games) Source: Distimo, May 2011 © 2011, Portio Research. All Rights Reserved 53
    • Disruptive Mobile Applications and Services 2011-2015 Comparison of Application Stores The following table provides a comparison summary of the profiled popular application stores, including: total number of available applications, split between games and nongames, split between free and paid, and total number of downloads. Table 13: Comparison of Application Stores App Stores Apple App Store Google Android Market BlackBerry App World Nokia Ovi Store Windows Phone 7 Marketplace Launch Date July 2008 October 2008 April 2009 May 2009 October 2010 Total Number of Applications (Worldwide, in June 2011) 425,000 273,000+ 36,306 Percentage of Games Applications (Worldwide, June 2011) 15.0% 16.0% 8.9% 35.0% 18.9% Percentage of NonGames Applications (Worldwide, June 2011) 85.0% 84.0% 91.1% 65.0% 81.1% Percentage of Free Applications (Worldwide, June 2011) 38.5% 62.5% 24.2% – 47.2% Percentage of Paid Applications (Worldwide, June 2011) 61.50% 37.50% 75.80% – 52.80% 4,500 800 Total Number of Downloads (In Million, May 2011) 15,000 14 71,750 1,300 13 15 25,000+ – Source: Portio Research Ltd. 13 Note: The total number of applications available for the Nokia Ovi Store is as of May 2011. Note: The total number of downloads for the Apple App store is as of early-July 2011. 15 Note: The total number of downloads for the Nokia Ovi Store is as of June 2011. 14 54 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 7 Mobile Apps Development © 2011, Portio Research. All Rights Reserved 55
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Apps Development Mobile Apps Market – A Growing Phenomenon Mobile apps are without doubt one of the hottest topics within the mobile space. The apps phenomenon, which was effectively kick-started with the launch of Apple App store in July 2008, has grown to over 800,000 available mobile apps across various platforms. And consumer appetite for mobile applications is not diminishing. Although the mobile apps market is only three years old, it has already resulted in billions of downloads across platforms. Today we have mobile apps for all of our needs – and more keep coming. The apps sector is a highly exciting space that seemingly presents opportunities to all: be those parties small or massive (automobile maker Ford is coming up with multiple mobile apps to differentiate its cars from competitors and lure customers to its stores). But it’s also an industry whose rules are still to be fully defined, where the learning curve is still on the initial growth tangent and revenue models remain under experimentation. Opportunities for Developers Mobile apps offer ample opportunity to developers. With millions of apps being downloaded every day, app stores strive to keep their stores ahead of their competition by widening their app portfolio. This continuous requirement for new mobile apps leads to a higher demand for developers. Favorable revenue splits – developers normally get 60-70 percent of the revenues generated from mobile application sales – have also been successful in attracting thousands of developers, in the form of both individuals and development companies. PC and Internet software developers are also shifting their focus to the mobile market. The integration of advertisements with mobile applications has opened new avenues of revenue generation for developers. Moreover, technology advancements in platform development facilitate the development process, minimise the development and deployment time, and quicken the revenue generation process. Venture Capitalists are investing in app development like never before. For example, Rovio – the makers of “Angry Birds” – raised USD 42 million funding in March 2011, and development firm Sourcebits raised funding of USD 10 million in May 2011. There is huge potential for mobile applications in developing markets. However, since user demographics and preferences vary from one region to another, application providers are required to introduce localised apps to succeed in a particular region, and this need for localised applications is further driving the demand for developers. 56 © 2011, Portio Research. All Rights Reserved Rovio – the makers of “Angry Birds” – raised USD 42 million funding in March 2011, and development firm Sourcebits raised funding of USD 10 million in May 2011.
    • Disruptive Mobile Applications and Services 2011-2015 Revenue Model Developers can earn revenues in the following ways: Figure 36: Mobile Applications – Revenue Models App downloads and Upgrades Ad-funded Apps In-app purchases • Developers generate revenue by selling the apps or their upgrades. The application’s price is decided by the developer or store owner. The revenue generated from app downloads is typically divided between developer and app store in the proportion of 70:30. • It is the most popular revenue model among developers. • Developers have realised the importance of app upgrades. Regular upgrades help developers to generate higher revenue. Upgrades also help them to revive their position on the app store listing page. • One of the most common practices to earn revenue from free apps is to embed targeted advertisements within mobile applications • The freemium revenue model is being widely adopted by market players. Mobile apps are offered for free to users. Apps are monetised by selling content, digital goods or additional features via in-app purchases. This model is highly popular in gaming apps where users buy virtual goods to increase their scores or to move to the next level of the game. Subscriptions • This includes a one-time fee for account activation and timed subscriptions: o Account Activation – The application’s content is free but users are charged a registration fee to get the login credentials for the application’s account o Timed-Subscription – Some applications employ a timed-subscription model, under which the user is either charged a monthly or yearly fee to access the contents Affiliate Marketing • Affiliate marketing channels have also started showing their presence in the mobile apps field. Affiliate marketing in mobile uses a similar model as web and is based on cost per action. Usually the merchants advertise on affiliate mobile apps. For example, hotels get their brochures added within travel guide apps. The revenue is shared between app owner and merchant (depending on the agreement) on every action that has been completed via mobile app. Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 57
    • Disruptive Mobile Applications and Services 2011-2015 What Goes into Developing a Successful Mobile App A successful mobile app is differentiated by many factors from unsuccessful or non-famous apps. With thousands of apps available in various app stores, developers face the challenge of how to make their apps popular among mobile users. Developing a good app plays an important role but in truth that’s only half the battle won. Developers constantly need to make efforts to make their apps noticeable and stand out from the crowd. The critical factors behind the success of a mobile app are: • Focus on design and User Interface (UI): It is very important for an application to be extremely user friendly and have a very intuitive user experience. Some of the most successful apps have placed a lot of emphasis on ease-of-use and design. • Discoverability: Getting the app noticed is as equally important as creating a good app. The content and functionality of the app will definitely be the talking point, but there should be significant effort expended in devising the marketing strategy for an application, or else the application will be lost in the mass of already existing applications. Optimised keyword tagging can help in getting the apps noticed. Social marketing should be a key component in the marketing spends because users prefer to download what their friends are downloading. When choosing whether to download an app, a friend’s recommendation can play a significant role. • Launch timing: Launch timing is a very crucial element in the success of an app. A developer should keep a close eye on competitive apps and their launch dates. Another important aspect is on which platform the app should be released first, and then on which varying platforms it should subsequently be placed. • Distribution model: Developers today have many options to distribute applications, including from their own website, OS-centric app stores, Device-centric app stores, operator-owned app stores and third-party/white-label app stores. • Pricing: Once the app is ready, the monetisation strategy should be aligned with the launch strategy. The developer needs to decide between a free or paid model, depending on the target audience, type of app and distribution channel. Currently, Google Android Market is facing a huge challenge in terms of paid applications compared to Apple App Store (see the earlier Figure 24). Another model which is now being looked upon as a possible solution to the developer dilemma is the hybrid model or freemium model; here, users get the basic version of the app free but need to pay for the additional features. 58 © 2011, Portio Research. All Rights Reserved Another model which is now being looked upon as a possible solution to the developer dilemma is the hybrid model or freemium model; here, users get the basic version of the app free but need to pay for the additional features.
    • Disruptive Mobile Applications and Services 2011-2015 Success Stories Case Study: Angry Birds Angry Birds is a game developed by Finland-based game development company Rovio Mobile. It uses the trajectory principle of physics modulated in a very simple and addictive game. With 250 million downloads since its inception, Angry Birds has become the world’s most downloaded mobile game ever. In June 2011, the game reached a milestone of one million downloads a day. Angry Birds has become a benchmark in evaluating the success of an app in this overcrowded apps market and has provided robust revenue returns to developers. While the paid version of the app was launched on Apple App Store, it is freely available for download on Google Android Market. Angry Birds’ developers earn the majority of their revenue from app downloads on Apple App Store and advertisements on Google Android Market. In December 2010, the app reached ad revenue generation worth USD one million per month on Android and other platforms 16. In January 2011, a lite version of the game was launched for free on Apple App Store. If we look at the success parameters of Angry Birds, a few things which stand out clearly are the intuitive user design, and simplistic and engaging gaming experience. There are multiple levels in the game, and every level offers something new and interesting. One of the most staggering facts is that the total time spent by all users on Angry Birds has crossed 200 million minutes per day. Rovio has released different versions of the game including: • Angry Birds • Angry Birds Rio • Angry Birds Seasons Table 14: Facts about Angry Birds Parameters Statistics Launch Date December 2009 App Developer Rovio Mobile Number of Downloads since inception (June 2011) 250 million Active Monthly Users (March 2011) 40 million Time spent on Angry Birds per day (end-2010) 200 million minutes Number of Angry Birds toys sold (May 2011) 3 million Number of Angry Birds T-shirts sold (May 2011) 30 million YouTube views • Over 6,000 Angry Birds videos available on YouTube • Angry Birds ‘Cinematic Trailer’ viewed over 31 million times Facebook Likes Over 4 million “likes” on Angry Birds’ official Facebook page Source: Portio Research Ltd. 16 Source: http://www.androidphonegeek.com/2010/12/angry-birds-generates-one-million-in-ad-revenue/ © 2011, Portio Research. All Rights Reserved 59 In December 2010, the app reached ad revenue generation worth USD one million per month on Android and other platforms
    • Disruptive Mobile Applications and Services 2011-2015 Number of Downloads (In Million) Figure 37: Angry Birds – Number of Downloads (In Millions) 300 250 250 200 150 100 Angry Birds was launched 110 50 30 50 0 Dec-09 Oct-10 Dec-10 Mar-11 Jun-11 Period Source: Portio Research Ltd. USD 42 million funding Rovio Mobile, the company which developed Angry Birds, raised funding of USD 42 million in March 2011. Atomico Ventures, run by Skype founders Niklas Zennstrom and Janus Friis, and venture capital groups Accel Partners and Felicis Ventures invested in the company. Angry Birds started its journey as a simple iPhone game and today Angry Birds’ developer Rovio Mobile has been valued at over USD 200 million. The company plans to invest this money in strengthening its brand in the field of gaming, merchandising and broadcast media. In June 2011, Rovio acquired leading Finnish animation studio Kombo to combine its entertainment knowledge with Kombo’s animation capabilities. Rovio has also signed a deal with Facebook to introduce the version of Angry Birds to social networking platform. Rovio will continue to expand in all the areas of entertainment such as television and movies 17. 17 Source: http://www.variety.com/article/VR1118039369 60 © 2011, Portio Research. All Rights Reserved Rovio has also signed a deal with Facebook to introduce the version of Angry Birds to social networking platform.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 8 App Development – Is there any money in it? © 2011, Portio Research. All Rights Reserved 61
    • Disruptive Mobile Applications and Services 2011-2015 App Development – Is there any money in it? A question which looms large before every developer is how to monetise mobile applications. Of course, there are umpteen examples of successful apps which have been on the top 5 charts across platforms and have been profitable – in some cases astronomically so (see our Angry Birds case study). But not every application is getting downloaded and thus not every app is generating revenue for developers. Apple App Store The credit for kick-starting the app business undoubtedly goes to Apple App Store. Apple App Store currently dominates the app market both in terms of available and downloaded applications (although Android is now making swift inroads). Apple provides its Software Development Kit (SDK) to developers for an annual fee of USD 99. Developers are given a specific set of tools which can only be used to develop apps for Apple App store. Apple also places many restrictions on the developers. It can take as long as 1-2 months for a developer to get their app approved and finally added to the app store. Developers earn a revenue share of 70 percent for the sale of their applications through Apple App store. Apple also provides the Application Programming Interface (API) to developers to use on their own website. However, no noticeable traction has been observed for any such API. One of the reasons for low traction is the extremely low visibility of the app outside the Apple iOS. Apple App Store has stringent rules and regulations which makes the app approval process complicated and time-consuming for developers. However, many developers still prefer Apple App store over Android Market because of its monetisation options. A higher percentage of paid apps get downloaded from Apple App Store compared to Android Market, even though the percentage of paid apps is just 20 percent of the total downloads. Also, iPhone owners have shown a greater tendency to spend money on mobile applications. As of March 2011, Apple had paid out a total of USD 2.5 billion to its developers. Figure 38: Apple App Store – Break-out of Paid and Free App Downloads (In Percent, June 2011) 79.4% 20.6% Free Paid Source: Portio Research Ltd. 62 © 2011, Portio Research. All Rights Reserved A higher percentage of paid apps get downloaded from Apple App Store compared to Android Market, even though the percentage of paid apps is just 20 percent of the total downloads.
    • Disruptive Mobile Applications and Services 2011-2015 Google Android Market Android Market has already gained the second spot in the mobile apps market. Android offers developers an open development platform and gives them the liberty to use third-party tools for app development. This becomes critical for a platform like Android which is supported on numerous mobile devices. Android developers pay a one-time registration fee of USD 25 and earn 70 percent of the revenue generated from their application sales in the Android Market. With the current pace of its growth, the possibility of Android surpassing Apple App Store – in terms of available applications – is becoming a very real prospect. The next figure showcases Android Market’s comparatively stronger performance from January 2011 onwards in terms of monthly application additions. Monthly App Additions (In Thousands) Figure 39: Google Android Market vs. Apple App Store – Monthly App Additions (In Thousands) 40 38.4 32.3 34.3 33.4 29.7 29.3 27.7 30 24.0 27.2 20 20.4 20.2 19.4 22.3 22.6 20.3 18.0 10 0 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Period Google Android Market Apple App Store Source: AndroLib, Portio Research Ltd. As impressive as these monthly app additions are, only 0.01 percent of the paid applications on Android Market are downloaded over 250,000 times, whereas only 1 percent of free applications clocked more than 250,000 downloads. Google Maps leads the chart in the category of free applications. 45 percent of Android Market’s free apps have not even been downloaded 100 times. In the case of paid apps, 80 percent of apps are yet to reach this same download milestone. This is certainly a cause for concern for developers and highlights the challenges they face in monetising their apps. The full version of Angry Birds is available for free on Android Market and features advertisements to earn money, while the game has a paid version available on Apple App Store. This clearly differentiates the target audience of Android Market and Apple App Store. © 2011, Portio Research. All Rights Reserved 63 Only 0.01 percent of the paid applications on Android Market are downloaded over 250,000 times, whereas only 1 percent of free applications clocked more than 250,000 downloads. Google Maps leads the chart in the category of free applications.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 40: Google Android Market – Break-out of Paid App Downloads (In Percent, June 2011) Out of 133,728 downloaded apps 84.6% 12.4% 0.01% 0.5% 2.5% <100 100-1,000 1,001-10,000 10,001-250,000 >250,000 Source: AndroLib, Portio Research Ltd. Figure 41: Google Android Market – Break-out of Free App Downloads (In Percent, June 2011) 18 Out of 265,663 downloaded apps 22.3% 20.8% 45.0% 1.09% <100 100-1,000 1,001-10,000 10.8% 10,001-250,000 >250,000 Source: AndroLib, Portio Research Ltd. 18 Note: The percentages do not add up to 100 percent because of rounding off errors. 64 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 9 Disruptive Applications and Services – Opportunity or Threat to MNOs? © 2011, Portio Research. All Rights Reserved 65
    • Disruptive Mobile Applications and Services 2011-2015 Disruptive Applications and Services Opportunity or Threat to MNOs? – Disruptive applications and services in the mobile ecosystem are those which are radically changing the traditional setup, be that change in terms of wider reach, network asset usage, the creation of a new revenue stream, or the introduction of new stakeholders. The applications and services discussed in this report are disrupting the mobile ecosystem in the ways mentioned. Mobile video streaming has been disrupting mobile network infrastructure. In 2010, mobile video streaming applications contributed 45 percent of the total worldwide mobile data traffic generated. And MNOs are unhappy about this high data usage as the revenue generated is not in the same proportion. Furthermore, this high data traffic is creating substantial pressure on network assets and affecting MNOs’ flagship services such as voice and messaging. Mobile applications have also disrupted the mobile ecosystem by adding content providers in to the mobile revenue sharing pie. Initially, MNOs enjoyed a monopoly in terms of content generation. But with the advent of mobile applications (in their current form), content providers now represent a separate group of stakeholders. And now MNOs act as a transfer medium for content between content providers and mobile application users. Of the revenue generated, the major share is taken by the content developers and the hosting platform i.e. the app stores. MNOs typically have to be satisfied with less than a 40 percent share of the generated revenue in most of the cases. Mobile payment services, in a similar fashion, have brought mobile payment solution providers and transaction processing players in to the mobile sphere. Giants such as Visa, MasterCard, Google, Apple and many more are aggressively participating in developments relating to mobile payments. MNOs are again being reduced to the role of facilitator, with a meagre share of the generated revenue in most cases. Mobile VoIP (Voice over Internet Protocol) is another service that affects the voice revenues of MNOs directly. VoIP applications use the mobile data network and effectively siphon voice revenues away from MNOs. Mobile application users also prefer using VoIP solutions (if available) due to subsidised or free pricing. With its widespread reach, social networking is another service causing ripples in the mobile ecosystem. Led by Facebook, social networking sites collectively have user bases ranging in to hundreds of millions, and these sites have access to the users’ profile and behavioral characteristics – such as their interests, activities and more. This type of information is very helpful in targeted advertising, which social networking sites readily engage in to earn revenues. This cuts down on the revenues earned by MNOs through mobile marketing. Integration of other services, such as VoIP, e-mail, and group chatting, further adds to the woes of operators. However, MNOs do get some comparatively marginal benefit in terms of the data revenues generated when these sites are accessed via mobile, and through the use of SMS to access social networking facilities. While the above mentioned disruptive services largely sideline MNOs to act as ‘dumb pipes’, bulk messaging provides M2M messaging and P2M messaging revenues to MNOs, although this too eats away a chunk of their P2P messaging traffic and revenues. 66 © 2011, Portio Research. All Rights Reserved Disruptive applications and services in the mobile ecosystem are those which are radically changing the traditional setup, be that change in terms of wider reach, network asset usage, the creation of a new revenue stream, or the introduction of new stakeholders.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 10 Mobile Video Streaming © 2011, Portio Research. All Rights Reserved 67
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Video Streaming Video streaming has revolutionised the mobile data services market. High-speed Internet, along with ample memory, processing capabilities and multimedia applications, has enabled high-quality video-streaming on mobile phones. Subscribers now constantly look for newer video content for both entertainment and information. Video streaming accounted for approximately 45 percent of total data traffic worldwide at end-2010. According to Cisco, video streaming is the fastest growing mobile data service and is slated to increase to 66 percent of total mobile data traffic by 2015. “66 percent of the world's mobile data traffic will be video by 2015.” John Chambers CEO, Cisco Systems Inc Video streaming is probably the most compelling reason for mobile operators to increase their network capacity; as this is very much the era of mobile video streaming. There are several factors – such as technological advancements in the field of handsets and networks, lucrative business models and user-generated content – which are driving the surge in popularity of mobile video. User generated content is undoubtedly the key driver behind the explosive growth of video streaming. Smartphones equipped with high-resolution cameras have made it extremely easy for users to shoot a video instantly while on-the-go and upload it the next moment. When users see something unique, newsworthy or amusing, they are tempted to share it with everybody else. They post the link on their Facebook and Twitter accounts or simply send an e-mail to their friends. These friends pass it on to their friends, and the effect just keeps on multiplying across regions – with the video potentially going viral in a short space of time. User-centric business models (users can upload and download videos for free) have attracted billions of users worldwide to participate. YouTube alone is experiencing 3 billion views per day, including 200 million views per day via mobile phones. Unsurprisingly, there are now videos on YouTube which have been viewed more than half a billion times. Videos can be contagious and can keep users glued to their screens. As noted, users watch videos, post comments on them and recommend them to their friends, and social networking has further stimulated this behavior. Users upload videos on their social networking profiles which gets reflected in their profile updates. Friends are notified about it and if they find it interesting, there is a very high probability that they will share it with their own friends. Video streaming is on the rise as it is proving immensely popular among mobile users. However, this has caused a major bandwidth crunch for MNOs. Operators have been forced to think of strategies to monetise the data usage and somehow lower their investment burdens for upgrading networks. 68 © 2011, Portio Research. All Rights Reserved Video streaming accounted for approximately 45 percent of total data traffic worldwide at end-2010.
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: YouTube Launch Date on Mobile: June 2007 Mobile website: m.youtube.com Application/Service Type: Video Streaming Views per day: 200 million (May 2011) Pricing: Free Geographic Reach: Worldwide YouTube has emerged as the most popular website for sharing video content. YouTube is a platform for sharing information, news, events and experiences through the medium of video. YouTube lets users express their creative side through videos. Users can record their thoughts, experiences and moments in their own way and share it with the world. Users have full control on the content being shared. YouTube has started supporting HD video content and now HD videos form approximately 10 percent of the total videos available on YouTube. YouTube was launched in February 2005 and its vast acceptance led to the launch of a website customised for access through mobile handsets (m.youtube.com) in June 2007. Users access YouTube either through the mobile version of YouTube’s website or by downloading the YouTube application on to their mobile phones. With 200 million views per day via mobile phones (as of May 2011), YouTube has achieved remarkable success in the world of mobile video. YouTube Mobile gives flexibility to users to stream video on-the-go. With 200 million views per day via mobile phones (as of May 2011), YouTube has achieved remarkable success in the world of mobile video. YouTube Milestones The figure below depicts YouTube’s milestones. Figure 42: YouTube Milestones First video uploaded to YouTube April 2005 YouTube mobile website launched with limited video content October April 2006 2006 Google acquired YouTube for USD 1.65 billion June 2007 YouTube started rolling out advertisements to its mobile site January 2008 YouTube mobile site launched with full collection of videos March 2010 YouTube reached 200 million views per day via mobile February 2011 May 2011 YouTube partnered with LG to enable mobile users to upload and access 3D videos Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 69
    • Disruptive Mobile Applications and Services 2011-2015 Pricing The YouTube mobile application is available for free; users can also access the mobile version of YouTube’s website for free; and YouTube allows users to upload or stream videos for free. However, since users need Internet connectivity to access YouTube, they need to pay data charges to the mobile network operator. But, this again does not hold true if the user is accessing YouTube through Wi-Fi hotspots – as there are no data charges to users to access Internet through Wi-Fi. In March 2010, advertisements were deployed on YouTube’s mobile website in order to capitalise on its (YouTube’s) ever-increasing traffic. YouTube uses the following two types of ad formats: 1. Banner ads: The ads are presented as banners on YouTube’s website on the home, search and browse pages. 2. Video ads: The ads are over-laid at the bottom of videos, and users can click on the ad to watch it. The revenue generated from video ads is shared between YouTube and content contributors, depending on the partner program agreement. Partner Program: YouTube runs a partner program under which content contributors get a chance to earn money from the ads placed in their videos. The more popular the uploaded videos are, the better the chances are for the video to get selected for the adverts. The partner program encourages users to upload original and diverse content on to the website. This helps YouTube build a vast collection of content, which in turn attracts more and more advertisers; it provides higher incentives for users to join the partner program and contribute original content. Success Factors A user-centric business model and plenty of choices catering to everybody are the major factors responsible for YouTube’s massive popularity. It is fair to say that whatever topic a user thinks of, they will find something related to it on YouTube. At end-May 2011, approximately 48 hours of video was being uploaded every minute to YouTube. Hours of Video uploaded to YouTube per minute Figure 43: Number of Hours of Video Uploaded Per Minute to YouTube 60 48 50 40 35 30 24 20 20 15 6 8 Jun-07 10 Oct-07 10 0 Jan-08 Oct-08 May-09 Mar-10 Nov-10 May-11 Period Source: YouTube, Portio Research Ltd. 70 © 2011, Portio Research. All Rights Reserved At end-May 2011, approximately 48 hours of video was being uploaded every minute to YouTube.
    • Disruptive Mobile Applications and Services 2011-2015 If YouTube video upload statistics are astounding, so are the streaming statistics. There are billions of unique users who view YouTube videos every day. The top video in terms of number of views – Justin Bieber’s music video ‘Baby’ – has already crossed 500 million views within a year of it being uploaded on YouTube. The following figure shows the number of views of the Top 5 most viewed YouTube videos as of end-June 2011. Among the five most watched YouTube videos, four are music videos. Figure 44: Number of Views of the Top 5 Most viewed YouTube Videos (In Millions, June 2011) Number of Views (In Millions) 600 578.63 500 394.39 400 362.65 354.23 347.62 Shakira - Waka Waka Eminem - Love the way you lie Charlie bit my finger - again! 300 200 100 0 Justin Bieber Baby Lady Gaga - Bad Romance Source: YouTube, Portio Research Ltd. Social Networking also provides a platform to users to easily share videos by embedding them in their profile. Users can also rate or post comments on the videos. More than 50 percent of YouTube videos have either been rated or include comments from a social 19 networking community . At end-May 2011, 404,712 hours of videos, equivalent to 46.2 years, were being viewed every day across Facebook. The figure on the next page depicts the YouTube video consumption per day across different social networking websites, with that time qualified in equivalent years. 19 Source: YouTube Website © 2011, Portio Research. All Rights Reserved 71 The top video in terms of number of views – Justin Bieber’s music video ‘Baby’ – has already crossed 500 million views within a year of it being uploaded on YouTube.
    • Disruptive Mobile Applications and Services 2011-2015 Figure 45: Duration of YouTube Videos viewed across Social Networking Websites per day (In Years, May 2011) Duration of YouTube's videos viewed per Day (In Years) 46.2 45 30 12.7 15 5.6 1.2 0 Facebook Orkut MySpace Hi5 Social Networking Websites Source: YouTube YouTube is among the few Internet companies that have been able to replicate the same success it achieved on desktop computers within the mobile market. The table below highlights the factors that have led to the success of YouTube in the mobile data services market. Table 15: Success Factors – YouTube Factor Strategy • User-Generated Content • • Control Over Information • With the adoption of smartphones that support high-quality videos, users can very easily create content and immediately upload it via their mobile phone anytime anywhere People who are viewing videos are the ones who are also uploading them. Thus, videos are able to catch the latest trends and interest areas of the audience. Users have complete control on what they want to share and how they want to share Android users will also have an option to ‘like’ or ‘dislike’ any video from their mobile devices • YouTube has maintained a similar look and feel in the desktop and mobile versions. This has helped users to easily associate themselves with the mobile version of the application. • The mobile version ensures quick and uncomplicated navigation through the website The introduction of technologically advanced next-generation networks such as 3G, LTE and 4G has further enhanced users’ experience It offers larger and touch-friendly elements to users Familiar User Interface Ease of Use • • Linked to Google Google is undoubtedly the most popular and most used search engine worldwide. YouTube is owned by Google. For every video search, Google mostly returns YouTube video links on the top of the results page. Source: Portio Research Ltd. 72 © 2011, Portio Research. All Rights Reserved YouTube is among the few Internet companies that have been able to replicate the same success it achieved on desktop computers within the mobile market.
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is YouTube an Opportunity or a Threat to MNOs? Watching YouTube videos on a mobile can be addictive. It makes people spend more time on their mobile devices compared to any other data service. While a user is viewing a specific video, YouTube lists all related videos on one side of the screen. This evokes the user’s interest in the listed videos and they often end up watching another video. YouTube keeps mobile users so engrossed in the videos that they sometimes lose track of how long they have been viewing them. Increased time spent on mobile devices in turn leads to more data traffic, creating an opportunity for operators to earn more revenues from the data services segment. The mobile version of YouTube’s website was launched in June 2007 and within four years has achieved a milestone of 200 million views per day via mobile devices. Figure 46: Number of Views per day via Mobile Devices (In Millions) Number of Views (In Millions) 250 200 200 150 150 100 YouTube mobile site launched 100 June-07 July-10 50 0 November-10 January-11 Period Source: YouTube, Portio Research Ltd. YouTube caters to both consumer and enterprise segments, and offers a perfect medium to enterprises to communicate with their customers. Enterprises can present their content in different ways and grab users’ attention. There is no limit to creativity. Users can find information about new products, their services and how they work. Video viral marketing has exploded over the past few years. YouTube is an easy way to reach target audiences and build a brand. President Obama’s election campaign on YouTube proved more effective than his television campaign. Showcasing movie trailers is a very common phenomenon on YouTube. Even reality shows, such as America’s Got Talent, conducted auditions on YouTube, allowing users to record their performance and upload videos on to YouTube. The ever-growing traffic on YouTube’s mobile website has attracted advertisers to promote their products and services in the form of banner ads and video ads. With the increase in YouTube’s popularity among mobile users, banner ads are set to rise. Pages containing ads will certainly use more data traffic and therefore ring in more data revenue for operators. But, is that good news? Do operators agree with this fact? © 2011, Portio Research. All Rights Reserved 73 The mobile version of YouTube’s website was launched in June 2007 and within four years has achieved a milestone of 200 million views per day via mobile devices.
    • Disruptive Mobile Applications and Services 2011-2015 Let’s translate millions of views per day into MBs of the data consumed. Assumptions: Average size of YouTube video viewed from mobile phone: 5 minutes Bit Rate at which video is encoded in a 320x240 pixels window size: 240 Kilobits per second Taking the above assumptions into consideration, at end-2010 over 1.22 Petabytes of mobile data was consumed by YouTube every day. This translates into approximately 36.8 Petabytes of data per month, and over 442.01 Petabytes per year. So, at end-2010 YouTube alone was accountable for 15.9 percent of the total mobile data traffic worldwide. Figure 47: Break-out of Worldwide Mobile Data Traffic (In Percent, End-2010) 84.1% 15.9% YouTube Other Mobile Data Services Source: Portio Research Ltd. With 36.8 Petabytes per month being equivalent to over 57 billion movies, MNOs are facing a potent threat from YouTube in terms of network capacity utilisation. Mobile operators have invested billions of US dollars in building up infrastructure to support 3G and above networks. with the intention of creating greater network capacity to serve an ever-increasing user base and to provide better data services. However, the reality now is that services such as YouTube alone are utilising one-sixth of the network capacity. The mobile market is posed with the following questions: This usage is set to increase in the coming years; will the network capacity increase accordingly? MNOs worldwide are devising strategies to battle against network congestion caused by bandwidth-hungry applications and services such as YouTube. Tiered-pricing is being implemented by operators in developed nations. Operators charge a premium for faster network speeds, higher data consumption, data usage during peak hours and accessing applications such as YouTube, which generate very high data traffic. A similar trend is expected to emerge in developing markets. Tiered-pricing will help operators to generate higher revenue and indirectly put a cap on mobile data usage. Higher revenue would mean that operators would be in a better financial position to invest in network upgrades and increase their network capacity. 74 © 2011, Portio Research. All Rights Reserved MNOs worldwide are devising strategies to battle against network congestion caused by bandwidth-hungry applications and services such as YouTube.
    • Disruptive Mobile Applications and Services 2011-2015 And, who will bear the cost of upgrading the mobile networks? Is it operators’ sole responsibility to build and maintain high-speed networks that can support ever-growing data demand? Will MNOs be able to figure out a win-win situation for both themselves and users? At present, MNOs are only charging subscribers for Internet access. Service providers that provide the content to subscribers are not incurring any cost for data delivery. To develop a win-win situation for both themselves and users, MNOs such as Vodafone, France Telecom, Telefonica and Telecom Italia are now suggesting a business model under which the service providers will also be charged for data delivery. In addition, this business model will also include smartphone vendors such as Apple and Android-based device manufacturers. MNOs want the content providers and smartphone vendors to contribute towards the cost of maintaining and improving networks. “Service providers are flooding networks with no incentive [to limit bandwidth]. It’s necessary to put in place a system of payments by service providers as a function of their use”. Stephane Richard CEO, France Telecom “Companies such as Google and Yahoo! used our company’s networks for free, which is good news for them and a tragedy for us”. Cesar Alierta CEO, Telefonica Under such proposals, the cost burden of network upgrades would not be passed on to users in the form of high data charges, leaving users able to enjoy data services at affordable rates. © 2011, Portio Research. All Rights Reserved 75 To develop a win-win situation for both themselves and users, MNOs such as Vodafone, France Telecom, Telefonica and Telecom Italia are now suggesting a business model under which the service providers will also be charged for data delivery.
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: MobiTV Launch Date on Mobile: November 2003 Mobile website: m.mobitv.com Application/Service Type: Mobile Television User Base: 15 million (April 2011) Pricing: Paid Geographic Reach: North America Mobile TV has evolved from a platform for on-demand video downloads to live streaming of television programming. On-demand video downloads allowed users to download clips of episodes of already broadcasted programs. Over the years, mobile TV has evolved to provide a more "TV-like" experience for the end user, complete with channel changing that mimics the television at home, and content similar to what customers receive through largescreen units. Users can stream live event programming on their mobile devices with minimal lag between TV viewing and mobile viewing. The mobile TV market experienced tremendous growth during 2010, and there are various factors responsible for this growth. Factors include the growing penetration of smartphones, the availability of advanced networks – such as 3G and above – at affordable rates, and the increased amount and diversity of content. Tablets are further driving the growth of mobile TV. The higher processing power and larger screen size of tablets provides users with a high-quality video experience. Mobile TV enables users to watch their favourite shows at their own convenience on-the-go. Now, family members can watch different TV shows while sitting in same room. MobiTV is among the prominent providers of content over mobile networks. MobiTV has partnered with content providers and every major US MNO to deliver diverse content and optimised services to millions of users on-the-go. MobiTV offers services including live television, premium and primetime programming, on-demand videos, radio and music services, and MobiTV is available on more than 400 devices. In addition to on-demand episodic programming, it delivers hundreds of hours of live programming during the course of a week. The content categories of news and sports have gained a lot of popularity among the mobile TV users. During the month long 2010 FIFA World Cup event, MobiTV streamed over 108 million minutes (equivalent to 206 years of streaming video) of the event on the ESPN mobile TV channel. Out of the 108+ million minutes, 71.8 million minutes were accounted for by live streaming. 20 MobiTV services are distributed either under their own brand name or under the operator’s brand. The services offered are: 1. MobiTV 2. MobiRadio 3. XMRadio 4. MobiVJ Operator-Branded services: 5. AT&T U-verse Live TV 6. Alltel TV 7. T-Mobile TV 8. Sprint TV 9. TELUS mobile TV 20 Source: http://www.mobitv.com/files/successbrief_operationsworldcup-_final.pdf 76 © 2011, Portio Research. All Rights Reserved During the month long 2010 FIFA World Cup event, MobiTV streamed over 108 million minutes (equivalent to 206 years of streaming video) of the event on the ESPN mobile TV channel. Out of the 108+ million minutes, 71.8 million minutes were accounted for by live streaming.
    • Disruptive Mobile Applications and Services 2011-2015 MobiTV Milestones The figure below depicts MobiTV milestones. Figure 48: MobiTV Milestones November 2003 • Launched first mobile TV service in the US on Sprint network August 2004 • Launched mobile TV on AT&T Wireless network March 2005 • First to provide Live TV on BREW • Launched MobiRadio September 2005 December 2005 • Introduced a mobile TV advertising platform August 2006 • Began supporting WiMAX January 2007 • Launched interactive mobile TV January 2008 • Launched live TV on BlackBerry smartphones April 2009 • Demonstrated seamless handover of video between 3G, WiMAX and Wi-Fi December 2009 • Launched MobiTV on Verizon Wireless February 2010 • MobiTV entered into partnership with T-Mobile April 2010 • Launched a mobile application on iPhone July 2010 • Launched on Android OS January 2011 April 2011 • Launched on iPad and became the first application to deliver personalised and on-demand TV to tablets • Reached milestone of 15 million subscribers Source: MobiTV, Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 77
    • Disruptive Mobile Applications and Services 2011-2015 Pricing Table 16: Pricing – MobiTV Applications MNO Application Monthly Subscription (in USD) Alltel TV USD 9.99 Alltel Radio USD 8.99 XM Radio USD 7.99 AT&T U-verse Live TV Free on iPhones, USD 9.99 on others MobiTV USD 9.95 MobiRadio USD 8.99 MobiTV USD 9.95 MobiRadio USD 8.99 Sprint TV Included in mobile data plan TV Sprint Xtra USD 9.99 Sprint TV 4Biz USD 9.99 T-Mobile T-Mobile TV Free and Paid packages TELUS TELUS mobile TV Free US Cellular MobiTV USD 9.99 MobiTV Free on iPhones, USD 9.99 on others NFL Mobile App Free Alltel Wireless AT&T Cellular South nTelos Sprint Verizon Wireless Source: Portio Research Ltd. Operators follow different business models through which MobiTV is made available to users. • Paid Subscription: Most of the operators offer MobiTV services through a monthly subscription of USD 9.99. Users can also subscribe to a three-month subscription for USD 24.99, or a six-month subscription for USD 44.99. • Freemium Model: However, there are a few operators which allow users to download the app for free. The free app provides access to limited channels. Users can anytime opt for in-app payments to purchase additional paid content. Users also have an option to at anytime opt for a paid monthly subscription to get access to a greater number of channels, live and on-demand television. In addition to the subscription fee, users are also required to pay mobile data charges to operators for accessing MobiTV over the Internet. 78 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 User Base The figure below depicts the growth in the number of users accessing MobiTV. Figure 49: MobiTV – User Base (North America, In Million) 15.0 User Base (In Million) 16 13.0 12 9.0 8 4 0.5 1.0 Sep-05 Apr-06 2.0 4.0 3.0 0 Feb-07 Oct-07 Jul-08 Dec-09 Oct-10 Apr-11 Period Source: MobiTV, Portio Research Ltd. Success Factors The table below highlights the factors that have helped MobiTV gain popularity among mobile users. Table 17: Success Factors – MobiTV Mobile Application Factor Choice of Content Personalisation Strategy • MobiTV offers a wide range of choice to users across different television content categories, such as entertainment, sports and news • MobiTV offers several personalisation options such as: o Favorite channels o Customised watch list that will display the relevant new clips (according to users’ choice and browsing history) whenever users log in to the service Ease-of-Use • The features such as one-click access, interactive channel guides and effective discoverability increase the usability of the application. Users can easily navigate from one show to another. Accessibility • MobiTV can be easily ordered from mobile operators. It can also be downloaded from Apple App store or Handmark. • It provides convenience to users to view television while on-themove. MobiTV is available on more than 400 devices. It is compatible with all the major operating systems including iPhone OS, Android, Windows Mobile OS and BlackBerry OS. • User convenience is maximised by the personalised features and user-friendly mobile interface Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 79
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is MobiTV an Opportunity or a Threat to MNOs? Services such as MobiTV represent a wide range of opportunities for both mobile operators and other similar service providers. MobiTV generates revenue through paid subscriptions and advertisements, and since Internet connectivity is required to access the videos, operators earn revenue from associated data charges. Video streaming is a high-bandwidth consuming activity, and thus MobiTV generates higher data revenue for operators. In the US, all the major operators – such as AT&T, Verizon Wireless, T-Mobile and Sprint Nextel – have either shifted away or are shifting away from unlimited data plans. Operators are introducing tiered pricing and users will be required to pay depending on their data consumption. In addition to tiered-pricing, operators have another reason to be happy. MobiTV is not accessible through Wi-Fi hotspots because the content providers have put a restriction on broadcasting their content through Wi-Fi. Users normally want to utilise Wi-Fi hotspots to access Internet over mobile phone to avoid high data charges. However, the restriction posed by content providers does not allow users to access MobiTV through Wi-Fi and so the only way to access the service is through operators’ mobile networks, and – crucially – this translates into data revenue for operators. MobiTV is a service where users actually end up paying for what they consume. MobiTV’s business model depends entirely on subscriptions and number of minutes of video viewed. Smartphones, tablets and high-speed mobile networks are boosting the popularity of mobile TV applications, and features such as live TV provide a much needed impetus to the uptake of MobiTV services. “Every observable peak on MobiTV has been associated with live events.” Ray DeRenzo CMO, MobiTV However, operators need to tread this path very cautiously. In order to generate higher data revenue, operators would promote services like MobiTV among their subscribers. However, a large number of subscribers viewing mobile TV may result in network congestion. MNOs need to ensure that they have the required network capacities to support the increasing mobile TV traffic. Video takes up substantial network capacity and operators tend to use WiFi for videos to reduce the load on their own mobile networks. However, the Wi-Fi option is also out ruled in the case of MobiTV due to the content providers’ restrictions. The bigger challenge will be to keep their systems running during any sports event as these typically witness the greatest traffic from mobile TV users. The strategy which operators are also considering is the use of broadcast video technology Integrated Mobile Broadcast (IMB), wherein a video signal is broadcast to all mobile handsets with the decoding technology, thus not taking up the data bandwidth of mobile operators’ networks. 80 © 2011, Portio Research. All Rights Reserved MNOs need to ensure that they have the required network capacities to support the increasing mobile TV traffic.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 11 Social Networking © 2011, Portio Research. All Rights Reserved 81
    • Disruptive Mobile Applications and Services 2011-2015 Social Networking Social networking is the activity of establishing social networks or connections with which to interact, and to find and contact individuals with common interests. With increasing Internet penetration, social networking is concentrated more on the online platform than actual meetups or activities. With people spending more hours each day online, the share of social networking in those hours is also rising. This share gets a further boost by the ability to engage in social networking through mobile phones. As of now, the total number of subscriptions to social networking websites is more than 10 21 billion, which is more than the world’s population . While the number of unique users is of course lower – as every person can and often does subscribe to multiple websites – the growing popularity of social networking can’t be discarded. Worldwide, Facebook, Twitter, LinkedIn, MySpace and Orkut are the major players in the social networking space. From China, Tencent QQ is the leading social networking site. The table below shows the approximate active user bases of some of the social networking sites as of May 2011 Table 18: Social Networking Sites – Active Users (In Million, May 2011) Social Networking Sites Active Users (In Million, May 2011) Facebook 700 Tencent QQ 600 Twitter 300 LinkedIn 110-120 Orkut 100 MySpace 50-60 Source: Portio Research Ltd. Of these, we will be profiling Facebook and Twitter. 21 82 Source: http://www.silicon.com/technology/mobile/2011/04/01/social-network-accounts-outnumber-people-onearth-39747241/ © 2011, Portio Research. All Rights Reserved As of now, the total number of subscriptions to social networking websites is more than 10 billion, which is more than the world’s population
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Facebook Launch Date on Mobile: January 2007 Mobile website: m.facebook.com Application/Service Type: Social Networking Mobile User Base: 250 million (June 2011, Total user base: 750 million) Pricing: Free Geographic Reach: Worldwide (except some countries such as Bangladesh, China, Iran, Pakistan, Syria and Vietnam) Social networking sites have seen phenomenal growth in the last couple of years, and Facebook in particular has emerged as a leader in the social networking space. Facebook was launched in February 2004 and its vast acceptance led to the launch of a website customised for access through mobile handsets (m.facebook.com) in January 2007. The Facebook application for mobile platforms was launched in October 2007. The application is available on numerous app stores, such as Apple App Store, Android Market, BlackBerry App World and Nokia Ovi Store. Although Facebook first launched its mobile application on BlackBerry devices in October 2007, its success is tied to the Apple iPhone version. With success on Apple and BlackBerry, Facebook expanded to almost all the other mobile devices such as Nokia, Windows and Android. Apple’s iPad version of Facebook is expected in 2011. Users access Facebook either through the mobile version of the Facebook website or by downloading the Facebook application on to their mobile phones. The following mobile websites are being offered by Facebook: • m.facebook.com – This is a standard website that works on any mobile browser • touch.facebook.com –The website is designed for touch screen mobile devices • x.facebook.com – The website is meant for smartphone users Access to Facebook through the application is quicker than browser-based access. The app is custom-built for operating systems and devices, and allows optimised display features and easy viewing – along with the ability to upload pictures and videos. The Mobile Facebook (m.facebook.com) website’s performance depends on the capabilities of the mobile web browser. Furthermore, the mobile app allows users to send and receive messages, poke their contacts and put wall posts 22 using text messages. The mobile application has a provision for a phone book, which displays friends’ contact information and even syncs the calendar with the birthday notifications from Facebook. With 250 million users accessing Facebook on their mobile phones (through customised applications, as well as browser-based access), Facebook has achieved remarkable 23 success in the world of social networking through mobile phones. Facebook Mobile gives flexibility to users to stay connected and communicate with their friends anytime, anywhere. 22 23 Note: Pokes and wall posts are Facebook features for writing messages and comments which are shared with other Facebook contacts. Source: www.facebook.com/press/info.php?statistics © 2011, Portio Research. All Rights Reserved 83 With 250 million users accessing Facebook on their mobile phones (through customised applications, as well as browser-based access), Facebook has achieved remarkable success in the world of social networking through mobile phones.
    • Disruptive Mobile Applications and Services 2011-2015 Facebook Milestones The figure below depicts Facebook milestones. Figure 50: Facebook Milestones September 2006 • Opened to everyone with a valid e-mail address and age above 13 January 2007 • Launched its website ‘m.facebook.com’ on the mobile platform, to allow users to access Facebook on their handsets August 2007 • Launched a website version, iphone.facebook.com, for native iPhones, with added features such as photos October 2007 • Partnered with T-Mobile to launch its first ever mobile application on Research In Motion’s BlackBerry devices June 2008 • Released its application, named ‘Facebook for Palm’, for PalmOSbased Centro and Treo smartphones July 2008 • Launched its mobile application on the Apple iPhone and Windows Mobile platforms March 2009 • Launched ‘Facebook Connect’ on the iPhone. This allows users to connect their Facebook profile to other mobile websites and applications. September 2009 • A Facebook application with limited functionalities was launched on Android devices May 2010 • Launched ‘Facebook Zero’, a light-weight website which users can access through 0.facebook.com. The website was launched to penetrate the huge untapped market of feature phone users in emerging markets. • Launched a beta version of Facebook SDK for Android developers, which allows them to integrate Facebook platform features into their applications August 2010 • Introduced ‘Facebook Places’ functionality, which allows users to see their friends’ location and share their own location. Facebook Places brings location-based services to a social networking world. October 2010 June 2011 • Facebook announces its integration with Skype and Yandex • Facebook hits 750 million subscriber mark Source: Portio Research Ltd. 84 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Features of Facebook The following figure highlights the various features that Facebook offers mobile users. Figure 51: Features of Facebook for Mobile Users Staying Connected • • • • • Personalised Friends List Status Updates Activity Updates Find a Friend Friend Suggestion Facebook enables users to create a list of friends and share their whereabouts and actions with their friends. Facebook helps users to track old friends and schoolmates and establish a connection with them all over again. Status updates is one of the most popular features among mobile users. Communication • • • IM Client Messages Wall Communication is the central theme of any social networking site. Facebook offers space to users to send messages to their friends through real-time communication options such as instant messaging (IM), and offline communication options such as Messages and Wall. Manage Photos and Videos • • • • Upload Photos/Videos Add Captions Tag Friends Privacy Settings Facebook allows users to upload photos and videos from their mobile phones. The option to add photo captions and tag the photos is another attractive feature. There are privacy rules that define who can view the users’ photos. Profile Manager • • • Edit Profile Set/Update Profile Photo Privacy Management Facebook enables users to modify and update their profiles whenever required. Users can take pictures from their mobile phone and can upload them directly to become their profile picture. Games and Utilities • • • • Birthday Updates News Feeds Notifications Games and Apps such as Farmville, Horoscope, etc. Facebook offers several simple, yet entertaining games and applications to users, which keeps them addicted to the application. It also offers features such as birthday reminders, news feeds and notifications about friends’ updates, etc. Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 85
    • Disruptive Mobile Applications and Services 2011-2015 Pricing The Facebook mobile application is available for free. However, since the application requires access to the Internet, users need to pay data charges to their respective mobile operators. Moreover, users have an option to update their Facebook status or reply to wall posts using SMS. Users are charged through operator billing wherein the Internet usage and SMS charges either get deducted from their pre-paid credit or are added to their monthly mobile bills. User Base The figure below depicts the growth in the number of users accessing Facebook through PC and mobile phones. User Base (In Million) Figure 52: Facebook – Total User Base (In Million) 800 750 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 Aug-08 Apr-09 Sep-11 Feb-10 Jul-11 Jan-11 May-11 Jun-11 Period Source: Facebook, Portio Research Ltd. The figure below shows the growth in the number of users accessing Facebook through mobile phones. One third of total users access Facebook through their mobiles. Figure 53: Facebook – Mobile User Base (In Million) 300 250 Mobile User Base (In Million) 250 200 150 150 100 100 50 65 25 0 Jan-09 Aug-09 Jan-10 Jul-10 May-11 Period Source: Facebook, Portio Research Ltd. 86 © 2011, Portio Research. All Rights Reserved The Facebook mobile application is available for free. However, since the application requires access to the Internet, users need to pay data charges to their respective mobile operators.
    • Disruptive Mobile Applications and Services 2011-2015 Success Factors The table below highlights the factors that have helped Facebook attract millions of mobile users. Table 19: Success Factors – Facebook Mobile Application Factor Strategy Uniformity of Features Offered Facebook has maintained uniformity in the features being offered on mobile and desktop versions, which has helped users to easily associate themselves with the mobile version of the application Control Over Information Facebook gives users control over what they want to share, how they want to share and with whom they want to share. It allows users to express themselves the way they want to. Continuous Revision Enhanced versions of Facebook applications are launched regularly to meet the ever-changing user needs and to match up the hardware requirements of new devices in the market. Moreover, Facebook takes into account the offline behaviour of users and transforms it into online offerings/features. Multi-Lingual and Localisation The Facebook application is available in different languages, such as Korean and Russian, which makes it easier to use. Source: Portio Research Ltd. Scope/Type of Advertisements The success of Facebook’s mobile application is clear from the fact that advertisers and businesses are using the Facebook app as a platform to promote their products and to reach prospective customers. Adverts are integrated into the Facebook application as text ads, banner ads or Facebook ads placed on the right hand side of the page. Recent Developments • • • • • • • In May 2010, Apple introduced the Apple App Store within the Facebook application. This allows Facebook users to access all the applications on the Apple App Store from their Facebook account. In August 2010, Vonage, a voice and messaging company, launched a free Facebook application named ‘Vonage Mobile’ for iPhone, iPod Touch, iPad and Android devices. The application allows Facebook users to call their Facebook friends located anywhere in the world for free. In October 2010, Facebook integrated with Skype. As a result of this integration, a Facebook tab was added to the Skype desktop service and a Skype user can enjoy free video calling to their Facebook friend if added in as a Skype contact. Otherwise, the friend’s contact information will float in the news feed and can be contacted on a mobile or landline using Skype’s paid service. In October 2010, Facebook and Yandex, Russia’s largest search engine, signed a partnership deal under which Yandex will integrate information from Facebook on its website More than 200 operators in 60 countries are working to integrate Facebook with their services To cash in on its growing popularity, Facebook has asked all of its game developers to use Credits from 1 July 2011. Credit is a unique virtual currency that will be used on all the Facebook games to buy virtual goods. In July 2011, Facebook, in association with Skype, announced video chat features for its users. While Facebook users can video chat with each other, Skype users can © 2011, Portio Research. All Rights Reserved 87 Adverts are integrated into the Facebook application as text ads, banner ads or Facebook ads placed on the right hand side of the page.
    • Disruptive Mobile Applications and Services 2011-2015 • • access Facebook updates within the Skype application. However, this feature has not yet been launched for mobile users. Under Project Spartan, Facebook plans to launch the HTML5 version of its website and be a distribution channel for third-party mobile applications Facebook plans to launch a photo sharing application for iPhone users Big Question: Is Facebook an Opportunity or a Threat to MNOs? Facebook has become both an established brand with global reach, and a part of people’s daily lives. The popularity can be gauged by the fact that the first tracks from Lady Gaga's much-hyped 'Born This Way' album were released on Farmville, one of the popular Facebook games. The advertising industry is using Facebook’s reach in a big way, making Facebook one of the most preferred options for online ad displays. Facebook is also among the top sites generating traffic for news websites via referrals. To cash in on this popularity, MNOs are integrating their services with Facebook to reach out to subscribers. Two such examples of this are given below: • Airtel (India) has started a service supporting Facebook for its subscribers using USSD technology. Through this service, subscribers can access Facebook (on all types of handsets) without paying for data. • O2 (UK) is enabling its prepaid subscribers to top up their phones through Facebook The aim of MNOs to increase their brand awareness and improve their brand image vicariously through Facebook, a platform checked daily by users, seems to get fulfilled. But this association also brings possible threats for the MNO community. For MNOs, voice and messaging (including texting and multi-media messaging) are the primary sources of revenue, with data being the secondary one, and Facebook may dent these revenue streams in the long run. In fact, communication services offered by Facebook are already in place. Its association with VoIP apps, such as Skype, giffgaff Social Phone, JaJah, and O2 Social Phone, is enabling users to call their online Facebook buddies through apps. Facebook messages, IM and e-mail options can easily replace mobile messaging services. Other monetised services of MNOs, such as location-based services and mobile payments, are also at risk from Facebook Places, Facebook deals and Facebook credits. In mobile advertising terms, Facebook already has the huge database of its users’ profiles. It can easily use this information to understand users’ needs and preferences and enjoy the benefit of targeted advertising. Hence, it can be said that MNOs plan of promoting Facebook for their own benefit could turn sour as they are also promoting a potential near-future competitor. 88 © 2011, Portio Research. All Rights Reserved The advertising industry is using Facebook’s reach in a big way, making Facebook one of the most preferred options for online ad displays. Facebook is also among the top sites generating traffic for news websites via referrals.
    • Disruptive Mobile Applications and Services 2011-2015 Google+ and Facebook In June 2011, Google introduced a new social networking service, Google+, in competition to Facebook. While the interface is similar to Facebook, there are features that Facebook does not provide as of now. Some of these are: • +Circles: This feature helps in categorising the contact list such as friends, family, office, neighbourhood and many more • +Hangouts: Group Video Chat • +Location: Supports posting the current location along with the post • +Instant Upload: Enables picture additions to private albums on cloud • +Huddle: Circle specific group messaging • +Spark: Delivers interest related feeds of web content The application is available from Android Market. In July 2011, Google submitted the Google+ app for iPhone and iPad to Apple for its approval. With these additional features, Google+ might have an edge over Facebook. However, with Facebook already an established social networking service, Google+ has a long way to go to catch up with Facebook’s 750 million strong subscriber base. In the meantime, Facebook’s response to features of Google+ will be interesting to watch. With the announcement of video chat features integrated in Facebook, Facebook has already taken its first step. © 2011, Portio Research. All Rights Reserved 89
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Twitter Launch Date on Mobile: May 2007 Mobile website: m.twitter.com Application/Service Type: Social Networking User Base: 300 million (May 2011) Pricing: Free Geographic Reach: Worldwide (except some countries such as Cameroon, China, Egypt and Pakistan) In February 2006, Twitter was founded by Biz Stone, Evan Williams and Jack Dorsey and was made public for use on 15 July 2006. Initially it was owned by Obvious Corporation, but in April 2007 was established as a separate entity under the name of Twitter Inc. Twitter’s website provides free social networking and micro-blogging services. Subscribers read and send text based 140 character long messages, called tweets, to avail these services. Subscribers update their status by posting tweets on their profiles and this can be done an unlimited number of times a day. Due to the short nature of the tweets used for updates, it is also known as the SMS of the Internet. And just like SMS, its popularity has grown exponentially. In May 2011, the total subscriber base of Twitter was approximately 300 million, with half a million new subscribers being added daily. The mobile version of Twitter, which is m.twitter.com, was launched in May 2007. Being of a micro-blogging nature, almost half of Twitter users access it through their mobile handsets. The other reason adding to Twitter’s popularity is the possibility of updating one’s Twitter profile, even through the most basic of mobile phones, via SMS. The differentiating factor for Twitter is its micro-blogging nature. The short tweets posted by a user can be followed by many. Also in Twitter, unlike Facebook or Orkut, a user does not have their own community of friends or fans. Instead people are followers of each other and they follow tweets. This feature of following tweets plays an important part in increasing Twitter’s subscriber base. Whenever a famous personality joins Twitter, such as an actor or political leader, in pursuit of following them, their fans/supporters also join Twitter – as they don’t have to seek any special approval or acceptance from the one being followed. However, a person can still block others from following their tweets. 90 © 2011, Portio Research. All Rights Reserved Due to the short nature of the tweets used for updates, it is also known as the SMS of the Internet.
    • Disruptive Mobile Applications and Services 2011-2015 Twitter Milestones The figure below depicts Twitter milestones. Figure 54: Twitter Milestones Founded by Biz Stone, Evan Williams and Jack Dorsey February 2006 July 2006 Twitter Inc. became a separate entity April 2007 Public launch May 2007 Mobile version launched Non-English (Japanese) version launched April 2008 Reached 50 billion tweets per day November 2009 Launched its own photo sharing service January 2011 May 2011 April 2010 Twitter application launched on Android and BlackBerry Orange launches photo sharing for Twitter Source: Portio Research Ltd. Features of Twitter The following figure highlights the various features that Twitter offers mobile users. Figure 55: Features of Twitter Follow Profile Management • A user can follow anyone’s tweets, just by clicking on follow • Personalised profile • Photo sharing • Freedom to check others’ profiles, location and follow status if not blocked Push Notification • Prioritise direct replies even when offline or not using the mobile application Search • Users can search for a particular keyword or topic using its search option • Helps in finding Twitter profiles which users may like to follow Advertisement Tweet Button • Option of promoted accounts, tweets and trends for advertisers • Allows others to share a website or blog information Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 91
    • Disruptive Mobile Applications and Services 2011-2015 Pricing Twitter is available for free on the Internet. Its mobile versions as applications are also available for free. Users need to pay just for the data services they will be using in the course of Twitter usage. Also, while updating via SMS, users pay for the SMS charges. Success Factors Twitter has created a new wave in the social networking world. With millions of users signing up every month, it has reached a user base of 300 million. The table below lists the factors which led to its success. Table 20: Success Factors – Twitter Factor Strategy Celebrity Factor People can join, update and follow each other by simply clicking a button • Twitter is available for free on the Internet and the mobile application can also be downloaded for free • With celebrities joining in and tweeting, more and more new users are registering to follow them As it supports micro blogging i.e. tweeting instead of macro blogging, so users have a tendency of tweeting and re-tweeting owing to the ease of sharing updates • Free to use • • Ease of communication Features such as who to follow, search, lists, photo sharing, tweet, retweet etc. add to its user options and hence attracts users Micro blogging Attractive features • Anyone can register for twitter and become its subscriber. It asks Ease of Subscription Availability on App Stores only for a few minor details such as username, full name, e-mail and password. • The mobile application can presently be downloaded for free from BlackBerry, Apple, Nokia, and Android application stores Source: Portio Research Ltd. Recent Developments • • 92 In June 2011, Twitter completed the acquisition of TweetDeck In July 2011, Twitter had a new round of funding worth USD 200 million, led by venture capital firm Kleiner Perkins Caufield & Byers. This funding has raised Twitter’s valuation to USD 3.7 billion. © 2011, Portio Research. All Rights Reserved Twitter is available for free on the Internet. Its mobile versions as applications are also available for free.
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is Twitter an Opportunity or a Threat to MNOs? Twitter is a social networking and micro-blogging website, that promotes the use of short updates in the form of tweets. Twitter, when superficially examined from an operator’s perspective, can be seen as a threat if we consider the 300 million strong user base using tweets for communicating and hence directly impacting on the SMS revenues of MNOs. But in reality, it’s quite the opposite. The tweet traffic that is feared will cannibalise SMS revenues is mostly the result of tweeting done by 20 percent of Twitter users. The remaining 80 percent of users are mostly the followers of those tweets. Mobile operators, in contrast, can utilise Twitter as an opportunity to popularise their services by bundling Twitter with it, and luring more subscribers from the Twitter user base of 300 million through this association. They can provide SMS as a means of posting tweets and checking the tweets of those being followed, to bolster their SMS traffic and revenues. Operators can even promote their MMS segment by partnering with Twitter to allow the posting of adverts on Twitter. Furthermore, through the data being used, operators are already charging Twitter users. The threat for operators will arise when Twitter starts integrating with VoIP services, which is not presently the case. Until this happens, mobile operators can reap benefits for themselves from Twitter’s popularity and usage. © 2011, Portio Research. All Rights Reserved 93 The tweet traffic that is feared will cannibalise SMS revenues is mostly the result of tweeting done by 20 percent of Twitter users. The remaining 80 percent of users are mostly the followers of those tweets.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 12 Mobile VoIP 94 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Mobile VoIP Voice over Internet Protocol (VoIP) is defined as the routing of voice communication and multimedia sessions over the Internet. When the call is made using a mobile handset, it qualifies as mobile VoIP. After tasting success on wireline, VoIP is being explored within the wireless segment. VoIP’s biggest draw is the significant cost savings over traditional voice telephony. Voice revenue still forms the major portion of an MNO’s revenue, even though voice ARPU is continuously falling, and mobile VoIP has emerged as the biggest challenge to the dominance of mobile voice telephony – as well as posing a direct threat to operators’ voice revenue. VoIP is gaining traction among mobile users and this is giving MNOs sleepless nights. Mobile VoIP’s success can significantly reshape the landscape of the mobile voice business. Several VoIP providers, such as Skype, Fring, Vonage and Jajah, have entered the mobile market in spite of operators’ continuous efforts to block such moves. “VoIP services are actually free to the subscribers, but they load the cellular network with Internet traffic. This brings a question – who will pay for this traffic and maintaining its quality? At the end of the day, VoIP services destroy value as they do not pay for the infrastructure they use – and this is the reason we do not believe in such services. This is like getting a luxury car for free, with no roads to use it with." Georges Penalver Senior Executive Vice President, France Telecom Mobile VoIP has emerged as a credible alternative to traditional voice calling, and users will definitely opt for free calling if given an option. With the advent of smartphones, along with high-speed networks, mobile VoIP providers are now able to provide uninterrupted communication along with a rich user-experience. Users will be required to pay for data charges to use mobile VoIP, but the data charges incurred will be minimal compared to traditional voice calling charges. Moreover, MNOs will even miss out on the data charges if the user accesses mobile VoIP through Wi-Fi hotspots. MNOs will have a very small role to play in mobile VoIP and will again simply be playing the role of ‘dumb pipes’. MNOs have tried blocking mobile VoIP as it erodes their high-margin traditional voice service revenue; but all in vain. MNOs can no longer turn their back on users’ demand for mobile VoIP. Having realised this, MNOs – such as Verizon Wireless US and 3 UK – have entered into partnership with mobile VoIP provider Skype. It is viewed as better to team up with mobile VoIP providers and capitalise on the opportunity rather than to compete with them. It will be very difficult for operators to match up their pricing with VoIP providers. © 2011, Portio Research. All Rights Reserved 95 Mobile VoIP has emerged as a credible alternative to traditional voice calling, and users will definitely opt for free calling if given an option.
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Skype Launch Date on Mobile: December 2006 Mobile Website: m.skype.com Application/Service Type: Voice over Internet Protocol (VoIP) User Base: 145 million active/connected users (end-2010) Pricing: Free Geographic Reach: Worldwide Mobile VoIP has emerged as the biggest challenge to the dominance of mobile voice telephony. The most prominent example is the increasing popularity of Skype. Skype started its business in 2003 and has grown to become the most popular application used to make voice and video calls over the Internet. With its recent acquisition of Skype, Microsoft aims to stabilise its presence in the mobile market. With its recent acquisition of Skype, Microsoft aims to stabilise its presence in the mobile market. Skype Milestones The figure below depicts Skype milestones. Figure 56: Skype Milestones Skype released beta version of Skype 2.2 for Windows mobile smartphones The first beta version of Skype was launched August 2003 April 2004 Skype mobile version was launched for PDA devices connected to Wi-Fi December 2006 3 UK eliminated data charges and top-up fees for its subscribers who use Skype on 3’s network October 2007 Skype and 3 UK together launched a 3G Internet phone Skypephone with Skype built-in May 2009 Microsoft acquired Skype in a deal worth USD 8.5 billion May 2010 May 2011 Skype was released on multiple platforms including iPhone OS, BlackBerryOS, Android and Symbian Source: Portio Research Ltd. October 2007: “Skype is now truly mobile. This new handset is incredibly easy to use and lets you make free mobile Skype calls when you are on the move to other Skype users all over the world no matter where they are. It couldn’t be simpler – put Skype in your pocket and make free Skype mobile calls and send free Skype instant messages at the touch of a single Skype button.” Michael van Swaaij Acting CEO, Skype 96 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Features of Skype The following table highlights the various features of Skype that are available on different mobile OS platforms and on 3 UK. Table 21: Features of Skype Feature Skype-to-Skype Voice Calling SkypeOut SkypeIn Skype SMS Instant Messaging iPhone Android Symbian Skype on 3 UK            File Sharing Video Calling Voicemail   Synchronisation with phone’s address book Conference Calls Call Forwarding                Source: Skype, Portio Research Ltd. Pricing The Skype mobile application is available for free, and Skype offers free Skype-to-Skype calling. Users only have to pay for the Internet connection on their mobile phones. However, Skype charges a premium for the features such as SkypeIn and SkypeOut. • • SkypeIn: Users can buy a SkypeIn number at a nominal fee. This allows other people to call a user’s Skype account by placing a call at this number from a mobile phone. The callers are charged by their operator as if they were calling any other mobile number. SkypeOut: SkypeOut allows users to call on a mobile phone and landline from their Skype accounts at a much lower rate than traditional mobile voice calling. Users can either buy Skype credits or a timed-subscription from Skype. © 2011, Portio Research. All Rights Reserved 97 The Skype mobile application is available for free, and Skype offers free Skype-toSkype calling.
    • Disruptive Mobile Applications and Services 2011-2015 The below table depicts the free and paid features offered by Skype. Table 22: Skype - Free vs. Paid Features Feature Free Skype-to-Skype Voice Calling     SkypeOut SkypeIn Skype SMS Instant Messaging File Sharing Video Calling      Group Video Calling Voicemail Synchronisation with phone’s address book Skype-to-Skype Conference Calls Skype-to-Landline/Mobile Conference Calls Call Forwarding Paid     Source: Skype, Portio Research Ltd. 98 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 User Base The figure below depicts the growth in the number of active/connected users of Skype. Figure 57: Skype – Active User Base (Worldwide, In Million) 160 145 Active User Base (In Million) 140 120 105 100 75 80 52 60 40 20 0 2007 2008 2009 2010 Period Source: Skype, Portio Research ltd. Figure 58: Skype – Regional Active User Base (In Percent, 2010) 24 56.0% 11.0% 16.0% 17.0% US Other America Asia Pacific EMEA Source: Skype, Portio Research ltd. 24 Note: Skype uses differing geographical classifications and divides the world in to four regions - the US, Other America, EMEA and Asia Pacific. EMEA refers to Europe, Middle East and Africa. © 2011, Portio Research. All Rights Reserved 99
    • Disruptive Mobile Applications and Services 2011-2015 Success Factors Table 23: Success Factors – Skype Factor Strategy • Voice Quality • • • Attractive Pricing • Smartphones along with high-speed networks have enhanced the overall experience of voice and video calling over the Internet Skype is offering high-definition (HD) voice which will further enhance users’ experience Skype offers free Skype-to-Skype calling anywhere anytime There are no roaming charges associated with Skype. Users can be in any part of the world and can still have voice and video chats without worrying about roaming charges. Skype transfers voice over the Internet and the operator does not play any role at either the caller’s end or receiver’s end. Hence, there is no interconnection fee associated with VoIP calling. This allows Skype to charge users lower calling rates. • Skype has maintained similar features and business model in the desktop and mobile versions; helping users to easily associate themselves with the mobile version of the application • The mobile version ensures quick and uncomplicated navigation through the app. Users can easily initiate voice and video chats with their Skype friends by simply clicking on a button on their mobile phones. Familiar User Interface Ease of Use • Skype supports multi-tasking on smartphones. Skype can run in Multitasking Worldwide Presence the background and users can remain available for incoming calls, instant messages and authorisation requests. • Users can accept Skype calls and instant messages while using another app • Users can also work on another app while a Skype conversation is still going on • MNOs’ operations are generally restricted to a specific geographical area which is not the case with Skype Source: Portio Research Ltd. Recent Developments • • • • 100 In January 2011, Skype acquired Qik in order to offer additional video capabilities to its consumers and business users. Qik is a service which allows users to record and instantly share their experiences with their acquaintances through the medium of videos. In February 2011, Skype introduced a Mobile Partner Program for operators in countries with low 3G penetration. This program will enable operators in emerging countries to offer a Skype experience to their users on a broad range of handsets including smartphones and feature phones. In May 2011, Microsoft acquired Skype in a deal worth USD 8.5 billion In June 2011, Comcast Corporation and Skype entered into a partnership under which Comcast users will be able to make and receive Skype HD video calls, audio calls, or send instant messages to their friends and family through their television. This will give users the freedom of talking to their friends and family while watching their favourite shows. The friends/family on the other end could be connected to Skype on their television, mobile devices, PCs or laptops. This partnership will also allow users to import contacts from their Facebook, Outlook, Gmail and smartphone address books on to their television. © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 The hardware required is HDTV, a high-quality video camera and a specially designed remote control that enables customers to text on Skype, as well as control their television. Skype and Microsoft Deal In May 2011, Microsoft acquired Skype in its largest-ever deal worth USD 8.5 billion. The deal aims at enhancing Microsoft’s existing portfolio of real-time communication products and services. With the acquisition, Microsoft extended its presence into the IP communication space. In 2010, more than 207 billion minutes of voice and video conversations took place on Skype 25. Microsoft is looking to capitalise on the huge active/connected user base of 145 million users, wide network reach, real-time peer-to-peer (P2P) video chats, user-centric business model and features. With features such as video chat, conference calls, file sharing and voicemail, Skype provides value to both individuals and business users. Skype will generate newer revenue streams for Microsoft. Microsoft is already planning to integrate the service to its existing range of products such as Outlook, Windows Phone, Windows Messenger, Hotmail, Kinect, Lync and Xbox. Integration of Skype into gaming devices such as Kinect and Xbox will allow millions of gaming users to have real-time voice and video chats with their teammates and opponents. Skype will take the gaming experience to new heights. Skype is also assured to bring in advertising revenues. Was the deal worth USD 8.5 billion? The amount of money involved in the deal certainly raised many eyebrows because other players - Facebook and Google - who showed interest in buying Skype were offering half the price. The estimated bid to acquire Skype by both Google and Facebook was approximately USD 4 billion. Many industry analysts believe that Microsoft has over-paid for the deal. In 2010, Skype had a user base of 145 million active users; Microsoft paid over USD 58.6 for every Skype user. This is not the first time when industry analysts have been sceptical about Skype’s valuation. When eBay purchased Skype in 2005, it left many people confused and doubting the attractiveness of Skype’s business model. eBay was unsuccessful in developing its users’ interest in video chatting and ended up selling Skype to an investor group four years later at a lower price than its investment in the company. The figure on the next page depicts Skype’s valuation through 2005-2011. 25 Source: Skype’s Website - http://about.skype.com/ © 2011, Portio Research. All Rights Reserved 101 In 2010, more than 207 billion minutes of voice and video conversations took place on Skype.
    • Disruptive Mobile Applications and Services 2011-2015 Valuation of Skype (In USD Billion) Figure 59: Valuation of Skype (In USD Billion, 2005 - 2011) Microsoft buysSkype 8.5 10 8 6 4 eBay purchased Skype 3.1 eBay devalued its investment in Skype by USD 1.43 billion eBay sold Skype to an investor group led by Silver Lake 2.8 1.7 2 0 2005 2007 2009 2011 Year Source: Skype, Portio Research Ltd. However, Microsoft seems to have a twofold strategy with the Skype deal. With other Internet and smartphone giants such as Google (Google Voice) and Apple (FaceTime) already in the mobile voice and video chat space, Microsoft firstly wanted to enter the mobile VoIP market as soon as possible to ensure that it remained competitive. The second reason was to capitalise on the opportunity of acquiring Skype before any other mobile operator/Internet giant did so. The strategy seems reasonable since Skype is the leader in the VoIP domain and hence would have been targeted by other players as well. Will Microsoft be able to realise profits from Skype or will it echo what happened with eBay? In 2005, e-Bay acquired Skype with an objective to integrate voice calling into its ecommerce model. However, the former failed in its attempt to integrate the two services and sold 70 percent of its stake in 2009. Microsoft also plans to integrate Skype into its existing products. Presently, the deal is still in its initial phase and so, in the coming years, it will be interesting to see how Microsoft plans to turn the tables in its favour. 102 © 2011, Portio Research. All Rights Reserved In 2005, e-Bay acquired Skype with an objective to integrate voice calling into its e-commerce model.
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is Skype an Opportunity or a Threat to MNOs? Skype offers free Skype-to-Skype calling minutes and its integration in to the mobile space is being seen as the biggest threat to mobile operators’ voice business. Skype’s business model is not expected to change much in terms of calling charges in future, which will hence see it continue charging a nominal fee for non-Skype terminating calls and international calls. This is the differentiating factor which makes it a potent threat: a completely different and favourable business model compared to mobile operators. Skype plans to incorporate alternate revenue streams emanating from advertising, gaming and virtual gifts. The challenge is stiffer still in those regions where over 85 percent of MNOs’ revenue comes from voice. In addition to voice, Skype also poses a great threat to mobile e-mail and instant messaging (IM). File-transfer features allow users to easily send files from one Skype account to another, and there is no restriction on the file size. While users are having voice or video chats with their friends, they can also send IMs to their Skype contacts. Table 24: Skype – Usage Statistics including via Mobile (Worldwide, 2008-2010) Parameters 2008 2009 2010 Skype-to-Skype voice and video minutes in the year (In Billion Minutes) 65.5 113.0 194.3 Average total voice and video minutes per connected user per month (In Minutes) 86 107 131 Number of paid SMS sent in the year (In Million) 85 126 176 Percentage of Skype-to-Skype calls lasting 10 minutes or longer in December 48% 52% 52% Source: Portio Research Ltd. As noted, Microsoft is already planning to integrate the service in to its existing range of products such as Outlook, Windows Phone and Xbox. With Skype offering literally a free calling service, the traditional mobile voice telephony model is under serious assault. By aligning with the software giant, Skype services are expected to be catapulted to new heights and cause a storm in the market. MNOs frequently need to identify and seize the opportunities presented in order to sustain their mobile businesses. The next decade is expected to witness a transition from mobile revolution to mobile evolution. This warrants a strategic change from operators, and it has to start with the realisation and acceptance of the challenge presented by Skype. But Skype also presents a couple of interesting opportunities for the operators. • Forming Alliances: The focus of mobile operators is already shifting towards data. Under such circumstances, encouraging the use of VoIP services can help operators in offsetting their falling voice ARPUs by increasing their data ARPUs. On the other hand, operators can also look to offer cheap Skype services over their circuit switched networks. © 2011, Portio Research. All Rights Reserved 103 While users are having voice or video chats with their friends, they can also send IMs to their Skype contacts.
    • Disruptive Mobile Applications and Services 2011-2015 3 UK and Skype Partnership: Skype cannibalising Voice revenue is just a ‘myth’ The resounding success of 3UK’s strategy of letting Skype offer its services in the mobile space in 2007 is a prime example of a successful alliance. In October 2007, 3 UK and Skype collectively launched an affordable 3G Internet mobile phone called ‘Skypephone’, enabling users to make Skype calls and send instant messages from their handsets on-the-go. In May 2009, 3 UK extended its partnership by offering Skype without any data charges to both pre-paid and post-paid subscribers. This loss leadership type strategy has produced splendid results for 3 UK. In 2009, 3 UK reported that Skype users churned about 14 percent less than non-Skype users, and generated 60 percent more voice revenue compared to non-Skype users. Also, it was observed that Skype users send more SMS than non-Skype users.26 In February 2010, Verizon Wireless also started offering similar services to its subscribers but with the stipulation of using a smartphone with a high priced data/voice plan. 26 • Video Conferencing: Mobile operators need to identify future opportunities. Video conferencing, for example, is expected to become a trend in the coming years. Although Skype and other VoIP players have made VoIP calling free, video conferencing on VoIP is not a free service. The second alternative for mobile operators is to come up with their own branded video conferencing services on VoIP. Korea Telecom has been quick to take advantage of this opportunity and has launched its own premium SoIP (Services over IP) offering. It provides integrated VoIP and multimedia services and targets both SMEs (small and medium enterprises) and end consumers with customisable interactive services. Mobile operators can leverage their position and offer high quality HD, high QoS scalable IP communication services to generate newer streams of revenue and battle the threat of VoIP. The approach that mobile operators will follow needs to be backed by a sound strategy. Tiered-pricing generally puts a cap on data usage, beyond which operators charge a premium for data usage. With video conferencing, high bandwidth requirements ensure high data usage which leads to data revenues for the operators. On the contrary, unlimited data plans charge a flat fee for data usage, which implies no additional revenue for extra data downloads. This puts additional constraints on the available bandwidth. Operators need to revamp their pricing strategies to leverage the video conferencing opportunity. The increasing popularity of mobile VoIP is also correlated to smartphone sales. By developing innovative strategies, mobile operators have real potential to turn the threat of VoIP into a bright opportunity for their business. 26 Source: CCS Insight Consulting 104 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Nimbuzz Launch Date on Mobile: May 2008 Mobile Website: wap.nimbuzz.com Application/Service Type: Voice over Internet Protocol (VoIP) and Instant Messaging User Base: 50 million (June 2011) Pricing: Free Geographic Reach: Worldwide Nimbuzz can be defined as an application that allows users to voice chat, in combination with with instant messaging, photos, videos and file sharing across several communication protocols. The protocols supported by Nimbuzz include Windows Live Messenger (MSN), Yahoo! Messenger, ICQ, Google Talk, AIM, GaduGadu, Jabber and Twitter. Nimbuzz users can also add their friends from 23 social networking communities, including Facebook and MySpace. The application can be accessed via both PC and mobile phone. Headquartered in Rotterdam - the Netherlands, the company has a widespread presence across 200 countries. Nimbuzz mobile is available on more than 5,000 handset models and is compatible with all the major operating systems including iPhone OS, Android, Symbian, Windows Mobile OS and BlackBerry OS. Nimbuzz mobile is available on more than 5,000 handset models and is compatible with all the major operating systems including iPhone OS, Android, Symbian, Windows Mobile OS and BlackBerry OS. Nimbuzz Milestones The figure below depicts Nimbuzz milestones. Figure 60: Nimbuzz Milestones Symbian and Java (mobile) versions were launched May 2008 27 September 2008 Nimbuzz added support for Windows Mobile Launched IM and social network aggregation service on iPhone November 2008 Launched on Android devices August 2009 Nimbuzz introduced a push notification 27 feature Ping on feature phones November 2009 NimbuzzOut feature was launched February 2010 Reached 50 million users January 2011 June 2011 • Launched VoIP on iPhone over 3G • Partnered with Indonesian telecom operator Telkomsel Source: Nimbuzz, Portio Research Ltd. 27 Note: Nimbuzz Ping allows users to appear online to their contacts and to receive an SMS notification when a contact wants to communicate. This prompts users to log in and respond to incoming chat or invites. Basically, it is an extension to Nimbuzz’s Buzz feature which was only available to smartphone users. © 2011, Portio Research. All Rights Reserved 105
    • Disruptive Mobile Applications and Services 2011-2015 “Smartphones may get the attention. However, feature phones account for the majority of worldwide phone sales, especially in developing markets where Nimbuzz is taking the lead. Ping allows operators to increase data sales and drive up loyalty with an innovative VAS offering that brings smartphone functionality to feature phone customers.” Evert Jaap Lugt CEO, Nimbuzz Features of Nimbuzz Nimbuzz mobile is constantly upgrading, enhancing and increasing its features. The figure below highlights some of the Nimbuzz features available on mobile phones. Figure 61: Features of Nimbuzz Communication Profile Management Content Sharing Geo-Tagging • • • • Voice Calls Instant Messaging Group Chats Alert notification features: Buzz and Ping • • • • Availability Status Profile Picture Invisible Mode Synchronisation of address book with users mobile phone, social network, chat clients and VoIP providers contact list • File Sharing across different communities such as Yahoo! Messenger, Google Talk and MSN • Photo Sharing • Video Sharing • Users can mark their location • Users can retrieve their friends location Source: Portio Research Ltd. Pricing The Nimbuzz application is available free of cost for download. However, users need to pay operators for data usage. Users can purchase NimbuzzOut Credits to make international calls to landlines and mobile phones at very low rates. The payment can be made through PayPal accounts. 106 © 2011, Portio Research. All Rights Reserved Users can purchase NimbuzzOut Credits to make international calls to landlines and mobile phones at very low rates. The payment can be made through PayPal accounts.
    • Disruptive Mobile Applications and Services 2011-2015 User Base Since its mobile launch in May 2008, Nimbuzz has seen a tremendous growth in number of subscribers. In June 2011, it touched 50 million users and was adding 100,000 new users every day. Even the withdrawal of support by Skype seems to have had no noticeable effect on its growth. The figure below depicts the growth of Nimbuzz’s user base. Figure 62: Nimbuzz – User Base (Worldwide, In Million) 50 User Base (In Million) 50 40 28 30 20 Nimbuzz mobile was launched 13 10 1 0 May-08 Dec-08 Oct-09 Jul-10 Jun-11 Period Source: Nimbuzz, Portio Research ltd. Success Factors Table 25: Success Factors – Nimbuzz Factor Available on a wide range of handsets including smartphones and feature phones Strategy • Nimbuzz mobile application is currently available on more than 5,000 handsets that operate on Java, Symbian, Windows Mobile, iPhone OS, Android and BlackBerry OS. • • Nimbuzz offers free calls and instant messaging to its users There are no roaming charges associated with Nimbuzz. Users can call anywhere and from any part of the world. Just like Skype, Nimbuzz transfers voice over the Internet and operators play no role either at the caller’s end or receiver’s end. Hence, there is no interconnection fee associated with VoIP calling. • Nimbuzz allows file sharing across different communities such as Yahoo! Messenger, Google Talk and MSN, which adds a unique value proposition • The rate of Nimbuzz usage has definitely seen an incremental rise due to its buzz feature. Buzz/Ping prompts an offline person to go online for a Nimbuzz session. Attractive Pricing File Sharing Capability Buzz/Ping Feature prompts users to chat Global Presence • Nimbuzz has a global reach and is present in over 200 countries worldwide Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 107 In June 2011, it touched 50 million users and was adding 100,000 new users every day.
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is Nimbuzz an Opportunity or a Threat to MNOs? With Nimbuzz gaining traction in the mobile market, it is being recognised as an upcoming threat to the MNO community. Nimbuzz mobile was launched in May 2008, and by June 2011 its subscriber base reached 50 million. In June 2011, Nimbuzz reported that its users are consuming 3.65 billion voice minutes per year. Nimbuzz offers free instant messaging and file sharing, along with voice chat which makes it more lucrative for users and a bigger threat to operators. In June 2011, an average Nimbuzz user spent approximately two and a half hours a day communicating via the Nimbuzz mobile application. Although video chat services are yet to be availed, Nimbuzz has the resources and capacity to explore the video calling market as well. With the launch of the “NimbuzzOut” feature in November 2009, it took a step towards international calling to landlines and mobile phones at comparatively much lower rates than those offered by mobile operators. In 2010, Nimbuzz experienced an exponential growth in terms of number of downloads compared to 2009 – most prominently on GetJar and Nokia Ovi Store in particular. Number of Downloads (In Million) Figure 63: Number of Downloads from GetJar and Nokia Ovi Store of the Nimbuzz Application (In Million) 60 50.0 48 36 24 12 11.0 0 2009 2010 Year Source: Nimbuzz, Portio Research Ltd. Skype Prohibited Nimbuzz from accessing Skype network The growing popularity of Nimbuzz can be illustrated by the fact that in October 2010, Skype withdrew all its support from Nimbuzz. The reasons are not hard to fathom - Skype is the major player in the VoIP industry and does not want other growing VoIP applications to eat in to its existing market share. To counter this move, NimbuzzOut started offering a 15 percent bonus credit to its subscribers. The withdrawal of support from Skype led to disappointment among millions of Nimbuzz and Skype users. Telkomsel and Nimbuzz Partnership One of the strategies which mobile operators are looking to craft is a win-win situation for both operators and service providers such as Nimbuzz, and MNOs have already proactively started entering into partnerships with such service providers. In this way they are using the 108 © 2011, Portio Research. All Rights Reserved In June 2011, Nimbuzz reported that its users are consuming 3.65 billion voice minutes per year.
    • Disruptive Mobile Applications and Services 2011-2015 low cost features of apps to rapidly increase their user base and uptake of data services, even though this will likely eventually shift the revenue model from voice to data revenue. One such partnership was formed in February 2010 between Indonesia’s largest mobile operator Telkomsel and Nimbuzz. Under the arrangement, Telkomsel will offer the Nimbuzz application free of charge to its subscribers as part of a flat-rate data plan. This move will help Telkomsel to accelerate the uptake and consumption of data services among Indonesian mobile users and hence increase data revenue. Upon subscribing to flat-rate data plans, Telkomsel subscribers can send an SMS and get the free Nimbuzz application on their mobile phone. Telkomsel aims to use Nimbuzz to generate revenue via a Shortcode subscription service. February 2010: “Nimbuzz is the perfect application for the mobile services that our customers demand, especially our youth customers. The launch of Nimbuzz services within Telkomsel Social Networking Services, allows us to address youth segment better both for customer loyalty as well as for customers acquisition. We are proud to be the first to deliver the fruits of this groundbreaking partnership offering to our vast subscriber base.” Jajang Munajat General Manager - VAS, Telkomsel © 2011, Portio Research. All Rights Reserved 109 Telkomsel will offer the Nimbuzz application free of charge to its subscribers as part of a flat-rate data plan. This move will help Telkomsel to accelerate the uptake and consumption of data services among Indonesian mobile users and hence increase data revenue.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 13 Bulk Messaging Services 110 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Bulk Messaging Services Short Messaging Service (SMS) unquestionably dominates the mobile data services market. It has established itself as the simplest, easiest and most economical means of personalised one-to-one communication – with SMS volume growth statistics attesting to its popularity. SMS is the single most successful mobile data service in the world, both in terms of volume and revenue. As a result, in the highly competitive mobile data market, SMS enjoys the largest market share in terms of revenue and is the clear market leader. The success of SMS can also be gauged from the year-on-year growth of SMS traffic worldwide. The table below shows the growth of SMS from 2000 to 2015. Table 26: Growth of SMS – Worldwide (In Billion, 2000 – 2015F) Year SMS Traffic (In Billion) Year SMS Traffic (In Billion) 2000 146.4 2008 3,972.9 2001 218.0 2009 5,225.6 2002 366.0 2010 6,936.8 2003 450.0 2011F 8,015.5 2004 760.6 2012F 9,089.3 2005 1,056.4 2013F 10,163.4 2006 1,662.4 2014F 10,968.7 2007 2,778.0 2015F 11,665.0 Source: Portio Research Ltd. However, the entry of bulk-messaging websites/applications may cannibalise SMS revenue. These companies allow users to broadcast a text message to multiple mobile phones. Since messages are routed over the Internet, operators do not play any role in the value chain and lose out on SMS revenue. In the initial phase of SMS traffic growth, SMS was majorly being used by the P2P (Peer-ToPeer) segment. However, with the entry of brands, content providers and advertisers in to the SMS market, the A2P (Application-To-Peer) segment has become another major revenue contributor to the messaging revenue segment. Bulk messaging has found applications in many areas such as mobile marketing, information broadcasting, mobile commerce, work force management, entertainment, customer relationship management, public awareness and thought sharing. An operator’s A2P revenue will be hardest hit by the introduction of bulk-messaging applications and services. © 2011, Portio Research. All Rights Reserved 111 Bulk messaging has found applications in many areas such as mobile marketing, information broadcasting, mobile commerce, work force management, entertainment, customer relationship management, public awareness and thought sharing.
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: SMS GupShup Launch Date: On Web: April 2007 On Mobile: February 2008 Mobile website: m.smsgupshup.com Application/Service Type: Bulk Messaging User Base in India: 45 million (May 2011) Geographic Reach: India and the Philippines SMS GupShup is a social messaging service used to share and connect with friends and people with similar interests. It allows users to create mobile communities and broadcast messages to them. The flexibility to create and join communities of one’s choice is a major factor behind its success. SMS GupShup has a presence in India and the Philippines, and is slated to be an Indian version of Twitter – the website has more than 45 million subscribers and over one million content providers. The concept is to bypass the need for an Internet browser to access information as the information comes to you automatically via content providers. For example: users have chosen to receive stock information on a specific company or group, and so the business owner for this category will send the required information to subscribed users on a regular basis. The growing popularity of SMS GupShup has attracted many companies – such as Facebook, Microsoft, eBay, Pepsi, Cadbury, Nokia and Dell – to explore the variety of services being offered. For an enterprise user, SMS GupShup provides a platform to reach a target customer base. Features including scheduling of messages, keyword search, multiple language support, millions of messages transferred via single API call and shortcodes have created a valuable proposition to enterprise users. Features including scheduling of messages, keyword search, multiple language support, millions of messages transferred via single API call and shortcodes have created a valuable proposition to enterprise users. SMS GupShup Milestones The figure below depicts SMS GupShup milestones. Figure 64: SMS GupShup Milestones SMS GupShup was launched April 2007 SMS GupShup launched its mobile website, m.smsgupshup.com December 2007 SMS GupShup added picture messaging to its existing portfolio February 2008 SMS GupShup launched its app store ‘Appshup’ to offer SMS-based mobile apps July 2009 March 2010 Facebook partnered with SMS GupShup to allow users to send and receive status updates and messages via SMS SMS GupShup processed over 2 billion messages per month September 2010 April 2011 It expanded its operation to the Philippines, considered as the ‘SMS capital of the world’ Source: Portio Research Ltd. 112 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Features of SMS GupShup The figure below highlights the various features of SMS GupShup. Figure 65: Features of SMS GupShup Reporting • Users can generate reports for the messaging activities for any day. The reporting tool contains options to fetch account usage details, posted and scheduled messages, delivery reports, responses received, history of uploaded files and ad-campaign reports. Multiple Groups • There are millions of communities present on SMS GupShup. Users can become a member of multiple groups and connect with diverse people. Huge Gallery of Pictures • SMS GupShup also allows users to send picture messages. A huge gallery of pictures is available for users to select from and share with their friends. Schedule your Messages • Users can schedule the delivery date of messages a year in advance ‘Flag’ offensive Messages • With a click of a button, users can mark any message as offensive content. SMS GupShup will review the message content and take appropriate action. Delivery Reports Reply to All Regional Language Support • Users can at anytime request status notifications for both posted and scheduled messages • When a user receives a text message from their group, they can simply reply to the message via mobile phone and the reply will be sent to all the members of the respective group • In addition to the English language, SMS GupShup supports all Indian languages Source: Portio Research Ltd. Pricing SMS GupShup does not charge users to send 140 28 character long messages to the members of their groups/communities. However, users can send group messages of up to 640 characters using a paid SMS service (cost per SMS is very low compared to traditional SMS charges). No adverts are integrated into paid SMS. Standard SMS rates apply if users access SMS GupShup from their mobile phones. For example, if a Facebook user updates their status by sending an SMS, they would be charged the standard SMS rate. The success of SMS GupShup is clear from the fact that advertisers and businesses are using the service as a platform to promote their products and to reach prospective 28 Note: A standard SMS is 160 characters long. SMS GupShup allows users to use 140 characters for free and the remaining space is filled with the message ‘Sent via SMS GupShup’. © 2011, Portio Research. All Rights Reserved 113 SMS GupShup does not charge users to send 140 character long messages to the members of their groups/communities. However, users can send group messages of up to 640 characters using a paid SMS service
    • Disruptive Mobile Applications and Services 2011-2015 customers. Adverts are integrated into the ‘free’ text messages. In addition to the adverts, promotional messages can also be sent to a targeted audience. User Base The figure below depicts the growth in the number of users subscribing to text messages from SMS GupShup in India. Figure 66: SMS GupShup – User Base (India, In Million) User Base (In Million) 50 45 45 40 35 35 30 26 25 20 20 12 15 7 10 5 1 0 Jan-08 Jul-08 Oct-08 May-09 Jan-10 Sep-10 May-11 Period Source: Portio Research Ltd. SMS GupShup is rightly referred to as the biggest social networking website in India. Millions of users use SMS GupShup to connect with each other via SMS, and has more users utilising its services than any other social networking giants in India. The following figure compares the user base of SMS GupShup with Facebook (social networking giant) and LinkedIn (professional network giant). 114 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Figure 67: User Base – SMS GupShup vs. Networking Websites (India, May 2011, In Million) User Base (In Million) 50 45.0 40 30 24.9 20 10.0 10 0 SMS Gupshup Facebook LinkedIn Source: Portio Research Ltd. SMS GupShup witnessed a year-on-year growth of 100 percent in terms of number of messages processed per month. It has reached a new milestone of 2 billion messages being processed every month in India by the website (April 2011). The figure below shows the growth in number of messages shared per month. Number of Messages (In Million) Figure 68: SMS GupShup - Number of Messages Processed per Month (India, In Millions) 2,000 2,100 1,400 1,000 700 400 500 10 0 May-08 May-09 Jan-10 Jul-10 Apr-11 Period Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 115 SMS GupShup witnessed a year-on-year growth of 100 percent in terms of number of messages processed per month. It has reached a new milestone of 2 billion messages being processed every month in India by the website (April 2011).
    • Disruptive Mobile Applications and Services 2011-2015 Success Factors The table below highlights the factors that have helped SMS GupShup attract millions of users. Table 27: Success Factors – SMS GupShup Factor Strategy Positioning • Social networking has become a norm for many people. SMS GupShup positioned itself as an SMS-based social networking service with no real requirement of an Internet connection. Multiple Recipients • A message can be broadcast to as many as 1 million users using a single API call Localisation • The possibility of sending messages in any Indian language provides an edge to the message broadcasters, especially advertisers. Regional language support becomes very critical in a multilingual country like India. Cost per SMS • SMS GupShup offers a competitive cost per SMS. The range of cost per SMS lies between INR 0.01 (USD 0.0002) and INR 0.10 (USD 0.002) depending on the chosen bulk-messaging plan. Targeted Promotions • The enterprise segment can extract maximum value by sending customised messages based on users’ locations, groups they are members of and keywords searched by them Huge Audience Base • In just one click, millions of users can be reached with a minimal investment – compared to other marketing mediums • There is hardly any mobile phone that does not support SMS Source: Portio Research Ltd. 116 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Big Question: Is SMS GupShup an Opportunity or a Threat to MNOs? In April 2011, SMS GupShup was processing two billion messages per month In India, which is equivalent to nearly 8 percent of India’s monthly SMS traffic. Mobile network operators are already fighting for a share in the messaging market, and with the entry of players such as SMS GupShup, 160by2 and Way2SMS, market conditions for MNOs will become even more troublesome. In the last few years, the messaging market has become very competitive and every player is struggling for a small piece of the messaging pie. If there was no SMS GupShup, Indian operators would have been processing billions of additional messages every month. Applications such as SMS GupShup have partly been responsible in compelling Indian operators to introduce unlimited SMS packs and to lower their messaging tariffs. The rising popularity of bulk-messaging websites and apps has become a threat to operators’ very survival, as operators make no money on the messages originating from the web interface. Instead, they have to deal with their customers’ complaints in instances of non-delivery of messages or receipt of unwanted ones. To throttle the growth of such players, operators increased their interconnection fees. This step will require SMS GupShup to limit the number of messages processed per day, or else pass on the increased cost to customers. If the cost is passed on to customers, SMS GupShup will lose the charm of its business model, which offers significant cost-savings. However, this seems to be a short-term strategy as operators cannot keep on increasing interconnection fees because of regulatory policies. Two-way communication between machine and mobile phone has provided some relief to operators. In addition to IP-based messaging, SMS GupShup also encourages users to send messages from their mobile phones, which are charged at the standard SMS rates. In July 2009, Facebook entered into a partnership with SMS GupShup to allow its users to send and receive status updates, messages and wall posts via mobile. Owing to the huge popularity of Facebook, Facebook’s mobile service became an instant hit and users started using this service extensively. Facebook did not charge a fee for these mobile services but standard SMS rates applied (typically INR 3 [USD 0.07] per message). Facebook’s collaboration with SMS GupShup extended the former’s presence within India’s mobile market. It provided an option to users to access Facebook and stay connected with their friends while on-the-move via mobile phone, leading to a surge in India’s SMS traffic. Operators observed this user behavior and took it as an opportunity to combat the competition. In 2010, two operators, Loop Mobile India and Globe Telecom Philippines, partnered with SMS GupShup and launched a service called ‘Reply-to-All’, which allowed users to reply to received messages. In the next few months, it was observed that users tended to reply instantly to messages received from their friends. MNOs are encouraging bulk-messaging tools in applications and services that entice users to pick up their phones and send a message, leading to the generation of revenue for operators. Social networking, balance enquiries and SMS-based quizzes are some of these applications. Peer-to-Application (P2A) messages have only provided part relief to MNOs because IPbased messages sent to users form a higher percentage compared to messages sent by users’ mobile phones to machines. This is primarily because of the SMS being used as a marketing tool by the majority of companies. Companies send their promotional messages to millions of users at the same time. © 2011, Portio Research. All Rights Reserved 117 Facebook’s collaboration with SMS GupShup extended the former’s presence within India’s mobile market. It provided an option to users to access Facebook and stay connected with their friends while on-the-move via mobile phone, leading to a surge in India’s SMS traffic.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 14 Mobile Payments 118 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Payments Introduction The mobile payments market has significantly evolved in the last six years. Despite its limited success in a majority of markets, both developed and developing, few have doubted the potential mobile payments have to act as an alternative for cash and cheque payments, especially for micro-payments (less than USD 15). Obstacles to adoption have been a lack of scalable and viable business models, lack of standardisation, and fragmented commercial efforts. However, the success of mobile payment business models in countries such as Japan, South Korea and the US has revived the interest of potential stakeholders to bring out the next phase of mobile payment services worldwide. Key stakeholders in the mobile payments value chain include: • Merchants • Banks and financial institutions • Mobile Network Operators (MNOs) • Consumers • Mobile App Stores/Application developers Mobile payments provide a number of opportunities to stakeholders, as depicted in the figure below. Figure 69: Mobile Payment Opportunities for Key Stakeholders (WIP) Stakeholders Opportunities Banks and Financial Institutions • • More sales opportunities Personalised marketing and improved marketing effectiveness • • • New users from unbanked areas Tapping micro-payments market Channel to provide differentiated offerings • Merchants Transaction commissions by leveraging network assets and subscriber base Platform for increased mobile content sales Mobile Network Operators • • Consumers • App Developers and Stores • • Immediate access to product information and promotions Easier micro-payments, cashless payments Easier micro-payments, cashless payments Act as brand differentiator and will lead to increased customer loyalty Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 119 However, the success of mobile payment business models in countries such as Japan, South Korea and the US has revived the interest of potential stakeholders to bring out the next phase of mobile payment services worldwide.
    • Disruptive Mobile Applications and Services 2011-2015 Key categories of goods and services offered through mobile payments are: • Mobile applications and In-app payments • Mobile ticketing • Mobile coupons • Transportation and parking payments • Mobile content (music, videos, online game subscriptions, wallpapers, etc.) • Physical goods (books, magazines, CD/DVDs, clothes, etc.) Currently, mobile payments are mostly used for the purchase of mobile content, mobile ticketing, coupons and micro-transactions. The growing number of bank-MNO partnerships is expected to make mobile wallets more capable of carrying out larger and secure transactions. This will encourage the use of mobile payments for the purchase of physical goods and macro-transactions will also increase significantly. Mediums of Mobile Payments Mobile payment services primarily fall into two categories— remote and proximity services. The four major mediums of providing these services are the following: • SMS/Application • WAP • Unstructured Supplementary Services Data (USSD) • Near Field Communications (NFC) or Contactless payments Mobile payment services using SMS, applications, WAP and USSD can be accessed remotely. However, NFC payment services can only be used if the accessing device is in the proximity of the NFC reader, which connects the device with the back-end servers and data centres. The choice of medium for providing mobile payment services depends upon market characteristics and the capital the service providers are willing to spend. SMS and applications-based mobile payments have been deployed in many emerging markets, such as China, India, the Philippines and Indonesia. This medium benefits from the ubiquity of SMS use and can therefore be used to target the ‘bottom of pyramid’ user segment. The ‘Smart Money’ service in the Philippines is an example of a successful SMS-based payments service. WAP services can be used to target the owners of mid-range and high-end handsets. However, these services are often hampered in emerging markets by an unavailability of high-speed networks and a lack of capable handsets. The problem of session timeouts also degrades user experiences. USSD is a standard for transmitting information over GSM networks. This mobile payment medium is apt for developing markets and is cheaper than mobile payments using SMS. Barclays’ ‘Hello Money’ is an example of a USSD-based mobile payment service; a user dials a specific short code on the handset to access the mobile payments menu. NFC is more useful in developed markets with capable infrastructure. It is being used to make mobile payments for transportation, ticketing and coupon services. Many countries such as South Africa, Germany, France, Italy, Japan and South Korea have deployed NFC solutions for mobile payments. 120 © 2011, Portio Research. All Rights Reserved NFC payment services can only be used if the accessing device is in the proximity of the NFC reader, which connects the device with the back-end servers and data centres.
    • Disruptive Mobile Applications and Services 2011-2015 How NFC Payments work The way in which NFC mobile payments work is depicted below. Figure 70: How NFC Payments work Mobile Ticketing – Issuing Server Mobile Coupons – Issuing Server Financial Card Provider – Issuing Server IP Network Back-end Application Software Financial Point-of-Sale Network Merchant NFC Reader Device Collaborating Payments Solutions and Authentication Firms MNO Source: Portio Research Ltd. To avail NFC payment facilities, a user needs to have an NFC-enabled handset. In order to make a transaction, a user must wave the handset near an NFC reader device so that the user account is identified by the reader and the transaction is made. Micro-transactions – which are defined differently in different markets – do not require authentication. The payment is either deducted from a pre-paid account or is charged to the mobile/bank/credit card account directly. The details of the mobile payment and available balance can then be accessed using the handset. Advantages of making NFC payments through mobile handsets: • Contactless payments take 12.5 seconds to complete a transaction, while a credit/debit card transaction takes 27 seconds and a cash transaction takes 34 seconds 29 • The availability of historical data for the consumer spending behaviour of NFC users makes them easy to target for mobile advertisements, promotions and mobile coupons • NFC payments are more efficient in enabling micro-payments 29 Source: http://www.envoyservices.com/pressr/GuardianOnlineRetailPaymentTechnologyFull.pdf © 2011, Portio Research. All Rights Reserved 121 Contactless payments take 12.5 seconds to complete a transaction, while a credit/debit card transaction takes 27 seconds and a cash transaction takes 34 seconds.
    • Disruptive Mobile Applications and Services 2011-2015 Square Mobile Payment Solution It has to be kept in mind that NFC payments require both the merchant and the consumer to have NFC-capable devices. Consumers are required to have NFC-enabled handsets while the merchant should possess appropriate payment processing hardware to be able to accept and process an NFC payment. This mandate is limiting the expansion of NFC payments as the hardware required at both the ends is not readily available. To overcome this, Square has devised a solution. Square provides merchants with a small card reader device which can be plugged in to the headphone socket of an iPhone, Android device or iPad. Merchants can then use this as credit or debit card reader and process the transaction. The Square app resides on the mobile device and, using the cellular radio (either through Wi-Fi or 3G Internet), communicates with Square servers, which in turn route the transactions. The idea behind Square is that anyone can accept credit card payments anywhere. This solution helps merchants avoid the hefty setup required for general credit card payments. Figure 71: Square Card Reader Source: Square This solution is enabling merchants to process card transactions through their mobile devices. The effort required to avail this facility is also minimal. A user needs to download the Square application. After downloading the app, users just need to fill out a short form to start accepting credit cards immediately, and Square will drop a free credit card reader in the post. • 122 This particular solution, however, does not benefit the consumer side as they still have to use the regular cards to make their payments. To overcome this and make the payment system totally mobile, a new solution has been introduced. This Square System requires both merchants and consumers to have the appropriate software to complement each other and to complete a transaction. Square Register is an iPad app that retailers can use to process payments, and Card Case is an app that is like a virtual wallet filled with virtual credit cards for authorised Square merchants. Card © 2011, Portio Research. All Rights Reserved Square has devised a solution. Square provides merchants with a small card reader device which can be plugged in to the headphone socket of an iPhone, Android device or iPad.
    • Disruptive Mobile Applications and Services 2011-2015 Case merges customer loyalty card programs with a payment system. Setting up a Card Case account with a local vendor is like opening up a tab, and any time the consumer shops at the given retailer, the purchases are just added on to the consumers tab and payments are processed behind the scenes. However, the current availability of this solution is limited. As of the unveiling by Square, there are only 50 merchants authorised to use the Square Register system, and those 50 businesses are located in only five cities: Los Angeles, New York, St. Louis, San Francisco, and Washington, DC. Also the Card Case app is not publicly available. Consumers must visit an authorised Square merchant and make a credit card purchase, and then the merchant can send an e-mail to the consumer with a link to get the app and start using Card Case. How do Square’s Card Reader solutions work? The card reader solution provided by Square enables merchants to easily accept credit and debit cards. The small size of the card reader further bolsters the convenience level and Square is enjoying rapid uptake. At the time of transaction, the card reader reads the data embedded on the magnetic strip of the credit/debit card. It then converts the data into audio signal which is tapped by the microphone and passed on to the smartphone’s processor. The processor passes it to the Square application for encryption. The encrypted data is then transferred to the Square back-end servers through Wi-Fi or 3G data connections. After this, the data is routed to the payment networks and gateways to complete the transaction. Once the transaction is completed, an acknowledgement from the payment network is sent via the back-end servers in the form of an SMS or e-mail. Processing of payments happens almost instantly. The figure below is the pictorial representation of how Square Card Reader works. Figure 72: How Square Card Reader works Square Card Reader Microphone Read data on the card's magnetic strip and convert into audio signals Routes data Square Application Processor Data Encryption Routes Data Wi-Fi/3G Internet Medium to transfer the encrypted data Backend Servers Payment Networks and Gateways Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 123 The small size of the card reader further bolsters the convenience level and Square is enjoying rapid uptake.
    • Disruptive Mobile Applications and Services 2011-2015 Pricing Apple charges USD 9.95 for Square’s iPhone/iPad app and the amount is auto debited to the merchant’s account on activation. For Android devices, it’s available for free but there is no auto debit process. For each transaction processed, Square charges a fee of 2.75 percent of the transaction plus USD 0.15 for swiped credit card transactions, and 3.5 percent of the transaction plus USD 0.15 for manually entered transactions. Hence, the solution is really only beneficial when the transaction is of value USD 10 and above. Statistics • In December 2009, the Square solution was launched. By May 2011, Square was processing transaction volumes worth USD 3 million a day. • By May 2011, 500,000 Square Card Readers had already been requested and shipped • An average of 100,000 merchants are enrolling monthly with Square for its solutions • In Q1 2011, Square in fact processed USD 66 million in payment volumes, against its expectations of processing USD 40 million • In June 2011, the Wall Street Journal valued the company at USD 1 billion Recent Developments • In January 2011, the company got a fresh capital infusion of USD 27.5 million from Sequoia Capital • In April 2011, Visa announced plans to invest in Square in exchange of for getting one of its executives on to Square’s board • In June 2011, Square received funding of USD 100 million from Kleiner Perkins Caufield & Byers 124 © 2011, Portio Research. All Rights Reserved For each transaction processed, Square charges a fee of 2.75 percent of the transaction plus USD 0.15 for swiped credit card transactions, and 3.5 percent of the transaction plus USD 0.15 for manually entered transactions.
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Ticketing and Coupons Mobile tickets and coupons are probably the most promising business lines in the mobile payment domain. These services are fast catching the attention of users worldwide and are also gaining popularity among other stakeholders due to the associated benefits and ease of implementation. For distributors, mobile ticketing and coupons gives the advantage of reducing costs related to printing and distribution of paper tickets. This mode of availing tickets is also convenient for consumers as the process cuts down on the number of steps between buying and receiving a ticket. The normal delivery of mobile tickets and coupons requires the mobile ticketing systems to contact the back-end IP server to verify the ticket and record its use. This implies that mobile ticketing systems need real-time connection to the ticket database. However, in cases where the ticket is purchased just prior to its use, and where scanning devices cannot have realtime access to servers/databases (for example ticket verifying machines on vehicles), encryption of data is used to facilitate off-line validation. In addition to providing mobile tickets, the infrastructure is also being used for the distribution of consumer vouchers and coupons. Distribution of mobile coupons is a form of targeted advertising as it stimulates demand. It also reduces the costs related to promotional campaigns. Furthermore, the uptake of mobile coupons is easily traceable, which is useful for running customised advertising campaigns. © 2011, Portio Research. All Rights Reserved 125 Mobile tickets and coupons are probably the most promising business lines in the mobile payment domain.
    • Disruptive Mobile Applications and Services 2011-2015 Drivers for Mobile Payments The mobile payments ecosystem primarily consists of five entities: banks, mobile network operators, merchants/retailers, application developers and app stores, and users. In the bullet points below, we briefly highlight various drivers for each stakeholder to adopt the service. • Banks  Mobile banking is a potential revenue generation service as banks offer mobile banking to existing clients with additional charges  Mobile banking helps enhance the user experience, as it helps reduce the time taken for banking activites; for example: money transfers, accessing the last 10 transactions, paying bills on the move  Mobile services are often more accessible than banks. Handsets can therefore act as a stepping stone for banks to reach unaddressed users through their mobile connections.  Mobile banking helps to reduce operating expenditure. For example, as more and more users become mobile, banks can reduce the number of staff or branches and thereby reduce the related costs. • Operators  Mobile payments will help operators increase revenues by offering them as a value added service, and also through the receipt of transaction commissions  A successfully implemented mobile payment service will lead to several benefits, including the possible adoption of flat-rate data plans, and additional SMS traffic (in the case of SMS based payments), etc.  Prepaid top-ups, gifts, bill payments, and similar services will increase convenience and enhance the user experience  By entering into partnerships with m-commerce service providers and introducing loyalty programmes, subscribers will be encouraged to access several mobile payment services • Merchants  Mobile payments help merchants in generating a new channel of sales; increasing mobile Internet subscribers will mean an increase in potential user base for merchants/retailers  Merchants would like to capitalise on consumers’ spontaneous purchase decisions – while on the move  Consumers use their handsets for checking prices and reviews of products; it will be easy for merchants to sell their products through the same interface  Merchants can make significant cost savings resulting from lower labour costs, and by using more cost effective marketing campaigns – an SMS campaign will cost much less than a traditional media campaign • Application Developers and App Stores  Square charges 2.75 percent for each swiped transaction processed plus USD 0.15. And it has processed transactions worth USD 66 million in Q1 2011.  App stores, such as Apple, use these applications as a brand differentiator and a mode to increase customer loyalty • Consumers  As consumers look for convenience in their day-to-day transactions – such as transport tickets, prepaid top-ups, greeting cards, etc – mobile payments can provide the required convenience and cashless options, reducing the dependency on a PC/ laptop  Mobile banking will provide consumers with the convenience of checking their bank account information on their mobile handsets, thus negating the need to visit a branch. This will greatly influence consumers in subscribing for mobile banking services.  As mobile handsets increasingly become an integral part of lifestyles, and as handset manufacturers, operators, and banks try to regulate security and payment standards, more and more people are likely to use mobile payments 126 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Table 28: Regional Drivers – An Overview of Mobile Payments Regional Drivers – An Overview The US • High use of credit/debit cards will make it easy for consumers to adopt mobile payments • US consumers are well equipped for using applications (high smartphone penetration), hence they will find it easy to use mobile payment applications • Mobile Internet use is high among US subscribers Africa & Middle East • M-PESA (implemented in Kenya, South Africa, Afghanistan & Tanzania), is expected to garner a positive impact on other African nations • Well established remittance market in the UAE will further drive the mobile banking market in the Middle East Western Europe • High smartphone penetration • Early adoption of mobile payments for mobile ticketing • Mobile Internet use is high among subscribers, with most subscribers using flat-rate data plans Japan & Korea • Tech savvy subscriber base, willing to try new services • Successful implementation of FeliCa mobile wallet (60 million subscribers as of early-July 2011) and availability of NFC enabled handsets will encourage MNOs to try new mobile payment services in Japan India & China • Huge subscriber base • In China, the availability of cheap smartphones and collaborations between MNOs and ecommerce players is expected to boost the uptake for mobile payments • The bill payments market in India, coupled with the emergence of payment solutions providers (mCheck, Obopay, etc.), will be an enabler for new mobile payment services • Grameenphone’s successful implementation of Cell Bazaar in Bangladesh – a service where a subscriber can buy or sell merchandise – could stimulate Indian MNOs to come up with such services Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 127
    • Disruptive Mobile Applications and Services 2011-2015 Inhibitors for Mobile Payments • • • • • • • • As mobile payment services have to be customised for each market, deployment times and the time to create consumer awareness of such services is usually lengthy Lack of specific ready-to-use and sound business models leads to several fragmented versions of mobile payment models (operator-centric or bank-centric models). This leads to minimal cooperation between the two critical players of mobile payments – Banks and MNOs. There is a lack of coordination or shared strategy between mobile handset manufacturers, MNOs, mobile payment service providers, retailers and government regulators Interoperability issues exist in mobile payment systems due to the lack of common technology standards. Thus, the system cannot be easily adopted by any player in the mobile payment ecosystem. As there are no regulations for mobile payments in most countries, consumers are still not confident to use these services Infrastructure development is a key requirement for mobile payments; only a few countries have existing infrastructure for NFC payments. Furthermore, the availability of NFC-enabled handsets is still low. Not all merchants have an interface for mobile payments. Even when merchants have the interface, some of them are unable to read the bar-codes on tickets and coupons efficiently. Security threats in the wireless domain still pose a great challenge for adopting any mode of mobile payment Table 29: Inhibitors for Different Mobile Payment Platforms Platform NFC (Near Field Communication) Challenges Mobile payments using NFC require existing contactless infrastructure and also NFC-enabled mobile handsets WAP, HTML, or XML Technologies Mobile Internet access is still expensive in many parts of the world. Furthermore, the interface also requires modifications to make it more user-friendly. USSD (Unstructured Supplementary Service Data) The USSD mode of payment uses the signaling channels of the GSM networks and hence requires better network capacity. Also, as the data encryption in this method is weak, it poses a greater threat to data security. SMS-based SMS based services are plagued by poor reliability and security issues due to weak encryption Source: Portio Research Ltd. Case Studies of Key Players Mobile payment services are now being offered in all major markets worldwide. Operators either develop their own payment solutions or tie up with independent service providers to extend these services to their subscribers. The following case studies and list of recent developments discuss some of the key providers of mobile payment services. 128 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Bango Total Revenues: USD 30.05 million (FY 2011 ending in March) Number of Employees: 42 Headquarters: Cambridge, UK Phone: +44 1223 472 777 Website: www.bango.com Founded in 1999 and headquartered in Cambridge in the UK, Bango is listed on the London Stock Exchange. Bango provides technical support to capture payments made by mobile subscribers through their Internet-enabled mobile handsets. Key solutions offered by Bango include mobile billing and mobile analytics. With its global reach, over 30 million users worldwide use its network to transact with mobile content providers. It supports all mobile websites, applications, devices and connections including Wi-Fi. Payments can be through operator billing, credit cards or PayPal. Mobile Analytics further facilitates the billing solution by providing the end-consumers’ profile to its customers. It helps in providing the customised offering or incentives to end-users. The detailed payment reports provided through mobile analytics help the customers to track their revenues. Mobile analytics also facilitates maximising the return on investment by measuring the mobile marketing and advertising campaigns. Analysis of the mobile applications or content from promotional to in-application usage further adds to the benefit from mobile analytics. Its partners 30 include major players from different aspects of the mobile ecosystem, such as: • Mobile Site developers: Mobile Impossible, Wapple, iLoop Mobile, • Mobile Site builders: Netbiscuits, Wirenode, BitPiac • Mobile Application development and delivery solution providers: weComm • Mobile Marketing agencies: Somo, Yodel, Inside Mobile, Gold Mobile • Mobile Advertising Networks: Decktrade, Admoda, Mojiva, Yahoo, Smaato, ZestADZ • Mobile Solution Providers: DeviceAnywhere, PredictiveIntent, SiteSpect, AFC Mobile Bango supports sales in over 150 countries and has prominent players from the mobile content market as its customers. These include: • EA Mobile • Touchnote.com • mjelly • Dada • gameloft • Flirtomatic Recent Developments • • • 30 In January 2011, Bango entered into an agreement with mobile music service Psonar to provide billing solutions for pay-per play music streaming services In April 2011, Bango expanded its reach in North America by introducing carrier billing in Canada In June 2011, Bango signed an agreement with Opera to provide mobile payment solutions worldwide for the Opera Mobile App Store Source: http://bango.com/partners/ © 2011, Portio Research. All Rights Reserved 129 With its global reach, over 30 million users worldwide use its network to transact with mobile content providers.
    • Disruptive Mobile Applications and Services 2011-2015 Case Study: Boku Total Revenues: Not Available Number of Employees: 65 Headquarters: San Francisco, USA Phone: +415 375 3160 Website: www.boku.com Headquartered in San Francisco, Boku was launched in 2009 with the acquisition of Paymo and Mobillcash, and cash investment by venture capitalists such as Andreessen Horowitz, Benchmark Capital, DAG Ventures, Index Ventures, and Khosla Ventures. It provides mobile payment solutions through a global mobile payment platform in association with more than 226 mobile operators in over 64 countries, and has a reach to over 1.6 billion consumers. Paymo is the mobile payment solution offered by Boku. It provides a simple, fast and secure process for transactions of virtual and real goods. An important driver for the adoption of this solution is its capability to tap the unbanked mobile subscribers who don’t possess a credit/debit card or a traditional bank account with which to make purchases. For digital goods or in-app payments, this opens the market which has 5.3 billion mobile subscribers but only 2 billion credit card holders. Direct reach to consumers through the operators and flexible APIs helps Boku to attract application developers or content providers for their digital goods sales. Some of the content providers using Boku’s payment solution are: • • • • • • • • • Facebook EA (Electronic Arts) Perfect World International TQ Digital Entertainment Outspark OMGPOP NHN Corporation Playfish eBay Classifieds • • • • • • • • PopCap Games Zoosk Bigpoint Stardoll Jagex Games Studio Ankama Games Gameforge Aeria Games Recent Developments • • • 130 In October 2010, AT&T signed a deal with Boku to enable its subscribers to buy digital content by using their mobile handsets instead of credit cards or PayPal accounts In December 2010, Boku signed a deal with the French Association of Mobile Multimedia (AFMM) and Mobilians for facilitating their mobile purchases in France and Korea respectively, through its mobile payment solutions. AFMM is lead by Bouygues Telecom, Orange France and SFR and has several small French operators, content providers and service providers as its members. In June 2011, Boku introduced its 1-tap billing solution for Android devices. This solution enables application developers to link the in-app payments directly to the user’s MNO billing. The solution is live in 56 countries. © 2011, Portio Research. All Rights Reserved Direct reach to consumers through the operators and flexible APIs helps Boku to attract application developers or content providers for their digital goods sales.
    • Disruptive Mobile Applications and Services 2011-2015 Recent Developments in Mobile Payments • • • • • • • • • • • • In December 2010, Google acquired mobile payment start-up Zetawire. Zetawire has a patent for a system combining mobile payments, advertising and identity management In February 2011, Visa acquired PlaySpan Inc to extend its reach to the digital and mobile commerce space In May 2011, Visa announced its collaboration with DeviceFidelity to enable Apple’s iPhone to be used as a ‘credit card’ at retailers supporting NFC payments In May 2011, Google introduced the mobile payment service Google Wallet. Through this, users can download a free application and use their phones to make transactions with associated merchants such as RadioShack. Citibank and MasterCard, in association with Google Wallet, offer the payment services at special point of sales having required NFC hardware. Sprint is partnering with Google to offer the services with its Samsung Nexus S smartphone. In June 2011, Visa acquired Fundamo for USD 110 million and signed a long term agreement with Monetise as part of its global strategy to provide next generation payment solutions to its consumers In June 2011, Sony Ericsson selected NXP Semiconductors to provide embedded NFC solutions for Sony’s Android-based smartphones In June 2011, Ericsson announced its intention to enter the mobile payments field with the launch of a new mobile payment service named Ericsson Money, via its subsidiary Ericsson Money Services. Through Ericsson Money, consumers can receive and send money through SMS. This service is currently available in the UK, France, Germany, Italy, Spain, Poland and Sweden. In June 2011, PayMate launched a mobile fund transfer application supporting the Inter Bank Mobile Payment Services of three banks in India – namely Syndicate Bank, Lakshmi Vilas Bank Ltd. and South Indian Bank In June 2011, Orange announced its plan to launch NFC service ‘Cityzi’ at a nationwide level in France, after an initial trial in Nice In June 2011, Fundamo, acquired by Visa, announced its plan to launch the first mobile-enabled microfinance service in Indonesia. It will partner with Indonesia’s wholesale bank for microfinance institutions, Andara. In July 2011, NTT-DOCOMO is planning to launch an international version of its mobile remittance service, DOCOMO Money Transfer In July 2011, eBay Inc. announced plans to buy mobile payment solution provider Zong in a deal worth USD 240 million. eBay intends to support its PayPal unit through this move. Isis in the US In November 2010, AT&T Mobility, Verizon Wireless and T-Mobile jointly announced the Isis mobile commerce network. The mobile payment service was facilitated by the payment network of Discover Financial Services. Under the arrangement between the operators and Discover Financial services, the operators will charge for the processing of each transaction and thus add to their revenues. However, in May 2011 the joint venture announced a change of plans and is now looking to partner with Visa and MasterCard – with whom Isis originally intended to compete. The reason behind this is supposedly the operators’ preference of using the existing setup of the payment processing giants, Visa and MasterCard, instead of creating their own payment network. This will also help the MNOs in the early rollout of the service. The pilot phase for Isis is scheduled to start in Salt Lake City, USA, by mid-2012. © 2011, Portio Research. All Rights Reserved 131
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 15 Conclusions and Future Outlook 132 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Conclusions and Future Outlook Voice has been the main source of revenue for MNOs, right from the inception of mobile telephony. With increasing competition, MNOs have been compelled to lower their voice charges, and to counter that loss of revenue, data usage has been promoted through various value-added services. Some of these value-added services witnessed widespread adoption among subscribers and became an altogether separate revenue stream. While a number of these offerings, such as SMS and MMS, have favoured operators by increasing their revenue, others have proven disruptive and are changing both the revenue flow and the stakeholders involved in the mobile ecosystem. The increasing uptake of smartphones, driven by their availability at competitive prices and their enhanced processing capabilities, has further fueled the uptake and advancement of disruptive applications and services. Mobile Applications With the advent of enhanced data services, content providers are claiming a greater share of the revenue pie and have become prominent stakeholders. Mobile applications started as an entertainment service, mostly in the form of games, but with the arrival and uptake of Apple’s iPhone and other smartphones, the mobile application space became an altogether different industry segment. Users now have mobile apps in all manner of categories, and apps are being developed for every conceivable requirement – for play and work – and users are readily adopting them. Mobile application downloads worldwide totaled just 494 million in 2008. And in 2009 and 2010, the y-o-y growth for mobile application downloads stood at 490 and 245 percent respectively. Between 2011-2015, downloads will grow at a CAGR of 48.4 percent. Worldwide, the percentage of mobile users downloading mobile applications is expected to grow from 1.4 percent at end-2010 to 5.9 percent by end-2015. The figure below depicts the percentage of subscribers using mobile applications from 2009 to 2015. Subscribers using Mobile Applications (In percent) Figure 73: Subscribers using Mobile Applications – Worldwide (In Percent, 2009 – 2015F) 5.9 6.0 4.8 5.0 3.7 4.0 2.9 3.0 2.1 2.0 1.0 1.4 0.8 0.0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The table on the next page highlights the percentage of subscribers using mobile applications in each of the regions in the period 2009-2015F. © 2011, Portio Research. All Rights Reserved 133 Worldwide, the percentage of mobile users downloading mobile applications is expected to grow from 1.4 percent at end-2010 to 5.9 percent by end-2015.
    • Disruptive Mobile Applications and Services 2011-2015 Table 30: Subscribers using Mobile Applications – Regional (In Percent, 2009 – 2015F) 31 Subscribers using Mobile Applications – Regional (In Percent) Region 2009 2010 2011F 2012F 2013F 2014F 2015F Europe 1.1 1.9 2.7 3.7 4.8 5.9 7.2 Asia Pacific 0.5 0.8 1.2 1.8 2.5 3.3 4.2 North America 4.6 7.7 12.9 17.4 20.5 23.7 26.9 Rest of World 0.1 0.4 0.7 1.1 1.8 2.9 3.9 Total 0.8 1.4 2.1 2.9 3.7 4.8 5.9 Source: Portio Research Ltd. Average Number of Mobile Applications downloaded per User yearly The average number of mobile applications The average number of mobile applications downloaded annually by a typical user jumped downloaded annually by a to 178.8 by end-2010, compared to 91.9 in 2009. This annual figure is expected to reach typical user jumped to 178.8 229.3 apps per user by end-2015. The figure below depicts the average number of mobile by end-2010, compared to applications downloaded by a typical user yearly in the period 2009-2015. 91.9 in 2009. This annual figure is expected to reach 229.3 apps per user by endFigure 74: Average Number of Mobile Applications Downloaded per User Yearly – Worldwide 2015. (2009 – 2015F) 250 200 178.8 187.9 197.5 207.6 218.2 229.3 150 100 91.9 50 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The tremendous growth in the mobile applications segment has reduced almost all MNOs into dumb-pipes, where they can only charge subscribers for the actual data usage of the mobile applications. However, some operators have moved to enter the mobile apps market – albeit lagging some considerable way behind favorites like Apple App Store and Google Android Market. 31 Note: Total of regional percentages may not add up to the worldwide percentage as the base taken for calculating the percentages are different. 134 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 SWOT Analysis for Mobile Applications Figure 75: SWOT Analysis – Mobile Applications Strengths • Wide range of choices in all categories such as Games, Music, Enterprise, Productivity, Health, Finance • Increasing penetration of smartphones and awareness of mobile applications Weaknesses • Available mostly on smartphones. • Same app available from different app stores may confuse users • Users’ aversion to online payments and the lack of mobile payment options for teens and tweens, which are key market segments with high mobile applications usage, inhibits the growth of paid applications Opportunities • Strong user base poised to grow at a CAGR of 42.8 percent in the period 2010-2015 to reach 438.9 million • The emergence of sophisticated device-level and network-level APIs provide application developers with access to device and network-level functionalities. This leads to the introduction of more elaborate and compelling applications. Threats • Mobile application development is not controlled by any regulatory body. App stores are the only protective layer between end users and malicious applications. This increases the chances of security breaches and lowers users’ confidence. • Pace of network enhancements is slow when compared to the evolution of mobile applications. Shortcomings such as network coverage and speed impact the Quality of Service (QoS) and users’ experiences. Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 135
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Video Streaming Mobile video streaming is another data service promoted by operators to leverage their highspeed mobile networks. In the initial phases, such services brought in more subscribers and higher data revenues for MNOs. But with the current popularity of mobile video streaming, MNOs’ networks are struggling to meet the high bandwidth requirements. To cite an example, YouTube alone accounted for 15.9 percent of the total worldwide mobile data traffic in 2010. With 48 hours worth of video being uploaded every minute and 200 million mobile views per day, it is no surprise that mobile video accounts for a huge chunk of total mobile data traffic. YouTube alone accounted for 15.9 percent of the total worldwide mobile data traffic in 2010. Reeling from the burden of ever increasing data traffic, operators are facing voice call drops, poor voice quality and delays in message delivery. The high data traffic has forced MNOs to make heavy investments to upgrade their network infrastructure and use network assets efficiently. It is also pertinent to note that the growth in associated data revenues is mediocre compared to the data usage growth. The primary reason behind this is the abundance of free data plans and the intense competition forcing operators to keep data charges low. SWOT Analysis for Mobile Video Streaming Figure 76: SWOT Analysis – Mobile Video Streaming Strengths • High resolution smartphone screens and cameras enable users to view and upload high quality videos • Wide availability of videos to stream and view • User-generated content Weaknesses • Heavy applications involving large amounts of data transfer • High battery usage owing to high processing required Opportunities • Viral marketing • Collaboration with MNOs to optimise video content delivery Threats • Mobile video streaming is choking the mobile network due to its high data consumption. This may compel MNOs to charge video streaming related data usage separately at higher data charges. • Operators are exploring the option of charging content providers, such as YouTube, for the content delivery through their network Source: Portio Research Ltd. 136 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Social Networking Social networking is another application thriving within the mobile data market. Sites such as Facebook, Twitter, Orkut, MySpace, LinkedIn and Tencent QQ (in China) have experienced significant growth from the time they were launched on mobile handsets. Facebook alone has a total global subscriber base of 750 million, which is more than that of any operator’s current subscriber base worldwide. Even on the mobile platform, Facebook has 250 million active users, which is a tough target for many operators having country level operations. This figure of 750 million subscribers (including 250 million mobile users) excludes the population of China and some other developing nations who cannot access Facebook due to government regulations. Using the operator’s network assets, Facebook can effectively replace all of the operator’s services through its messaging, IM, e-mail and VoIP (integration with VoIP solution providers) solutions. Twitter, another social networking site that provides micro-blogging services, can also provide a replacement to an MNO’s SMS services through tweets for its subscriber base of 200 million. These social networking websites are also now the preferred choice, over MNO services, for marketing purposes. Facebook alone has a total global subscriber base of 750 million, which is more than that of any operator’s current subscriber base worldwide. SWOT Analysis for Social Networking Figure 77: SWOT Analysis – Social Networking Strengths • Strong user base: almost every online person is subscribed to one or the other social networking site; in many cases, multiple sites • Ease of communication among users • Free of charge • Features such as games, chatting options, event promotion further increase users’ loyalty Weaknesses • Linguistic and Government regulatory differences bar some social networks from going completely global • Security concerns. For example: Facebook’s user data security has been breached in the recent past. Opportunities • Database of subscribers’ behavioral details helpful in targeted marketing • Integration with services such as group video calling, group messaging, interest based web content delivery/notifications can attract more subscribers Threats • Competition among the social networking sites creates the possibility of cannibalising each other’s user base • Group video calls supported by operators Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 137
    • Disruptive Mobile Applications and Services 2011-2015 Mobile VoIP To add to the woes of MNOs, another disruptive service has emerged in the form of mobile VoIP solutions. These solutions use the network assets of mobile operators and actively cannibalise their voice revenues. Skype alone, which had an average monthly active user base of 145 million worldwide at end-2010, processed 207 billion minutes of voice and video calls in 2010. As a result, many operators banned Skype usage on their network, and some see this as a harsh move that may actually result in subscriber churn. However, operators such as 3 UK and Verizon Wireless have found a middle ground through partnerships and tiered pricing plans. Skype alone, which had an average monthly active user base of 145 million worldwide at end-2010, processed 207 billion minutes of voice and video calls in 2010. SWOT Analysis for Mobile VoIP Figure 78: SWOT Analysis – Mobile VoIP Strengths • Subsidised or free calling • Global presence compared to the regional limitations of many MNOs • Most of the VoIP solutions support multi-tasking during use Weaknesses • High-speed data networks are required to have high-quality voice communication, or else latency and call drops spoil the user experience • High-speed data plans for mobile are generally costly Opportunities • Mobile VoIP can collaborate with mobile operators and offer services under tiered pricing plans. For example, Skype has collaborated with 3 UK and Verizon Wireless. Threats • Many operators do not allow VoIP applications on their mobile network unless VoIP calls are made only within the VoIP application’s user base • IP-based communications can be legally intercepted without the knowledge of users, causing security and privacy issues • Operators themselves might build their own VoIP infrastructure Source: Portio Research Ltd. 138 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Bulk Messaging Services Bulk messaging services provide a platform to users from where they can send messages to multiple recipients simultaneously – either free of charge or at a subsidised rate. Such services have gained traction among marketers and enterprises, where they have proved themselves to be a successful tool to increase end-user awareness about their offerings – which in turn leads to higher sales. These bulk messaging services have also been used in organisations to communicate with their clients/employees on a daily basis. The enterprise segment is the major user of bulk messaging services. For MNOs, a careful association with bulk messaging service providers can offer greater participation in the Machine-to-Machine (M2M) communications segment. For MNOs, a careful association with bulk messaging service providers can offer greater participation in the Machine-to-Machine (M2M) communications segment. SWOT Analysis for Bulk Messaging Services Figure 79: SWOT Analysis – Bulk Messaging Services Strengths • Subsidised messaging for P2P communication • Group messaging facilitating communication with multiple recipients • Available in accordance to regional requirements and favors Weaknesses • Solution providers are required to update their databases on a regular basis whenever any user opts for the ‘Do Not Disturb’ facility • IP-based messaging is not as convenient as sending a text message from a mobile phone Opportunities • Targeted and localised mobile marketing • Millions of users can be targeted simultaneously Threats • Government Regulations: Consumers now have the freedom to choose if they want to receive promotional SMSs or not. Also, some regulations bar message broadcasting after a fixed time. • Security: Bulk messaging service providers have databases of millions of mobile subscribers, which if hacked can jeopardise privacy Source: Portio Research Ltd. © 2011, Portio Research. All Rights Reserved 139
    • Disruptive Mobile Applications and Services 2011-2015 Mobile Payments Lastly is possibly one of the most disruptive mobile services in the present scenario – mobile payments. M-payment services started in 1997 and since then have been witnessing growth with every passing year. Solutions have emerged to enable almost all types of monetary transactions via mobile phones. The opportunities involved have risen to such an extent that payment processing giants such as Visa and MasterCard have been tempted to make a foray into the mobile payments segment. Google, Apple, Samsung, Nokia, banks and many other players from different segments are jumping in to cater to mobile payment services. And although the payment processing takes place using their data networks, operators, in most cases, have hardly any say in the mobile payments cycle. The opportunities involved have risen to such an extent that payment processing giants such as Visa and MasterCard have been tempted to make a foray into the mobile payments segment. SWOT Analysis for Mobile Payments Figure 80: SWOT Analysis – Mobile Payments Strengths • Easy and time saving mode of transaction for users • More accessibility offered, compared to financial institutions Weaknesses • Requires software/hardware upgrades on both user and merchant sides • Requires one-time understanding of how mobile payments work. This scares off many users. Opportunities • A potential pool of 5.3 billion mobile subscribers (by end 2010) is available • Traditional payment processing players, such as Visa and MasterCard, are investing to support the development of mobile payments Threats • Conflicting technological developments such as NFC and Square • Security threats in the wireless domain still pose a threat to the adoption of any mode of mobile payments • As there are no regulations for mobile payments in most countries, consumers still still lack the confidence to use these services Source: Portio Research Ltd. 140 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Future Outlook With the advent of the aforementioned disruptive mobile applications and services, mobile operators have been reduced to dumb-pipes in most cases, acting as mere facilitators for the data services for little to zero financial return. To escape this, operators need to come up with strategies to enjoy more benefits from the growing uptake of these disruptive apps and services. Charging content providers such as YouTube and Facebook is another option being discussed in some developed markets. Operators such as O2 UK and Telecom Italia are demanding that content providers share the cost of network upgrades, as the explosive growth in data traffic is caused by these content providers. However, it should be kept in mind that it is because of these content providers that the data services are enjoying such popularity. Such steps might backfire, resulting in high subscriber churn if the content providers stop offering their services over these operators’ networks. Seeking contributions from smartphone vendors – based on a similar logic and train of thought – has also been raised as a possibility. Therefore, operators need to work out constructive strategies that ensure benefit and growth for themselves as well as the disruptive apps and services. Tiered pricing could be one such strategy. Operators can analyse and profile the data usage of subscribers and charge them accordingly. For example, subscribers who use data services for video streaming at peak hours can be charged higher rates compared to users who consume data during off peak hours. Charges for subscribers using light/lighter data applications, such as e-mail or web surfing, could be lower still. Priority-based data service facilitation, depending on the type of usage, is another potential remedy for mobile operators. Optimisation of the existing network assets to best serve the data demand is another viable solution. MNOs must give serious consideration to appropriately refining their means of attracting voice and data service revenues, and develop more innovative solutions and strategies that can cope with the current and upcoming breed of disruptive mobile applications and services. © 2011, Portio Research. All Rights Reserved 141 Operators need to work out constructive strategies that ensure benefit and growth for themselves as well as the disruptive apps and services. Tiered pricing could be one such strategy.
    • Disruptive Mobile Applications and Services 2011-2015 Chapter 16 Appendices 142 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Appendices This market study has been written in a way that avoids excessive use of market acronyms (except where appropriate) and industry technical talk, as we have tried to keep the text open to all readers, not just those with in-depth knowledge of the world’s mobile markets. Because this study covers all geographical regions and many emerging markets, a great deal of the data contained within this study will potentially be of interest to investors, financial analysts, consultants, venture capitalists and others all around the world who do not work within the mobile industry itself every day of their lives. To many of these people, some of the industry technical talk and acronyms may be confusing, so we have attempted to write this study in a self explanatory way that assumes little prior knowledge, but in doing this, some of the speech chosen may seem somewhat "obvious" to our more knowledgeable readers. We hope this offers the best possible solution to everyone, and we hope this does not cause any confusion or inconvenience. Where we have used technical terms or acronyms, we offer an explanation of those expressions below. © 2011, Portio Research. All Rights Reserved 143
    • Disruptive Mobile Applications and Services 2011-2015 Glossary 2G or Second Generation Packet Data Networks The second-generation packet networks recently introduced consist of combined voice and packet data networks based on global standards. 2.5G 2.5G describes the state of wireless technology and capability usually associated with General Packet Radio Services (GPRS) - that is, between the second and third generations of wireless technology. The second generation or 2G-level of wireless is usually identified as Global System for Mobile (GSM) service and the third generation or 3G-level is usually identified as Universal Mobile Telecommunication Service (UMTS). Each generation provides a higher data rate and additional capabilities. There is also a fourth generation (4G) of technology in the planning and research stages. 2.5G protocols extend 2G systems to provide additional features such as packet-switched connection (GPRS) and enhanced data rates (HSCSD, EDGE). 3G or third generation 3G is an International Telecommunication Union (ITU) specification for the third generation (analog cellular was the first generation and digital PCS 32 was the second generation) of mobile communication technology. Third generation Wireless Wide Area Networks (WWAN) communication systems are characterised by high-speed data rates (144 Kbps 33 to 2+ Mbps 34) suitable for multimedia content. 3G technologies typically are packet-switched and use Code Division Multiple Access (CDMA) technology to communicate. Examples of 3G include EDGE 35, 1xRTT, HDR and W-CDMA. 36 3G protocols in mobile telephony support higher data transmission rates, measured in Mbps, intended for applications other than voice. 3G support broadband and bandwidth applications, such as full-motion video, video conferencing and Internet access. 3G as a Percentage 3G as a percentage refers to 3G subscribers as a percentage of total active mobile subscribers in a country. This represents the proportion of 3G subscribers in the total mobile subscriber base of a country. 3G Penetration 3G penetration refers to 3G subscribers as a percentage of total population of the country. This is similar to the term ‘mobile penetration’, which means total number of active mobile subscribers in a country as a percentage of total population of the country. 4G or fourth generation 4G or fourth generation WWAN communication systems are characterised by high-speed data rates at 20+ Mbps, suitable for high-resolution movies and television. The initial deployment of 4G communication systems is expected in 2006-2010. The proposed features of these systems include 100 Mbps speed, location sensing and self-tailoring to user needs. A2P Application-to-Peer: In the mobile messaging world A2P messages are defined as messages generated by an application and sent to subscribers, for example, the advertisements sent through SMS/MMS on subscribers’ handsets. 32 Personal Communications Service (PCS) Kilobits per second (Kbps) 34 Megabits per second (Mbps) 35 Enhanced Data for Global Evolution (EDGE) 36 Wideband Code Division Multiple Access (W-CDMA) 33 144 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 AAC Advance Audio Coding: It is an advanced audio compression algorithm used for downloading music files, streaming video, audio and satellite-radio applications. Application Programming Interface (API) It is an interface implemented by a software program to communicate with other software. Operating systems and applications use API to determine the way to call or send requests to other software. Associated Companies Associated Company is defined as a company in which the MNO Group/MNO has a stake of less than 51 percent but does not consolidate the associate’s financial statements. Augmented Reality (AR) Augmented reality is the superimposition of virtual content over the real time environment. Virtual content includes digital graphics, audio and other sense enhancements, which are augmented to the real world by an AR device. Average Revenue per User (ARPU) Measures the average monthly revenue generated for each customer unit, such as a handset or pager that an operator has in operation. Backhaul It refers to the process of transmitting voice and data traffic from a remote site to a central site. BREW Binary Runtime Environment for Wireless: It is an application development platform developed by Qualcomm. It enables wireless users to download and run applications, such as enhanced e-mail, location positioning, games, etc., to BREW-enabled handset. BREW was first introduced and developed for CDMA handsets, but it now supports GSM/GPRS and UMTS handsets as well. BTS Base Transceiver Station: It is the equipment that facilitates the wireless communication between user equipment such as mobile handsets, computers etc., and the mobile network. Broadcast Technologies for Mobile TV Some of the broadcast technologies for mobile TV worldwide are: DVB-H 37 (Digital Video Broadcast – Handheld): DVB-H technology allows simultaneous broadcast of television, video and radio channels on mobile, and helps operators to preserve network bandwidth for other data and voice services. It has been accepted as the standard by the European Telecommunications Standards Institute (ETSI). Integrated Mobile Broadcast (IMB) It is a 3GPP Release 8 Standard that empowers MNOs to offer Multimedia Broadcast Multicast Services in a spectrally efficient manner in the 3G TDD bands. It is deployed with existing 3G FDD unicast technology. ISDB-T (Integrated Services Digital Broadcast – Terrestrial): It is the transmission standard that has been developed in Japan to help the radio and television stations support digital content. 37 Source: http://www.strategiy.com/inews.asp?id=20041127000355 © 2011, Portio Research. All Rights Reserved 145
    • Disruptive Mobile Applications and Services 2011-2015 DMB (Digital Media Broadcast): It is a transmission standard, which transmits video feed via satellite (S-DMB) or terrestrial (T-DMB) mode. The standard is currently deployed in Korea and is being increasingly used in other parts of Asia as well as Europe. MBMS (Multimedia Broadcast/Multicast Service): This standard allows the transmission of multimedia content over the UMTS and GSM network. BWA Broadband Wireless Access: It is a form of fixed wireless access system. Byte Byte is a collection of bits in which each bit can take a value of either 1 or 0. Kbps, Mbps and Gbps denote the number of bytes transferred per second; Kbps, Mbps and Gbps translate to 103, 106 and 109 bytes per second respectively. CAPEX Capital Expenditure: It refers to the cost of developing a product or system. CDMA Code Division Multiple Access: In a CDMA system, each voice circuit is labelled with a unique code and transmitted on a single channel simultaneously along with many other coded voice circuits. The receiver uses the same code to recover the signal from the noise. CDMA2000 1x CDMA2000 1x: This is regarded as the first phase of CDMA2000 technology used for providing voice and data services over mobile networks. Data speeds of 307kbps are using a single channel while with two channels speeds of 614kbps are possible. Churn Rate It is the rate at which the subscribers cancel their subscription with the existing operator and sign up with another operator. Cloud Computing Cloud computing is a technology involved in delivering hosted services on the Internet. It is based on client-server architecture, which includes user device with applications (such as Web browsers) to access the back end (various components, such as data storage devices, servers, etc.). The back end components perform specific tasks and interact with each other through standard application programming interfaces. Dongle Dongle is a portable device which is connected to a laptop or desktop and resembles a USB flash drive. It is widely used as a wireless broadband adapter. DRM Digital Rights Management: It refers to a set of technologies used for the administration of digital content. It authorises the nature and restricts the frequency of the usage based on the administrative policy settings. It sustains the revenue of the mobile network operator by regulating the usage of content at end user. DSL Digital Subscriber Loop: It is a technology that provides digital data transmission over the copper lines of a PSTN network. Dumb Pipes Dumb pipe refers to a mobile operator’s wireless network being used only to transfer data/bytes between the Internet and the user’s device. For an operator being a dumb pipe, there is a potential loss of revenue for the operator, since the operator is generating revenue 146 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 only for the network data access and is not receiving any significant share in data/content service revenue. E-UTRA Evolved Universal Terrestrial Radio Access (E-UTRA) was used in the 3rd Generation Partnership Project’s (3GPP) early drafts of LTE specification for Evolved UMTS Terrestrial Radio Access Network (eUTRAN). It is the air interface of the LTE network which will replace the earlier technologies like UMTS, HSDPA, HSUPA for radio access network. It uses orthogonal frequency-division multiplexing (OFDM), multiple-input multiple-output (MIMO) antenna technology for downlink to support more users, higher data transfer rates and lower power requirement for the handsets. For uplink, OFDM and Single Carrier Frequency Division Multiple Access (SC-FDMA) is used depending on the channel to compensate for high peak to average power ratio associated with normal OFDM. This facilitates the key features of high data transfer rates, low latency and optimisation for packet data. EDGE Enhanced Data rates for Global Evolution: An enhanced modulation technique designed to increase network capacity and data rates in GSM networks. EDGE should provide data rates up to 384 Kbps. EDGE will let operators without a 3G license compete with 3G networks offering similar data services. EV-DO Evolution Data Only, Evolution Data Optimised: It is a wireless radio broadband data protocol being adopted by many CDMA operators. It is being used as a part of CDMA2000 networks in Japan, Korea, the United States and Canada. It provides better data speeds in comparison to GSM technologies such as GPRS and EDGE. FDMA Frequency Division Multiple Access is a channel access protocol that allows a user dedicated allocation to single or multiple frequency bands. Feature Phone Feature phones are handsets with browsers (primarily based on embedded J2ME and BREW platforms) to enable access to web based e-mail, and sometimes have embedded applications for social networking, instant messaging (IM) and mobile banking. These phones often come with high resolution cameras, GPS and innovative multimedia features. The major differentiating factor between a smartphone and a feature phone is that feature phones do not have an open Operating System (OS). The OS present in smartphones, through its Application Programming Interface (API), enables subscribers to install and remove third-party applications. Smartphones are better integrated with the handset's User Interface than Java applications. Free Float Free Float refers to the shares of a company that are available to the investing public and are freely traded in the market. It excludes shares held by founders, directors, acquirers, bodies with a controlling interest, promoters’ holding and government holding. Freemium Freemium is a strategy adopted by application stores in which trial or lite versions of premium apps are offered for free or for a small charge; and users have an option to upgrade the apps with additional features by paying additional charges. Gbps Please see “Byte”. © 2011, Portio Research. All Rights Reserved 147
    • Disruptive Mobile Applications and Services 2011-2015 GPRS General Packet Radio Service (GPRS) is a packet-based standard for mobile communication, which runs at speeds up to 115 kilobits per second, compared with GSM systems' 9.6 kilobits per second. GPRS supports a wide range of bandwidths and makes efficient use of limited bandwidth. It is particularly suited for sending and receiving small bursts of data, such as e-mail and web browsing, as well as large volumes of data. Applications for GPRS may include any of the following: chat, text and visual information, still images, moving images, web browsing, document sharing/collaborative working, audio, job dispatch, corporate e-mail, Internet e-mail, vehicle positioning, remote Local Area Network (LAN) access, file transfer or home automation. GSM Global System for Mobile communications, the most widely used digital mobile phone system and the mobile telephone standard in Europe. It was originally defined as a panEuropean open standard for a digital cellular telephone network to support voice, data, text messaging and cross-border roaming. GSM is now one of the world's main 2G digital wireless standards. GSM is present in more than 160 countries and according to the GSM Association, accounts for approximately 70 percent of the total digital cellular wireless market. GSM is a time division multiplex (TDM) system. Implemented on 800, 900, 1800 and 1900 MHz frequency bands. GUI Graphical User Interface (GUI) is the front-end interface and navigation design of an application. This includes standard formats for representing text and graphics. GUIs have become the standard ways for interaction between users and digital devices. HARQ Hybrid Automatic Repeat Request is a process of ensuring data transmission even in poor signal conditions with an adverse effect of lowering the throughput in better signal conditions. It does so by error-correction in addition to error detection in the transmitting bits. HSPA High Speed Packet Access comprises two mobile protocols: High Speed Downlink Packet Access (HSDPA) and High Speed Uplink Packet Access (HSUPA). These protocols enhance the performance of WCDMA protocols. HTML Hyper Text Mark-up Language: It is a syntax based language used for designing web pages. The content of HTML, written in standard syntax, when opened in a web browser takes the form of Web page. The nascent version of HTML was used with easy syntax rules in comparison to existing HTML and MHTML versions of it. In recent times, the official standards of World Wide Web recommend Web developers to use XHTML 1.1, XHTML 1.0 and HTML 4.01 versions. i-mode i-mode is a proprietary packet-based information service for mobile handsets. It delivers information (such as mobile banking, and train timetable) to handsets and enables exchange of e-mail from mobile handsets on the PDC-P network. Launched in 1999 by NTT DOCOMO, i-mode is very popular in Japan (especially for e-mail and transfer of icons). IMPS IMPS (Instant Messaging and Presence Service) is an instant messaging system designed for mobile environments. Presence refers to the availability of a user for communication. 148 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 IMS IMS IP Multimedia Subsystem is an extension of the GSM / 3GPP GPRS core Network. It uses SIP (Session Initiation Protocol) to set up, maintain and terminate packet-switched voice and multimedia sessions. Interoperability This is defined as the ability of a network to operate with other networks, such as two systems based on different protocols or technologies. In-app Payment In-app payment is the payment made by mobile user to get privileged features, services or digital goods while using mobile apps. The privileged feature may be moving from a free or lite version of an app to the full version. Instant Messaging (IM) Instant Messaging is an Internet-based service that alerts users when their friends or colleagues are online and allows them to communicate with each other in real-time through private online chat areas. With instant messaging, users create a list of other users with whom they want to communicate. When a user from their list is online, the service alerts them and enables an immediate contact with the other user. While instant messaging has primarily been a proprietary service offered by Internet service providers such as AOL and MSN, businesses are starting to employ instant messaging to increase employee efficiency and make expertise more readily available to employees. Intranet The intranet is a private network inside a company or an organisation, and uses software similar to that used on the Internet. Companies use intranets to manage projects, provide employee information, distribute data and information, etc. J2ME Java2, Micro edition: The Micro Edition of the Java 2 Platform provides an application environment that specifically addresses the needs of commodities in the vast and rapidly growing consumer and embedded space, including mobile handsets, pagers, personal digital assistants, set-top boxes, and vehicle telematics systems. Java A simple platform-independent object-oriented programming language used for writing applets that are downloaded from the World Wide Web by a client and run on the client's machine. Kbps Please see “Byte”. Key Interests In this report, Key Interests include the MNO Group’s direct and indirect subsidiaries and joint ventures. KPI Key Performance Indicator (KPI) is a term used to indicate the key indicators to measure the business and operational performance of the companies in order to evaluate success and competitive position in the market. In the case of mobile companies, we use commonly used KPIs, such as Subscriber Addition, Market Share, ARPU, Churn Rate, etc. In addition, Revenue, Operating Profit and Number of Employees are other KPIs generally used to benchmark different companies. © 2011, Portio Research. All Rights Reserved 149
    • Disruptive Mobile Applications and Services 2011-2015 LTE Long-Term Evolution (LTE) is the standard being developed by 3GPP to achieve download rates of 100Mbps, and upload rates of 50Mbps for every 20MHz of spectrum and is termed as a 4G standard. LTE has support for bandwidths ranging from 1.25MHz to 20MHz. LTE Commitments LTE commitments cover announcements from service providers about conducting trials and deployments for LTE networks. LTE Deployments LTE deployments refer to the successful launch of LTE services in a market by a service provider. LTE Engagements LTE engagements refer to the collaborations between service providers and infrastructure vendors to conduct LTE trials and deployments. An LTE trial or deployment may consist of more than one engagement. For example, TeliaSonera selected Ericsson and Nokia Siemens Networks for its LTE roll-out in Norway. In this case, one LTE deployment accounted for two LTE engagements. LTE Subscriber Base as a Percentage of Total Mobile Subscribers LTE subscriber base includes the subscribers using LTE services through dongles and handsets. LTE subscriber base as a percentage of total mobile subscribers refers to the percentage of mobile subscribers who use LTE services. M2M Machine-to-Machine: M2M generally means the communication between machines. However, in the mobile world, it is sometimes defined as Mobile-to-Mobile, which basically refers to communication that involves only mobiles and not landlines. MAN Metropolitan Area Network is a computer network that normally encompasses a city or a big premise. It is formed by connecting several local area networks. Mbps Please see “Byte”. MiFi MiFi is a collection of wireless routers that are used as mobile Wi-Fi hotspots. The technology is developed by Novatel Wireless. MIMO Multiple-Input and Multiple-Output refers to the use of more than one antenna at the transmitter and receiver end to enhance the communication process. Mobile Broadband Users as a Percentage A mobile broadband user as a percentage refers to mobile broadband users as a percentage of total active mobile subscribers in a country. This represents the proportion of mobile broadband users in the total mobile subscriber base of a country. MNO Mobile Network Operator. MNO market penetration It is the mobile subscriber base of an MNO expressed as a percentage of total population of the country of operation. 150 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Mobile E-Mail Penetration Mobile E-mail Penetration is described as mobile e-mail users (of the specified market or region) as a percentage of the specified market or region’s mobile subscriber base Mobile IM Penetration Mobile IM Penetration is described as mobile IM users (of the specified market or region) as a percentage of the specified market or region’s mobile subscriber base Mobile penetration It is the mobile subscriber base in a country expressed as a percentage of its total population. Modem A modem is a device which modulates and demodulates analogue and digital signals for the transmission of signals over different carriers. MVNO Mobile Virtual Network Operator: Term used for a mobile operator who does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with traditional mobile operators to buy minutes of use (MOU) for sale to their own customers. Native Apps Native apps are mobile applications developed specifically to run on a particular operating system or device. Near Field Communication Near Field Communication (NFC) is a wireless communication technology which uses shortrange high frequency to enable the exchange of data between devices in proximity with each other. The distance between the communicating devices has to be less than 10 centimetres. NFC-capable devices can communicate with smartcard readers as well as other NFC-capable devices. Node - B It is a term used in Universal Mobile Telecommunications System (UMTS) to refer to the Base Transceiver Station (BTS). ODM An original design manufacturer (ODM) is a firm involved in designing and manufacturing a product according to specifications provided by another firm. The products are sold under the brand of the firm which gives the manufacturing contract to the ODM. OEM An original equipment manufacturer (OEM) is a firm which acquires a product (or a component) for reuse or incorporation into the products branded under its name. OFDMA Orthogonal Frequency Division Multiple Access is an advancement of Orthogonal Frequency Division Multiplexing to support mobile networks with more flexibility. Subsets of the subcarriers are assigned to individual users to facilitate multiple access. OMA-IMPS Open Mobile Alliance-Instant Messaging and Presence Service: It is an open mobile alliance enabler for instant messaging and presence. The first cut of this specification was developed by the Wireless Village consortium. © 2011, Portio Research. All Rights Reserved 151
    • Disruptive Mobile Applications and Services 2011-2015 OPEX Operating Expenditure: It refers to the ongoing costs for running or operating a product or system. OPhone OPhone is a mobile operating system developed by China Mobile. It runs on Linux kernel and is based on Google Android’s Open Mobile System (OMS) operating system. Over-the-Top Services Over-the-top services refer to those services which are available to users over mobile networks without MNOs being involved in planning, provisioning and selling them. Packet Data Packet data is a method of transmitting information in small packets each containing a certain amount of the information. Packet data networks allow transmission of high-speed data to and from devices connected to the network. Packet Data is similar to dial-up Internet access available in homes or in businesses with cable modems, ADSL 38 lines, etc. P2P Peer-to-Peer: In the mobile messaging world, P2P messages are defined as messages exchanged between subscribers. These messages originate from and terminate to mobile subscribers’ handsets. Petabyte 15 Petabytes translate to 10 bytes. Please see “Byte” for further details. PDA Personal Digital Assistant: A portable computing device capable of transmitting data. This device makes possible services such as paging, data messaging, electronic mail, computing, facsimile, date book and other information handling capabilities. PIM Personal Information Manager: Also known as a "contact manager," is a form of software that logs personal and business information, such as contacts, appointments, lists, notes, occasions, etc. Proportionate Subscribers An MNO Group’s proportionate subscriber base is based on its equity stake in its subsidiaries, joint ventures and associated companies. In the case of an MNO being operational in only one country, its proportionate subscriber figure is the same as its total customer base. QoS QoS stands for quality of service. RAN Radio Access Network: It is a component that exists between the mobile handset and the core network. It performs the radio functionality of the network and provides connection to the core network. RFID Radio frequency identification (RFID) denotes a system employed to convey a unique serial number using radio waves. It does not require contact or line of sight for communication. An example of the deployment of this technology is in electronic toll collection using RFID tags. 38 Asymmetric Digital Subscriber Line (ADSL) 152 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 SC-FDMA Single-carrier frequency-division multiple access (SC-FDMA) facilitates multiple access schemes and is used for assigning multiple users to a shared communication resource. While in OFDMA, subsets of the subcarriers are assigned to individual users to assist multiple access schemes, SC-FDMA enables a single-carrier transmission scheme. SDK Software Development Kit is a set of tools used for the development of an application for a software package. Service Revenue Service revenues are the revenues earned by MNOs through the provision of services only, i.e. revenues after deducting revenues earned from sales of equipment/products. SIM card It is a smart card that gives GSM handset its user identity. The card is inserted into a GSM/TDMA or GSM-only mobile handset containing subscriber-related data. The card contains 18 digits code for GSM markets and 20 digits code for TDMA markets. SIM Toolkit Subscriber Identity Module Application Toolkit: It is used by network operators to provide a user friendly interface on a subscribers’ handset to access value-added services provided by them. These applications also provide a mechanism for storing and using any service specific parameters. These applications are built within a SIM card by mobile network operators. SIMPLE SIMPLE (Session Initiation Protocol for Instant Messaging and Presence Leveraging Extensions) is an open standard instant messaging (IM) protocol. SIP Session Initiation Protocol or SIP is a standard multimedia and telephony protocol for initiating an interactive user session over mobile networks. The services under SIP may include call forwarding, number delivery, authentication and other telecoms applications. Smartphone A smartphone is a mobile handset which runs on operating system (OS) software and offers some of the capabilities of a PC. It provides a standardised interface and platform for application developers and is enabled with advanced features, such as e-mail, Internet and an e-book reader. Some of the other features expected from a smartphone include built-in full keyboard/external USB keyboard, powerful microprocessors, memory, built-in modem and large screens. The major differentiating factor between a smartphone and a feature phone is that an open Operating System (OS) is present in a smartphone. The OS, through its Application Programming Interface (API), enables subscribers to install and remove thirdparty applications. Smartphones are better integrated with the handset's User Interface than Java applications. SMS TV This is defined as the use of SMS for variety of applications, such as voting, teletext chat for TV programmes. SMSC Short Message Service Centre (SMSC) provides the routing of all SMS or text messages in any mobile network. Similar to e-mail server, the SMSC handles large volumes of messages sent between two mobile handsets or a mobile handset and a software application. © 2011, Portio Research. All Rights Reserved 153
    • Disruptive Mobile Applications and Services 2011-2015 Spectrum Allocation The use of radio frequency electromagnetic spectrum in a country is regulated by government bodies who then allocate spectrum to telecom companies. The license for using a particular spectrum is typically awarded following a bidding process. There are certain guidelines for using the allocated spectrum which service providers must adhere to — including a minimum quality of service, and roll-out timelines for the services for which the license has been issued. SS7 SS7 is a global standard for telecommunications defined by ITU Telecommunication Standardisation Sector (ITU-T). The standard defines the procedures and protocol by which network elements in the public switched telephone network (PSTN) exchange information over a digital signalling network to effect mobile (cellular) and wire-line call setup, routing and control. TDD Time Division Multiplex: This is a scheme for allowing simultaneous transmission and receiving of data at the same frequency, but with the different time slots allocated to them. TDMA Time Division Multiple Access: A TDMA channel is a single FDMA channel divided up in time into multiple time slots. TDMA system is able to transmit multiple voice circuits per channel. Three users can take it in turn to share one radio channel. The channels can vary in bandwidth and depending on the type of system, the time slots can transmit all or part of a voice circuit. Each user's speech is stored, compressed and transmitted as a quick packet, using controlled time slots to distinguish them-hence the phrase 'time division'. It uses 30 KHz channels and a vocoder rate of 8 Kbits/sec. At the receiver, the packet is decompressed. TD-SCDMA Time Division Synchronous Code Division Multiple Access: It is an air interface used in UMTS mobile telecommunications networks. It has been deployed in China to replace WCDMA technology. Telecom Circle A telecom Circle is a mobile service area in India which is classified depending on its revenue and subscriber base potential. India is divided into 22 telecom Circles which are grouped into 4 categories - Metro, A, B and C Metro: Delhi, Mumbai, Kolkatta and Chennai Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu A: Kerala, Punjab, Haryana, Uttar Pradesh (East), Uttar Pradesh (West), Rajasthan B: and Madhya Pradesh Himachal Pradesh, Bihar, Orissa, Jammu and Kashmir, Assam, and North-East C: Thin Client Thin Client refers to a client computer or client software in client-server architecture networks. The primary purpose of Thin Client is to convey input and output between the user and the remote server. UMTS Universal Mobile Telecommunications System: This is the future transmission network for third generation mobile telephones, as defined by the International Telecommunications Union (ITU). In time, UMTS could reach transmission capacities of 2 Mbits/sec. (compared to 9.6 Kbits/sec. for GSM). Initially UMTS will offer rates of 144 to 384 Kbits/sec. This standard will make the development of new multimedia services having very wide bands and new uses, notably in the transmission of video, images and sound possible. 154 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 UMTS FDD Universal Mobile Telecommunication System (UMTS) Frequency Division Duplex (FDD): It is designed to generate typical data transfer rates of up to 384 Kbps and is suitable for wide area coverage due to potentially high reach. UMTS TDD Universal Mobile Telecommunication System (UMTS) Time-Division-Depleting (TDD): UMTS TDD Mobile Broadband technology is a packet data implementation of the international 3GPP UMTS standard and is designed to work in a single unpaired frequency band. It is designed to generate typical data transfer rates of up to 2 Mbps. USB Universal Serial Bus is a specification used to initiate data transfer between devices and a host controller. USSD Unstructured Supplementary Service Data (USSD) is a standard for transmitting information over GSM networks. It is primarily used to access the information on prepaid balances and similar details. UTRA-FDD Universal terrestrial radio access–frequency division duplex (FDD) refers to paired frequencies in which the transmitter and receiver operate simultaneously but at different frequencies UTRA-TDD Time division duplex (TDD) refers to unpaired frequency which is shared between uplink and downlink data rates VAS Mobile operators offer various services which are not part of the basic voice offer. These services are availed off separately by the mobile subscribers. It includes services such as SMS, MMS, mobile e-mail, mobile games, mobile music etc. These also include services such as WAP, voicemail, call diversion, etc. Vertical Devices Vertical devices are smartphones optimised to run mobile enterprise applications and are particularly useful for a mobile work fleet. These devices are designed to provide highbandwidth data collection and enable employees to access and update enterprise databases in a real-time environment. Aside from powerful processors, vertical devices are often enabled with capabilities such as a bar code scanner, digital camera, and two-way radio. Voice over Internet Protocol Voive over Internet Protocol (VoIP) is an Internet service which enables voice communication over IP network. This uses a set of communication and transmission protocols. WAP Wireless Advance Protocol: WAP is a specification for a set of communication protocols to standardise the way mobile devices, such as handsets and radio transceivers, can be used for Internet access. The WAP standard is based on Internet standards (HTML, XML and TCP/IP). It consists of a Wireless Markup Language (WML) specification, a WMLScript specification, and a Wireless Telephony Application Interface (WTAI) specification. The WAP protocol is the leading standard for information services on wireless terminals such as digital handsets. © 2011, Portio Research. All Rights Reserved 155
    • Disruptive Mobile Applications and Services 2011-2015 Some examples of WAP for accessing information include the following: checking train timings, purchasing tickets, flight check-in, viewing traffic information, checking weather conditions, looking up stock values, looking up phone numbers, looking up addresses or looking up sport results, and there are countless more. W-CDMA Wideband Code Division Multiple Access: The third generation standard offered to the International Telecommunication Union by GSM proponents. This is a 3G technology that increases data transmission rates in GSM systems by using CDMA instead of TDMA. W-CDMA has become the Direct Sequence mode in the ITU's 3G specification which includes the 1x Multi-Carrier mode (1x MC) and 3x Multi-Carrier mode (3x MC). 1x MC (formerly known as cdma2000) and 3x MC comprise the 3G upgrade paths for operators already using CDMA. WiBro Wireless Broadband: The technology was formulated by South Korean telecom industry as an equivalent to mobile WiMAX international standard. Wi-Fi Wireless Fidelity: It is used to provide wireless local area network through enhanced interoperability of the network. Services such as Internet, VoIP phone access, and gaming, etc., can be provided using Wi-Fi. WiMAX Worldwide Interoperability for Microwave Access: It is a telecommunication technology used for wireless data transfer over long distances through point-to-point links as well as mobile cellular type access. It is based on standards that are useful in wireless broadband access. Wireless MAN Wireless Metropolitan Area Network: The technology is used to provide wireless network over a larger area as compared to local area network. WLL Wireless Local Loop: It refers to the wireless devices that are situated in fixed locations. The signal transmissions occur through the air and it provides connectivity to the users in remote and isolated areas without the need for laying new cables. 156 © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Portio Research Classifications Geographical Regions: There is sometimes a difference in the way research firms classify the major geographical territories. At Portio Research, we follow 'obvious' geographical lines, but for the record, here are the regional definitions we follow, unless otherwise stated in the report: Western Europe: Standard classification includes Iceland and various islands Central and Eastern Europe: Includes standard list of Central and Eastern European countries, and the Baltic states, Balkans, Russia, Greece and Turkey Asia Pacific: Includes Australasia, the Indian Sub-Continent, Pakistan, Afghanistan, Sri Lanka, Maldives and the Former Soviet Union Central Asian republics North America: Standard classification, including Hawaii and islands to the North Latin America: Includes all South and Central American countries including Mexico, The Caribbean and The West Indies Middle East: Includes Israel and all Middle Eastern countries East of Egypt, South of Turkey and West of Afghanistan Africa: Standard classification includes territories in Western Indian Ocean Mobile Subscribers Generally, we count active SIMs, and we consider active as being used within 3 months, but, of course there is some room for variance, depending on what figures operators themselves publish or report to us when we interview them. When running spot-checks on operator numbers, we are governed by the figures they give us, and as we are all aware, many individuals and companies around the world count their subscribers/subscriptions by a number of different criteria. We refer to "total subscribers" for a network/country or globally, as a count of the total number of active subscriptions those networks have, and as such this can cause a slight distortion of any country-penetration rate. Currency and Monetary Values All monetary values quoted in this report are in US Dollars as the most widely recognised benchmark internationally. The currency conversion has been done on the year average basis. Whilst researching global mobile markets, we use http://www.oanda.com/ for all currency conversion calculations. © 2011, Portio Research. All Rights Reserved 157
    • Disruptive Mobile Applications and Services 2011-2015 Companies Mentioned in this Report Company 160by2 www.160by2.com 3 UK www.three.co.uk Accel Partners www.accel.com Admoda www.admoda.com Adobe www.adobe.com Aeria Games www.aeriagames.com AFCMobile www.afcb.co.uk AFMM www.afmm.fr AIM www.aim.com Airtel www.bharti.com Alltel Wireless www.alltel.com Ankama Games www.ankama-games.com Appia www.appia.com Apple Inc. www.apple.com AT&T www.att.com Atomico Ventures www.atomico.com Bango www.bango.com Barclays www.barclays.co.uk Benchmark Capital www.benchmark.com BitPiac www.bitpiac.com Boku www.boku.com Cadbury www.cadbury.com Cellular South www.cellularsouth.com China Mobile www.chinamobileltd.com Cisco Systems Inc www.cisco.com CitiBank www.citibank.com DAG Ventures www.dagventures.com Decktrade www.decktrade.com Dell www.dell.com Deutsche Telekom 158 Website www.telekom.com © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Company Website DeviceAnywhere www.deviceanywhere.com DeviceFidelity www.devicefidelity.com EA Mobile www.eamobile.com eBay www.ebay.com ESPN www.espncorp.com Facebook www.facebook.com Felicis Ventures www.felicisvc.com FIFA www.fifa.com Flirtomatic www.flirtomatic.com Ford www.ford.com Fring www.fring.com Fundamo www.fundamo.com GaduGadu www.gadu-gadu.pl Gameloft www.gameloft.com GetJar www.getjar.com giffgaff www.giffgaff.com Globe Telecom Philippines www.globe.com.ph Gold Mobile www.gold-mobile.com Google www.google.com Handmark www.handmark.com Hotmail www.hotmail.com ICQ www.icq.com iLoop Mobile www.iloopmobile.com Index Ventures www.indexventures.com Inside Mobile www.insidemob.com Jagex Games Studio www.jagex.com JAJAH www.jajah.com Khosla Ventures www.khoslaventures.com Kombo www.kombo.com Korea Telecom www.kt.com Lakshmi Vilas Bank Ltd. www.lvbank.com © 2011, Portio Research. All Rights Reserved 159
    • Disruptive Mobile Applications and Services 2011-2015 Company LG www.lg.com LinkedIn www.linkedin.com Loop Mobile India www.loopmobile.in MasterCard www.mastercard.com Microsoft www.microsoft.com mjelly www.mjelly.com Mobango www.mobango.com MobiTV www.mobitv.com Mojiva www.mojiva.com MySpace www.myspace.com Netbiscuits www.netbiscuits.com NHN Corporation www.nhncorp.com Nimbuzz www.nimbuzz.com Nokia www.nokia.com nTelos www.ntelos.com NXP Semiconductors www.nxp.com O2 www.o2.com OMGPOP www.omgpop.com Orange www.orange.com Orkut www.orkut.com Outspark www.outspark.com PayMate www.paymate.co.in Paymo www.paymo.com PayPal www.paypal.com Pepsi www.pepsico.com Perfect World International www.perfectworld.com Playfish www.playfish.com PlaySpan Inc www.playspan.com PopCap www.popcap.com PredictiveIntent www.predictiveintent.com Qik 160 Website www.qik.com © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 Company Website RadioShack www.radioshack.com Research In Motion(RIM) www.rim.com Rovio www.rovio.com Samsung www.samsung.com Sequoia Capital www.sequoiacap.com SiteSpect www.sitespect.com Skype www.skype.com Smaato www.smaato.com SMS GupShup www.smsgupshup.com Somo www.somoagency.com Sony Ericsson www.sonyericsson.com Sourcebits www.sourcebits.com South Indian Bank www.southindianbank.com Sprint www.sprint.com Square www.mobilesquare.com Stardoll www.stardoll.com Syndicate Bank www.syndicatebank.in Telecom Italia www.telecomitalia.com Telefonica www.telefonica.com Telkomsel www.telkomsel.com TELUS www.telus.com T-Mobile www.t-mobile.com Touchnote www.touchnote.com TQ Digital Entertainment www.us.tqdigital.com Twitter www.twitter.com U.S. Cellular www.uscellular.com Verizon Wireless www.verizonwireless.com Visa corporate.visa.com Vodafone www.vodafone.com Vonage www.vonage.com Wapple www.wapple.net © 2011, Portio Research. All Rights Reserved 161
    • Disruptive Mobile Applications and Services 2011-2015 Company Way2SMS www.way2sms.com weComm www.wecomm.com Wirenode www.wirenode.com Yahoo! www.yahoo.com Yandex www.yandex.com YouTube www.youtube.com ZestADZ www.zestadz.com Zoosk 162 Website www.zoosk.com © 2011, Portio Research. All Rights Reserved
    • Disruptive Mobile Applications and Services 2011-2015 About the Authors Purnadeep Chakraborty Purnadeep Chakraborty is working as a Manager with Portio Research and Evalueserve. Over the past six years, he has worked on various projects in the telecom domain. He graduated from Gauhati University, Guwahati, India. He has been working with Portio Research and Evalueserve since December 2004. Sudhir Kumar Sudhir Kumar is working as a Senior Business Analyst with Portio Research and Evalueserve. He graduated from NIT Jalandhar, India. He has been working with Portio Research and Evalueserve since April 2010. Radhika Goel Radhika Goel is working as a Senior Business Analyst with Portio Research and Evalueserve. She post-graduated in Business Management from IMI, India. She has been working with Portio Research and Evalueserve since April 2010. John White John White has been Editor and contributing author for this report. John is Business Development Director for Portio Research and has over 18 years experience in the technical publishing industry. Working in the IT sector previously and in the telecoms industry for the last 11 years, John has extensive experience in the mobile sector. © 2011, Portio Research. All Rights Reserved 163
    • Disruptive Mobile Applications and Services 2011-2015 Also available from Portio Research Limited Portio Research Ltd is a UK-based research company focussing on the mobile space, providing reports, handbooks, directories and database products. New and Best Selling Reports include: Mobile Network Operator Groups 2011 This essential new report comprehensively analyses the Top 30 MNO Groups Worldwide (as determined by proportionate subscriber bases at end-2010). Over 123 pages, with 109 supporting Figures and Tables, this great-value, text-light study delivers solid insight and data about these global leaders, and reappraises their success using differing KPIs – to see how rankings alter. The report also features detailed profiles of these 30 MNO Groups, with data points on: Total Revenue, Mobile Revenue, Net Profit, Employees, Key Interests, Brand Names, Ownership, Subscribers, Proportionate Subscribers, Market Share, Technology Deployments, Planned Upgrades, Recent Mergers, Acquisitions and Partnership Deals. Please click here for more details. Mobile Messaging Futures 2011-2015 The highly anticipated fifth edition of our best selling messaging report is now available to order. This new edition is packed with detailed market analysis, traffic and revenue forecasts and a brand new vendor survey. This massive 398-page market study gives you all the data you need for SMS, MMS, mobile e-mail and mobile IM markets worldwide, and includes a BONUS 26-slide Executive Summary presentation. With essential insight into a market that is forecast to be worth USD 335 billion by end-2015, this is one of the most detailed and popular reports ever written on the worldwide mobile messaging market. Please click here for more details. Smartphone Futures 2011-2015 Significant developments in the worldwide handset market over the past few years have radically altered the shape and future course of this industry. This essential new report examines the changing scenario of the mobile handset industry and the exciting emergence of the Smartphone segment, including the evolution of the mobile handset industry and its changing dynamics induced by the growth of smartphone sales. We also look at the value chain related to products and services pertaining to the smartphone market, and study key developments in the smartphone market, highlighting the repositioning of smartphone vendors with the market entry of challengers for Nokia and RIM, including Apple, HTC, and other vendors offering increasingly-popular Android-based devices. The report includes an overview of the major smartphone operating systems (OS) and the applications market, looking at App Stores and other factors affecting the overall development of the growing high-end handset market. Please click here for more details. If you have any questions or if we can be of any assistance to you, please contact us by e-mail: info@portioresearch.com Copyright 2011. Portio Research Limited 2011 www.portioresearch.com 164 © 2011, Portio Research. All Rights Reserved