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TechTalk Magazine - Edition Three 2012

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​In the third issue of our TechTalk magazine, we explore how technology is driving innovation and new business models in categories as diverse as photography, gaming and the automotive industry.

​In the third issue of our TechTalk magazine, we explore how technology is driving innovation and new business models in categories as diverse as photography, gaming and the automotive industry.

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  • 1. TECHTALK The technology magazine edition three 2012 BIG DATA >>> 101001010100001010100011 101001010100001010100 DISRUPTIVE TECHNOLOGIES
  • 2. TECHTALK - DISRUPTIVE TECHNOLOGIES 2 EDITORIAL It was Malcolm X who famously said, “The Future belongs to those who prepare for it today”. Social reform rather than technology disruption was likely on his mind but nevertheless it is a fitting quotation for this edition of TechTalk. Technology has fundamentally changed the way we live our lives and it will continue to do so. In this edition, we explore how technology is driving innovation and new business models in categories as diverse as photography, gaming and the automotive industry. Within these categories and beyond, preparation for the future is certainly more critical than ever which means being smarter about how we collect, manipulate and interpret our growing sources of data and insight. As such, we explore how Big Data, when used smartly, gives brands a real chance to prepare. For example, we work with our sales data which provides a unique opportunity to not only measure the market but to start to draw out the future implications of the trends we see as discussed in our analysis of the smartphone market. In addition, our article on technology piracy highlights how sometimes pointers to the future come from unusual places. The future is an uncertain place and while we can help prepare for it, we discuss the need for new business models to help manage this uncertainty. Join us in the discussion about the innovative ways in which we can prepare for the future. Yours Anette Bendzko Global Lead Technology GfKGfK 2012
  • 3. TECHTALK - DISRUPTIVE TECHNOLOGIES 3 CONTENTS P.04 THE WORLD OF COUNTERFEIT PHONES By Gerard Tan and Paul-Henri DeQuatrebarbes P.08 THE SMARTPHONE BOOM IN EMERGING MARKETS By Gregoire Lemaitre P.11 THE POWER AND PITFALLS OF PREDICTION By Colin Strong P.14 THE CHANGING LANDSCAPE OF PHOTOGRAPHY By Oliver Robinson and Heribert Tippenhauer P.17 DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY By Sam McCloy and Jonathan Shingler P.21 THE RISE OF FREEMIUM GAMING By Chris Cox P.25 FROM BIG DATA TO SMART DATA By Colin StrongGfK 2012
  • 4. LESSONS FROM PIRATES: THEWORLD OF COUNTERFEIT PHONESGfK 2012
  • 5. TECHTALK - THE WORLD OF COUNTERFEIT PHONES 5Last year I had the opportunity to visit the labyrinthine Silk Street Market in Beijing.Although government-led initiatives have apparently curbed the availability of ‘falsecommodities’ there, I couldn’t help but notice the suspiciously-cheap electronics stallswith a degree of scepticism. Such uncertainty is natural, I suppose, when entering themurky world of counterfeit products.By Gerard Tan and Paul-Henri DeQuatrebarbesIndeed, it is difficult to say with complete certainty form the majority of sales, with smartphoneshow many imitation products exist. However, our representing circa 0.5%. The near impossibilitydata (looking at sales of smart mobile phones of replicating advanced operating systemsin MEA APAC countries in 2012) provides as contributes to this skew, but it’s by no means acomprehensive an overview as is possible and barrier to smartphone counterfeiting everywhere.identifies that mobile phones and smartphonesare by far the fastest growing category. FAKE DEVICE SALESGlobally, the Middle East and Africa (MEA), and CONSTITUTE LESS THAN 1%Asia Pacific (APAC) appear to be the regions mostsusceptible to the proliferation of counterfeit IN VIETNAM, BUT RISE TOmobile devices. But there remains significant 18% IN THE IVORY COASTvariation by market, with fake device salesconstituting less than 1% in Vietnam, but risingto 18% in the Ivory Coast. While some of these Indeed, in Asian markets, producers avoided thenumbers may appear relatively inconsequential, inconvenience of proprietary operating systemsthis still amounts to thousands of devices a by mimicking hardware design, and then oh-month. so-subtly tweaking brand names (BlueBerry or Samzong anyone?) and building their ownKeeping up appearances OS. In China, these ‘lookalike’ models (referredThere is no one-size-fits-all approach to counter- to as ‘Shanzai-ji’) create a somewhat grey area;feiting. Instead, distinct regional varieties evidently consumers should be aware they areexist which reflect local demand and mobile purchasing an imitation but, given the similaritiesmaturity. This demonstrates how adaptable the to major manufacturers, uncertainty still exists.counterfeiters are. Counterfeiting is also no longer limited toIn MEA, most phones tend to be ‘genuine fakes’ emerging markets – the implications now extendexactly copying legitimate devices in design, into the smartphone-dominated west. Hereappearance, and branding. As with the legitimate though, the issue is more likely to be impostermarket, feature phones (sold at entry-level price) apps and games sold to genuine device owners,GfK 2012
  • 6. TECHTALK - THE WORLD OF COUNTERFEIT PHONES 6either through illegal sites, or lookalike versions market prices higher. But consumers are gettingin official market places (as an example of the affordable products - so that’s a good thing,latter, Apple removed ‘Temple Jump’ from the right? Well, no, actually.top of the apps store, after it was accused of Any cost benefits, particularly in MEA, tend to beintellectual property theft of the more successful quickly offset by inferior build quality. There is‘Temple Run’). And it’s a growing problem: Sports also a risk that phones might explode - a numberInteractive (makers of ‘Football Manager’), for of devices in Senegal were recently reported toexample, recently identified a 9:1 piracy ratio be overheating and burning out. In countries withamong downloads of their latest release. poor landline infrastructures and where mobile phones (via mobile payments etc.) transform livesYou get what you pay for and support livelihoods, a malfunctioning phoneArguably, the availability of counterfeit versions is no joke.of products could (perhaps) be taken as a positiveindication of brand health (imitation being And with no possibility of regulators applyingthe sincerest form of flattery and all that). So, specific absorption rates (SAR) testing towhile fake Nokias used to dominate in Asia, in counterfeit devices, a lack of standardization canrecent years it is imitation Apple and Samsung lead to wider health risks.devices that are increasingly popular. In China,entrepreneurs even went so far as to set up a fake Even in Asia, where the quality of the lookalikeApple store complete with imitation blue T-shirts devices is relatively high, there are difficultiesfor unsuspecting employees. for the consumer. An imitation iPhone we trialed last year (while allowing phone calls and other core functionality) with no access to the Apple’s ecosystem meant the overall experience COUNTERFEITING IS ALSO was distinctly inferior. These experience and NO LONGER LIMITED TO associations may well be a long-term detriment to a brand. EMERGING MARKETS – THEIMPLICATIONS NOW EXTEND Piracy: a reflection of the market? So, the negative implications of counterfeiting INTO THE SMARTPHONE- are fairly clear. However, as the authors of Misfit DOMINATED WEST Economy argue, “Pirates are ruthless criminals, yet their innovative and adaptable approach is not without its lessons.” Indeed, piracy in its broadestHowever, recognizing that desirable devices are sense can be seen as a symptom of failed businessbeing produced is scant consolation when the models or a reflection of unmet consumer needs.loss of revenue totals millions per month. Such As such, exploring the key purchase drivers fordeficits naturally impact a brand’s capacity for counterfeit goods can be instructive.research and development which could block theinnovation flow - a flow that brings real benefits 1. Cost: an estimated 40% of counterfeit goodsto the market place, as well as keeping official in Africa are sold to people (mostly) innocentlyGfK 2012
  • 7. TECHTALK - THE WORLD OF COUNTERFEIT PHONES 7trying to acquire the cheapest handset available. while some counterfeit apps are undoubtedlyThe vast majority of counterfeit phones in MEA malicious, many ‘lookalikes’ involve a perceivedtherefore falls into in the sub-€50 category. expansion and improvement of already popular content.This desire for affordable devices speaks volumes ‘Pirates’ have previously proved influential inabout the importance and pervasive nature of a number of categories - just ask the musiccell phones in today’s increasingly technology- business. So, while we must remain vigilant todriven civilization. Without the availability of protect intellectual property rights, softwarecounterfeit products, many people in the poorest developers are now facing the same question asregions would be priced out of this market. As numerous other industries before them: shouldblack markets tend to thrive where regulation is we re-educate consumers and fight piracy withsparse, a possible solution would be to improve regulation or does the industry have to changeinfrastructure and top-down initiatives to ensure with the market?the flow of affordable, genuine handsets into themarket.This is no easy task. Indeed, the Communications AN IMITATION IPHONE WECommission of Kenya (CCK) recently warned TRIALED LAST YEAR WITHit would take heavy-handed action to disablecounterfeit mobile phones that could deny NO ACCESS TO THE APPLE’Smillions the use of their devices. However, if ECOSYSTEM MEANT THEwe are to ensure that developing countries canproperly protect and provide for their citizens OVERALL EXPERIENCE WASin the mobile age (an aim of the International DISTINCTLY INFERIORTelecommunication Union), initiatives, such ascollaborations between manufacturers and officialbodies, are required. Manufacturers and developers can learn from the needs underpinning the existence of the2. Additional features: counterfeiters don’t just counter feit device trade. Ultimately, thesereplicate, they innovate. An estimated 30% of consumer demands may be the final judge ascounterfeit device purchases are created with to the future direction of the industry. Organicfeatures that manufacturers have either omitted changes to the industry in Asia are a primeor been unable to implement. example of this, with the arrival of genuine Android smartphones available at less thanExtra sim-card ports (along with exploding €50. This could potentially negate the need forSenegalese handsets!) are possibly the most imposters to exist at all.common example but, with other bespokevariations becoming increasingly sophisticated, For further information, please contact:counterfeiters are appearing to foster innovation Gerard Tan, gerard.tan@gfk.com orthrough identifying and responding to untapped Paul-Henri DeQuatrebarbesconsumer demands. This is also true with software: paul-henri.dequatrebarbes@gfk.comGfK 2012
  • 8. THE SMARTPHONE BOOM IN EMERGING MARKETSGfK 2012
  • 9. TECHTALK - THE SMARTPHONE BOOM IN EMERGING MARKETS 9Over the past 18 months, China has seen monumental growth in smartphone salesrepresenting a rapid shift of consumers away from feature phones. China has swiftlytransformed itself into the world’s fastest-growing economy. Could the reasonsbehind the smartphone proliferation there be used to predict similar trends in otheremerging markets?By Gregoire Lemaitre In 2008, smartphones accounted for just 9% of all mobile phone sales in China. Indeed, despite being the world’s largest country, fewer than 200 million phones were sold every year. Move forward to 2012 and there has been a seismic shift in the market. With smartphone sales totaling 59% of the market and overall mobile phone sales boosted to 307 million, the Chinese smartphone market has seen a growth in sales of 108% in 2012. But what factors are behind this vast and sudden uptake of smartphones? Change agents Unsurprisingly, the key driver of change was price, with numerous elements combining to drive down the cost of both producing and buying smartphones. Local operators played a critical role in the first wave of smartphone growth in China through heavy subsidies, offering them at the symbolic retail price of CNY1,000 (circa €120) in September last year. The second wave of growth is now led by domestic manufacturers who have started selling entry-level smartphones below CNY1,000. As their research and development into the design and manufacture of Android smartphones has started to pay dividends. Finally, high levels of competition in China’s well-established handsets supply chain have influenced a fall in costs across the component set, from application processors to screens and touch panels. Competition was not, however, the only reason for price change. A move from 3G to 2.5G chipsets and 4-inch screens to 3.5-inch screens allowed for price reductions for consumers of between 20-30% while maintaining acceptable levels of quality. This has been vital in convincing a wider consumer base of the value of upgrading to smartphones. Smaller vendors in China’s tier-4 and tier-5 cities (county-level cities) have developed their own smartphone propositions, including landmark sub-CNY600 (circa €73) handsets – under half the price of entry-level smartphones sold by tier-1 vendors without subsidies.GfK 2012
  • 10. TECHTALK - THE SMARTPHONE BOOM IN EMERGING MARKETS 10 Nevertheless, despite such rapid market change, 2012 is likely to mark the end of such explosive growth in China. Our data indicates that unit growth will slow moderately this year and more rapidly thereafter. Future growth markets So where should we look for the next boom in smartphone purchasing? We’ve identified emerging markets such as India, The Philippines and Nigeria as the next growth markets for smartphone penetration. The opportunity for cheap smartphones to replace feature phones in these markets is huge: 95% of phones that consumers buy in India are below INR8,500 (equivalent to CNY1,000 or €122), compared to 45% in China. Yet the lack of operator subsidies in these markets means that the smartphone category is not being supported in the same way that we see in Western European markets. As such, these low-priced smartphones are particularly critical for geneemearating growth in the market and fuelling a switch from even lower-cost feature phones. As Chinese and domestic manufacturers ramp up their production capabilities and tier-1 vendors start lowering smartphone prices further, we expect smartphone growth to accelerate in emerging markets from the end of this year and maintain elevated levels over the next two years. Looking ahead Of course, each emerging market will have its own local twist: smartphone sales in India, for example, should grow 95% in 2013 against only 46% in Brazil where import duties will constrain the cheaper supply effect. Looking ahead, manufacturers who are able to maintain a competitive edge in this new segment will secure a strong position in the future mobile phone market.For further information, please contact:Gregoire Lemaitre, gregoire.lemaitre@gfk.comGfK 2012
  • 11. THE POWER AND PITFALLS OF PREDICTIONGfK 2012
  • 12. TECHTALK - THE POWER AND PITFALLS OF PREDICTION 12Just how well can we predict the future? This is a key issue for any company developingnew products and services, often placing a huge amount of resources into trying toestablish what they should back in order to generate future revenues.By Colin StrongPsychology researcher Philip Tetlock is well whether a campaign to encourage healthy eatingknown for his study on the predictive power of will have the desired effect.the expert. In the mid-1980s he began a researchproject in which he interviewed 284 experts. He So why can we predict some things well andasked them to answer 27,450 questions resulting others poorly? This can be explained by lookingin nearly 100 predictions. With admirable at the difference between simple and complexpatience, he waited over 20 years to see if those systems. Simple systems are those in which apredictions came true. model can capture all or most of the variation. A complex system, by contrast, contains many interdependent components working in non- WHY CAN WE PREDICT linear ways, which make it difficult to capture the SOME THINGS WELL variance. And an awful lot of social and economic activity is necessarily complex. AND OTHERS POORLY The influence of social effects on systemThe bad news is that the predictions hardly complexityever did. When Tetlock compared the results Research shows that social effects often impactof the experts with those of a control group of system complexity. This is illustrated in a studyundergraduates recruited at the same time, the conducted by Duncan Watts, a sociologist workingexperts did better – but only slightly. at Microsoft, and his colleagues who used the music download market to explore the socialWhat does this mean for us when we make networks that people use.predictions about the technology market, andjust how well are we able to do this? An artificial music market was created with over 14,000 consumers from a teen-related website.Complex versus simple systems All participants were asked to rate a list ofOf course, we can predict some things pretty previously unheard songs from unknown bands.well. We can predict that the sun will rise in the After rating the songs, they were given the optionmorning and that the airplane we are sitting on to download them. A second group did exactly thewill take off and land. On the other hand, it is same but with a crucial difference: they were ablerather difficult to predict with any significant to see the number of times that the songs hadlevel of accuracy which way stock prices will move, been downloaded by the first group. When theyhow many people will buy a new model of car or could see the preferences of others (number ofGfK 2012
  • 13. TECHTALK - THE POWER AND PITFALLS OF PREDICTION 13downloads), there was a significant shift in their react to the demands of the market by designing,preferences, with just a few songs becoming producing, shipping and then selling up-to-thehugely popular and the majority getting much minute fashion. For Zara, a quick response tolower ratings. fashion trends has been highly profitable.Interactions between individuals therefore oftenmagnify small fluctuations and result in outcomes How does market research fit in?that are very difficult to predict. Market research is a key part of ‘measure and react’ strategies. First, the story of the ‘collectiveThe strategy paradox pulse’ of the market can be told effectively usingThere is an increasing realization that predictions a variety of techniques from ethnography andabout fast-changing markets, such as tech, may focus groups to co-creation, survey work, andnot be entirely reliable. Consequently, business data analysis. And, web-based technologiesprocesses need to reflect this unpredictability. (such as rapid prototyping tools) and emergingIndeed, the work of Canadian writer Michael technologies (such as 3D printing tools) canRaynor suggests there is a ‘strategy paradox’ provide lifelike representations in order to quicklywhereby companies might apply excellent logic test and predict the potential in a large group ofin the development of their innovation strategy, consumers.but they can simply make the wrong call on a very The prediction stage can offer highly valuable datauncertain future. to product managers focused on the appropriate design, pricing and potential success of theirTo this end, Raynor advocates that brands should product or service. However, this stage needsadopt a ‘measure and react’ strategy of flexibility. to be approached cautiously. Assumptions thatHere, strategic uncertainty is integrated into the underlie any ‘volumetrics’ need to be shared. Andplanning process. This contrasts with the more probabilities of outcomes should be given insteadfamiliar ‘predict and control’ strategy where a of definitive numbers.particular outcome is anticipated against whichbusiness processes are then put in place. So we The apparent success of ‘measure and react’have a broad portfolio of strategies, some of which strategies is a reflection of the way in whichwill work while others – we accept – may fall on technology companies can make informedstony ground. We simply don’t know in advance hedges about the future. Consumer researchwhich strategies will be the ones that work. has much to offer in this environment with an emphasis on greater clarity, openness and sharingThe case study that is often quoted in this of assumptions relating to how forecasts andcontext is that of Zara, the clothes manufacturer predictions are derived.and retailer, which has successfully developeda ‘measure and react’ strategy. Their success For further information, please contact:depends on their ability to measure and quickly Colin Strong, colin.strong@gfk.comGfK 2012
  • 14. THE CHANGING LANDSCAPE OF PHOTOGRAPHYGfK 2012
  • 15. TECHTALK - THE CHANGING LANDSCAPE OF PHOTOGRAPHY 15The end of the 20th century saw a significant increase in our ability to capture images,with photography becoming a true mass medium. Largely driven by the proliferationof smartphones and our ability to edit, store and share images, what’s the picturelook like for the future of this category?By Oliver Robinson and Heribert Tippenhauer“Photography has the capacity to provide images illustrates the consequent decline in the compactof man and his environment that are both camera category, with total value down 14% in theworks of art and moments in history.” Cornell first half of 2012.Capa’s description of photography outlines This disruption follows a pattern evident in thetwo objectives: documenting the present, and portable gaming market. When the equivalentproducing an artistic interpretation of it. experience on a smartphone improves at a fasterLooking at the first objective, video is arguably rate than the stand-alone device, we’re less inclinedbetter suited to recreating the present. Indeed, to carry one (much less purchase one). Eventually,the advent of 3D could raise the bar even higher, the stand-alone device is either rendered obsoletewith the increasing preference for integrating or evolves into a niche market for needs that itsmultimedia elements within digital publications smartphone competition cannot meet.being perhaps an early indicator here.So, what of the second objective? Will the creative Logically, this should be bad news for cameraand artistic elements of photography prove manufacturers. However, a closer look at themore resistant to changes in our technological data shows considerable growth at the high-endlandscape? of this category. With digital single-lens reflex cameras (SLRs - total value up 11% in the firstSmart-photography half of 2012) and a new generation of ‘compactSmartphones have changed the nature of system’ cameras (up 56%), the average price paidphotography, not only in expanding camera by consumers globally for a stand-alone cameraownership, but also in ensuring that our cameras in 2012 has actually increased – from €206 toare in our hands (or at least, in our pockets) €223.throughout the day. Thanks to this accessibility, Encouragingly, this high-end growth is almostwe now produce more photographs than ever enough to offset the value lost at the low-end.before. So, what’s driving it?The vast quantity of images collected is changing How we all became photographersthe way we document life, both simplifying and Growth in smartphone adoption may havecomplicating the task for historians of the future. brought photography to wider audiences. WeBut what does it mean for manufacturers today? can also assume that this growth has encouragedCrucially, as the quality of smartphone cameras wider participation. However, this does not seemhas increased, they’ve become ‘good enough’ for enough to explain the growth in the high-endmany of us; the need for an ‘even better’ stand- camera category and we also need to look beyondalone camera is decreasing. Our global sales data the camera itself.GfK 2012
  • 16. TECHTALK - THE CHANGING LANDSCAPE OF PHOTOGRAPHY 16Two of the key differences between smartphone field of interested amateurs. It’s these enthusiastscameras and their predecessors are integration that are likely to be driving the high-end cameraand connectivity; integration with other growth outlined above, equipping them to (atfunctionality on the device, and connectivity with times) compete with professionals.the rest of the ecosystem they inhabit. As an So, what does all of this mean for the future ofexample, consider these two methods of sharing photography?a photograph: Photo opportunities taking it with a digital camera, sideloading it For a long time, success in this category was to a computer, uploading it to a website and defined by the ratio between picture quality and sending the link to a friend price. Smartphones have competed with this, taking it with a smartphone and uploading it driving accessibility, sociability, and engagement to Facebook with photography across a wider audience.Working together, the products and services have Though image quality may have become a hygienestreamlined the user experience and socialized factor (at least, relative to past importance),the activity. The 300 million photos uploaded to significant opportunities remain at the highFacebook daily are testament to their success. end where a growing segment of enthusiasticAlongside socialization, apps like Instagram have amateurs are seeking increasingly professional-empowered users to edit and manipulate their grade solutions. Devices like Samsung’s newphotographs. Such easy-to-use apps provide Galaxy camera, which offer a transitional stepanother example of simplified solutions driving between the integrated, socialized world ofwider engagement with the category (Instagram smartphone cameras and the serious, financialalone recently passed 80 million users ). investment of SLRs and Compact Systems, also seem well positioned.The connectivity of devices including smartphones,tablets and televisions has provided a further However, while product innovations will continue tocatalyst to engagement with photography. The move the category forwards, the most significantsynchronization of these platforms, and take- innovations are likely to come through services;up of cloud services that function across them, harnessing our growing engagement with theis improving the accessibility of our photo category to integrate it further into our digitalcollections. Increasingly, we can view our photos at lives. Enabled by technology, we’re getting closerany time, in any place and across different devices. to another of Cornell Capa’s ideas: the camera reallyThe cumulative impact of these changes is is becoming an extension of ourselves. perhaps most evident in the ongoing debate aboutwhether amateur photography is impacting on its For further information, please contact:professional counterpart. While Instagram doesn’t Oliver Robinson, oliver.robinson@gfk.com orreplace the skill set required for professional Heribert Tippenhauerphotography , it’s undoubtedly expanding the heribert.tippenhauer@gfk.comGfK 2012
  • 17. DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRYGfK 2012
  • 18. TECHTALK - DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY 18Technology has always had a strong relationship with the auto industry but it’s onlyrecently that the full potential of this partnership is being realized. We are nowseeing a new generation of cars on our roads that offer a new and enhanced drivingexperience.By Sam McCloy and Jonathan ShinglerBack in the 1980s, many relished that hour years. Alongside this, governments are waryevery week when they ’d switch on the TV of new technology integration, introducingprogram ‘Knight Rider’ to watch ‘The Hoff’ drive legislation to limit technology usage in order toaround in a black sports car. Not only did the limit driver distraction. Finally, adverse economiccar look good, but it could speak with the driver, conditions have inhibited development beyondpinpoint locations using satellite technologyand drive itself to those locations. It also let thedriver communicate with colleagues via video THE INCREASINGconferencing and advised on the coolest placesto hang out. A truck that acted as a central base ROLE THAT THEcould track the car’s movements and process the LATEST SMARTPHONE,data (known as telematic information) to adviseon optimum driving style, driver and car health. NOTEBOOK AND HOMEThe Hoff was also given local intelligence to help ENTERTAINMENThim to save the girl from the bad guys. It certainlyoffered an exciting sci-fi vision of what a car may TECHNOLOGIES AREbe able to do in the future. And some recent, PLAYING IN CONSUMERS’interesting developments could see some of thesefantasies become a reality. LIVES ARE DRIVING CHANGE IN THE AUTOMOTIVETech adoption to dateMuch of the technology just mentioned has INDUSTRYbeen around for a while but has taken a longtime to be adopted by automakers. So what has the normal chassis/body/engine refreshes. Techbeen stopping them? A key reason is product adoption has been largely limited to iPod anddevelopment lifecycles. Car templates (particularly Bluetooth integration, and is usually thrown inthe internals) only get refreshed every 6-10 as an afterthought.GfK 2012
  • 19. TECHTALK - DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY 19However, things are changing. The increasing Telematics: getting to know the driverrole that the latest smartphone, notebook and Meanwhile, integration of telematic information inhome entertainment technologies are playing cars is starting to happen, as demonstrated by thein consumers’ lives are driving change in the showcasing of Ford’s Evos car in late 2011. Cloud-automotive industry. Consumers now expect to based connectivity, coupled with automated andhave such technologies integrated seamlessly customized system calibration enables the carinto their cars. Consequently, to stay competitive,automobile manufacturers must anticipate suchconsumer technology needs to help them ‘future- TO STAY COMPETITIVE,proof’ the latest models, and through that toinstigate a long-overdue shake-up of the industry. AUTOMOBILE MANUFACTURERSThe rise of infotainmentInfotainment is an area where such changes are MUST ANTICIPATE SUCHoccurring. Car companies are forming partnerships CONSUMER TECHNOLOGYwith innovative technology brands. For example,Audi is using NVIDIA’s latest mobile quad-core NEEDS TO HELP THEMTegra 3 processors and Sierra LTE modules to ‘FUTURE-PROOF’ THEpower its in-car systems. The possibility ofintegrating these technologies with Android or LATEST MODELS, ANDWindows Mobile-based operating systems opens THROUGH THAT TOa whole new world of in-car application services. INSTIGATE A LONG-Obviously, Apple and Google have had plenty OVERDUE SHAKE-UP OFof success with their App Stores and the tablet THE INDUSTRYmarket has widened application remits to makemore use of larger screens. These changes willnaturally evolve within the automotive industry to recognize the driver, monitoring his or heras apps are developed to specifically meet driver driving style, as well as basic health informationand passenger needs. This will help to provide such as the heart rate. All of this telematic data isseamless transitions from home to car to work, transmitted and saved to the cloud via 3G or 4G/and back again. Software and app upgrades can LTE connectivity which is embedded in the vehicle.also be used to help disrupt the long 6-10 year As such, the car can ‘get to know’ the driver overcar development cycles. time, adjusting its set-up to match the driver’sGfK 2012
  • 20. TECHTALK - DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY 20style, mood and health, and to provide optimum speed control). This does, in some respects, gosafety throughout the journey. Location-based against the 20th century image of the car offeringservices may also be included to monitor not only a sense of freedom. Although the reality of carthe driver, but also the environment (for example ownership has long moved away from that notion,automatic switching to electric from gas when it is still used by many car advertisers.moving from highway to city areas). So, with the possibility of telematics being used as a means of further control by insurance INSURANCE COMPANIES companies and governments, it remains to be seen how it will impact the industry, and whether CAN ALSO USE THE that will ultimately be a positive or a negative for DATA IN AGGREGATE TO consumers. With all this in mind, new technology needs to be carefully managed as it becomes SEGMENT DRIVERS MORE integrated into cars, and the ability to ‘opt-in’ will EFFECTIVELY, AND TO very likely play a role in this.BETTER TIER THEIR RATES Looking aheadACCORDING TO DRIVER AGE, On the whole, convergence of the technology and automotive industries offers some exciting GENDER AND SITUATION possibilities with developments in infotainment and sophisticated integration with consumerTelematics is also becoming a powerful tool for all lifestyles as well as communications. Nevertheless,sorts of new business and public sector models. as real-time tracking data become readilyIt has already been adopted in the insurance available, governments, regulatory bodies, andsector where some companies offer ‘black-box’ insurance companies will be able to control driversolutions to track drivers over time. This is seen behavior further. Whatever happens next, thereas a ‘foolproof’ method of keeping premiums will inevitably be a period of adjustment, anddown. Insurance companies can also use the data ultimately, the driving experience is likely to bein aggregate to segment drivers more effectively, radically altered by the end of the decade.and to better tier their rates according to driverage, gender and situation. For further information, please contact:Other applications for telematics include fleet Sam McCloy, sam.mccloy@gfk.com ormanagement and traffic optimization (including Jonathan Shingler, jonathan.shingler@gfk.comGfK 2012
  • 21. THE RISE OF FREEMIUM GAMING FREE $7 $7 $7 $7GfK 2012
  • 22. TECHTALK - FREEMIUM GAMING 22The past few years has seen a shift in how people consume and pay for games. Movingfrom a cash up front model to a freemium one, free-to-play games appear to be onthe rise. So, why this sudden increase and what does this mean for incumbent gameproducers?By Chris CoxOn 14 July 2011, Steam, the popular online game Game producers in Europe and the US have alsodistribution service, launched free-to-play games. noted the huge success of companies in Asia. ForInitially offering five titles, its offer ballooned to these companies, free-to-play has been the norm76 titles in a little over a year, and this number is for some time, driven by multiplayer games withset to increase. Valve, the owners of Steam, even micropayment systems (such as Ragnarok Online).made one of its most popular games of all time - The dream, as expressed by Tim Sweeney , CEOTeam Fortress 2 - a free-to-play product. of Epic Games, is to couple the sophisticated business models from Asia with the productionThe rise of free values available to European and AmericanYet the size of the computer gaming market studios.seems at odds with this free-gaming revolution. In2011, it was estimated the industry had revenuesof US$74 billion (€57 billion), and that figure is GAME PRODUCERSset to rise to US$115 billion (€88 billion) by 2015.In the UK , it is the biggest entertainment sector, IN EUROPE AND THE UShaving recently outpaced even video in terms of HAVE ALSO NOTEDsales while, in the US, video game revenue in2011 was around US$16 billion (€12 billion) . THE HUGE SUCCESS OF COMPANIES IN ASIASo, why the sudden drive toward giving gamesaway for free? There are a range of factors at playhere. PC games have long been subject to piracy, It is also hoped that free-to-play will make inroadswith the industry claiming this has impacted on in the battle to combat piracy. Yves Guillemot,revenues. Meanwhile, gaming on tablets and CEO of Ubisoft, said recently, “The advantage ofsmartphones is still a relatively limited experience F2P is that we can get revenue from countriesmeaning producers cannot rely on large numbers where we couldn’t previously — places where ourbuying their games. products were played but not bought.GfK 2012
  • 23. TECHTALK - FREEMIUM GAMING 23Now with F2P we gain revenue, which helps brands There was also a brief phase of ‘try and buy’last longer. “ Free-to-play games remove barriers games, particularly for casual games on mobileto entry, and micropayments within games are platforms. These games allowed users a smallusually low priced and streamlined, encouraging amount of game time for free before being forcedand enabling purchases. to purchase the game in order to play further. This practice has largely died out in favor of ad-So where does the money come from? supported gaming, with some claiming that ad-Companies are becoming more sophisticated in supported gaming provides three to seven timeshow they monetize both free-to-play games, as more revenue.well as paid games after the point of sale. Someof the most common methods are: The scale of this industry shouldn’t be under- estimated. Research conducted by IHS in January subscriptions - most online multiplayer 2012, found that in-game purchases totaled games allow players to play for free for a set US$970 million (€734 million) last year while period, and then require a monthly fee for predictions indicated this figure could grow to continued gaming. This is uncommon outside US$5.6 billion (€4.3 billion) by 2015 . of multiplayer games. Notable examples: World of Warcraft, EVE Online The risks in-game advertising – ad-supported games Many industry experts have been quick to criticize are primarily found on tablets and smartphone the rise of free-to-play games, arguing that they games. Due to their potentially disruptive will never guarantee large enough revenues to impact on the game experience, they’ve not create so called ‘AAA’ games like Call of Duty. been used significantly in PC gaming. Notable Due to the significant upfront cost of creation, examples: Angry Birds it seems unlikely anyone would risk creating a downloadable content (DLC) – a long-standing free-to-play game of this scale when there is the tradition in both paid and free-to-play games possibility that it could flop. offers players a few hours more gameplay for a relatively small fee. Notable examples: Mass Other commentators say that free-to-play lends Effect 3, Dragon Age II, Forza Motorsport itself primarily to multiplayer online gaming, unlocks/item stores – many games now offer rather than the single player experience enjoyed players opportunities to purchase in-game by many gamers. Within multiplayer games, items (such as additional weapons or characters) enjoyment can be limited by introducing a so direct from an online store. Notable examples: called ‘pay-to-win’ factor, due to the item store . Tribes: Ascend Games like Team Fortress 2 and Tribes: AscendGfK 2012
  • 24. TECHTALK - FREEMIUM GAMING 24have been on the receiving end of these criticisms, customers, it would represent a major victory forpotentially driving players away from these games. gaming publishers who have always struggled toThere’s also the risk that producers will be deal with piracy. With Team Fortress 2 , Valve alsooverzealous in trying to monetize their games. showed that more money can be made throughThe paid game Mass Effect 3 fell into this trap, free-to-play, with monthly revenue rising by aalienating fans by removing content from the factor of 12 after the game was made free.main game and repackaging it as downloadablecontent, to be sold the same day the main gamecame out. Fans felt they had been cheated out ofcontent which should have been theirs. EVEN IF A SMALLThe rewards PROPORTION COULD BEFree-to-play is undeniably a good trend for CONVERTED INTO PAYINGgamers, at least on the surface; it offers morecontent at an attractive price point. Although CUSTOMERS, IT WOULDthere might be variation in the quality of free REPRESENT A MAJORgames, the play experience of popular games willbe enhanced as more players buy in. VICTORY FOR GAMING PUBLISHERS WHO HAVESmall ‘indie’ gaming studios will be able to share ALWAYS STRUGGLED TOtheir products with a wider audience. As a result,there will be greater opportunities to make DEAL WITH PIRACY.money. Of course, gaining an audience in the faceof monolithic gaming companies is a significantchallenge. Yet free-to-play has helped smaller Free-to-play gaming is not a nirvana that thecompanies like Zygna build impressive revenues, industry has finally reached; it is a disruptivedespite the relative simplicity of their offering. element within an established industry. ThereAlthough Zygna is now struggling, it shouldn’t be will of course be both winners and losers, yet theforgotten that one of Facebook’s largest sources main winner is likely to be the consumer. Gamingof income is social gaming. companies will have to work harder than ever to define themselves in an increasingly crowdedThe same opportunities also exist for the large marketplace, where ‘free’ is the price point topublishers who increasingly experiment with compete against. free gaming. For them it would be beneficial toconvert pirates into potential customers. Even if For further information, please contact:a small proportion could be converted into paying Chris Cox, chris.cox@gfk.comGfK 2012
  • 25. FROM BIG DATA TO SMART DATAGfK 2012
  • 26. TECHTALK - FROM BIG DATA TO SMART DATA 26Big Data is the term loosely used to describe the exponential increase in data volumesalongside the growth in our ability to transfer, store and analyze. To you and me, BigData is a powerful tool used to advance our knowledge of consumer behavior. Butcontrary to what some would argue, it isn’t a universal panacea to the challengesbusinesses face in understanding their customers.By Colin StrongIndeed, don’t let the emphasis on size fool you; Intelligent integrationdata is only useful if used in a smart way. So no The need to understand the context and meaningmatter how extensive they might be, behavioral of the behavior observed in large datasets willinformation should be combined with consumer rapidly become critical as a purely behavioralsurvey data and a social science perspective to get analysis will only provide so much nuance. Thethe most from your data assets. And researchers consumer intention that is driving activity can onlyneed to be at the forefront of setting the Smart be properly understood by talking to the consumer.Data agenda. This is an opportunity to involve a wide range of thinkers and practitioners, from ethnographersThe right skills and qualitative researchers through to marketingGlobal management consultancy McKinsey and scientists and quantitative analysts.Company estimates that, in the US alone, there isa shortfall of 190,000 analytics experts and 1.5 Without understanding the consumer mindset,million data-savvy managers with the necessary there is a danger that Big Data will never becomeskills to make decisions based on the analysis of Smart Data. As such, the value for marketers isBig Data . limited. Intelligent integration brings consumer and research knowledge together with Big DataHowever, the skills associated with market to avoid the risk of chasing the wrong questionsresearch are very relevant to Big Data. These and finding false positives. Appreciation ofinclude excellent analytical skills, an ability to underlying assumptions within the data and ofunderstand and manipulate large data sets, and the motivations behind consumer actions is likelyan ability to interpret findings and apply them to improve the way findings are understood andto business. Indeed, some research agencies communicated.are now in a position where they’re handlingBig Data every day as the level of digital data Big picturebeing captured increases and agencies start to The starting point for Big Data has often beenaggregate this information. for brands to analyze their own proprietaryGfK 2012
  • 27. TECHTALK - FROM BIG DATA TO SMART DATA 27datasets generated from their own digital assets. tools we use always shape how we make sense ofThey would then use this information to optimize the world. So if they suddenly evolve, then so willconsumer interaction with their brand. However, our understanding - not just in size and scale, butwalled-garden approaches like this only tell a part qualitatively too.of the story.They explain nothing about the activity thatled the consumer to encounter the brand in thefirst place. Nor, indeed, which other brands the WITHOUT UNDERSTANDINGconsumer is having conversations with.Research agencies are in a strong position to THE CONSUMER MINDSET,deliver the Smart Data approach by: THERE IS A DANGER THAT becoming aggregators of different clients’ large BIG DATA WILL NEVER datasets. It is possible to provide services that BECOME SMART DATA. AS reflect activity in the market as a whole building panels of consumers that capture SUCH, THE VALUE FOR digital activity across multiple devices. It is MARKETERS IS LIMITED possible to build a comprehensive picture of their online lives, not just those related to specific brands accessing social media data through application Perhaps this is the real heart of Smart Data, where programming interfaces or other agreements our understanding of consumers is embodied to undertake a much more detailed look at the within the data itself, generating insights into nature of online social interactions the human condition that are hard to obtain by using life-logging approaches to build up other means. Creating this type of understanding large datasets for a relatively small number of will affect how brands use their datasets as they individuals start to properly integrate models of human and social behavior.Together, these provide the opportunity for abroader comprehension of a brand’s performance The challenge for our industry is making the caseand can be used to place the research done on the for the use of Smart Data, rather than just Bigbrand’s own data assets in a wider context. Data. This could become the most profitable way for brands to unlock the value held in their dataEyes on the prize assets.The era of Big Data allows us to explore humanbehavior, and specifically human social interaction, For further information, please contact:in a way that was not previously possible. The Colin Strong, colin.strong@gfk.comGfK 2012
  • 28. CONTACT If you would like to speak to us about anything featured in TechTalk, simply get in touch by contacting our editorial team techtalkinfo@gfk.com Alternatively, you can keep up to date with GfK by visiting our website www.gfk.comPUBLISHERGfK SECorporate CommunicationsNordwestring 10190491 NurembergGermanytechtalkinfo@gfk.comT +49 911 395 4440www.gfk.comGfK 2012

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