Echelon 2013: The Future of Mobile in Asia by Thomas Clayton

CONFIDENTIAL www.bubblemotion.com 1
The Future of Mobile in Asia
Echelon 2013
Information contained in this presentation is confidential & proprietary in nature and contains information pending patent protection.
This document is meant strictly for the addressee and may not be copied or redistributed without prior authorization from Bubble Motion, Inc.

Asia is Different
Mobile Trends Across the Region
The OTT App Explosion
The Messaging App Phenomenon

First… Why Does Asia Matter?
The Majority of the World‟s Population lives within this tiny circle

However, Things are Very Different Across Asia
• Consumer loyalty for mobile services is the lowest in the world
– Consumers are extremely price sensitive and willing to trade off inconvenience for
savings
• Credit card penetration is minimal
– Only real electronic payment system is fragmented prepaid card systems or operator
billing
• Feature phone users outnumber smartphone users 4-to-1
– 2.4B+ feature phone users still represent the masses
– Japan and Korea growing fast, but India, China, Indonesia are much slower
– Many countries have limited data plan penetration – even with smartphones
• 3B+ mobile subs vs. ~1B Internet users
– Majority of Internet usage is mobile
– Prepaid users outnumber postpaid 5-to-1
• Highly diverse population
– 52 primary language with 1,000+ regional dialects
– 27 currencies with some of the lowest and highest GDPs per capita in the world
– Very different political and legal systems

Asia Accounts for 65% of World’s Internet Growth
Rank Country
2008-2012
Internet User
Adds (M)
2012 Internet
Users (M) Y/Y Growth
Population
Penetration
1 China 264 564 10% 42%
2 India 88 137 26% 11%
3 Indonesia 39 55 58% 23%
4 Iran 35 42 205% 55%
5 Russia 33 70 6% 49%
6 Nigeria 31 48 15% 30%
7 Philippines 28 34 32% 35%
8 Brazil 27 88 6% 45%
9 Mexico 19 42 9% 37%
10 USA 18 244 3% 78%
11 Argentina 17 28 57% 68%
12 Egypt 17 30 11% 38%
13 Colombia 14 25 39% 54%
14 Turkey 13 35 17% 47%
15 Vietnam 12 31 7% 35%
Top 15 654 1,473 15% 34%
World 902 2,406 8% 34%

Asia Represents 77% of the BRIC’s GDP and…

…Southeast Asia itself could be a BRIC Country
Giving Asia 3 of the World‟s 5 Leading Economies

Asia is Different

By 2015, 65% of the World’s Mobile Users in Asia
Asia Mobile Subscribers

Mobile Penetration Continues to Grow Rapidly
Asia Smartphone
Penetration Forecast
And while ARPUs will decrease slightly in some markets,
it is less dramatic than in Western markets

Asia is ‘Mobile First’ because of the Inverse
Correlation between Income and Mobile Centricity

Most Advanced Internet Countries Globally –
Japan & Korea – Mobile Internet Surpasses PC

However, Same has Occurred in China

Smartphone Penetration in Asia Still Lags Sizably
More than 2B+ mobile subs will still be on feature phones in Asia through
2015

Smartphone Penetration Growing, but Still Low…
2013 Asia Smartphone Penetration

2015 Asia Smartphone Penetration
And Not Changing Dramatically in Next 2yrs…

Thus, Massive Reach in Asia via 2B+ Feature
Phones

Asia is Different

First… the Death of VAS
• Philippines telecom regulators crack down on VAS in Spring 2010
– Philippines regulators were one of the first ones to step in and require a whole host of
new regulations for spamming consumers with SMS and confirmation requirements for
adding new subs
• Thailand regulators crack down at the beginning of 2011
– Thailand followed shortly thereafter and added many new requirements for marketing
via SMS to subs
• Indian regulators push serious penalties starting Summer 2012
– India nearly went as far and it is unclear if they will enact the threat of triple
confirmation – with the 3rd confirmation needing to be in writing within 24hrs
• Indonesian regulators shut down all VAS in Oct. 2011
– Indonesian regulators went further than any others by deleting all VAS subscriber
bases and requiring everyone to start over.
– Moreover, they required triple confirmation and no auto-renewal of services

China is now the largest App Market in the World –
and All Asian countries are still growing rapidly
However, OTT App Growth is Huge Counterbalance

But Monetization of Apps Still is still Very Low in
Asia
Price sensitivity to Apps is much higher in Asia – users are 6X more likely
to purchase the „paid‟ vs. the „free‟ version of an App in Western countries

Macro Factors Drive Need for Different Monetization
Strategy in Asia
• Lower purchasing power with higher price sensitivity
– Excluding Japan, consumers are much more price sensitive and have lower
purchasing power;
– Thus, their likelihood to pay for an app is 1/6th of that in Western markets
• Digital ad spend is still in its infancy
– Online and mobile ad spend in Asia is significantly smaller than Western markets
– Thus, companies cannot rely on an ad-funded monetization strategy
• Low credit card and electronic payment system penetration
– Even if consumers want to pay for an app, low credit card penetration makes it
impossible for most users
– Thus, while virtual goods are a very popular model in the online world throughout
Asia, it still lags in smartphone app world

Asia is Different

First, the Crazy Social Media Evolution…
QQ
Facebook
Orkut
hi5
Friendster
Wretch
Mixi
Cyworld
Zing
Most Popular Social Networks 2 Years Ago

However, Facebook Now Dominates Most of Asia…

…With Some of its Largest User bases in the Region

Asians Have Always Been Much More Blog Savvy

And Now They Love Sharing Everything Online
% of Population that Shares ‘Most Everything’ Online

FB Bus Model Always a Recipe for Success in Asia
FACEBOOK:
If you‟re not paying for it, you‟re not the customer.
You‟re the product being sold.

Twitter has Now Taken Off as well
Indonesia is Twitter‟s 3rd largest market in terms of tweet volume and
Japan is its 2nd largest market in terms of revenue

Twitter & FB Both Focusing on Feature Phones Now
for Growth in Asia
• Nearly 90% of mobile users in
India still do not access data
• 75%+ of users across SE
Asian mobile do not have data
plans
• FB & Twitter both have teams
in the region focused on
operator partnerships in Asia
now
• FB acquired Snaptu solely to
build a feature phone
accessible version of the FB
app
• Twitter now focused on

And Messaging is becoming Ubiquitous
Across User’s Lives…
Family
Friends
Work
Applications
• Text
• Photos
• Voice
• Video
• Group Chat
• Text
• Photos
• Voice
• Video
• Games
• Group Chat
• Text
• Voice
• File Transfer
• Appointments
• Group Chat
• Text
• Voice
• Photos
• Video

Leading to the Explosion of Social Apps Across Asia

Asian Users Love a Fun & Cheaper Way to
Communicate
OTT Messaging
• Innovative services and very
consumer driven
• Across top layer of network
only
• Limited interop so far, but likely
to change quickly
• Reliability is lower than
operators today, but improving
fast
• Free – monetization
experimentation
• Little-to-no customer support
Operator SMS
• Seen as „old school‟ and pay-
per-message
• Still viewed by many though as
the most reliable
• Interoperable across platforms
/ operators / devices
• Direct monetization via usage
or subscription
• Strong customer relationships
including billing
Being
replaced by

It is a Crowded Space –
Everyone is Coming from a Different Angle

Today its Largely Divided into 3 Segments;
However, They are All Merging Quickly
Messaging Social Media VoIP

Time to Critical Mass has Decreased Dramatically
Time to Reach 50M Users
Line 384 days
Draw Something 50
days
Instagram 612 days
WhatsApp 438 days
Twitter 1,218 days
SMS 3,120
days
Mobile Subs 4,422
days
Facebook 1,321 days

Who is Winning in the Messaging Battle Asia?

What is Happening on the Ground?
• Only Korea has a clear cut winner – KaKaoTalk
– Korea‟s local app is used by 90%+ of Korean smartphone users
• In Japan – Line dominates, but others are growing
– Increasingly crowded space with KaKaoTalk teaming with Yahoo! Japan and both DeNA
(COMM) and GREE launching their own competitive apps
• Much of Southeast Asia dominated by Line
– Thailand is dominated by Line with Indonesia and Philippines tipping in that direction as
well
• WeChat is growing outside of China, but unclear how strong
– Only messaging app with a “17+ rating” – seems to be strong among pockets of users
• WhatsApp is an early leader in India, but still quite fragmented
– Also, BBM is still much larger than any of the OTT messaging apps

Globally, Each Country Shows a Different Winner
Messaging Apps Market Share

Monetization Strategies Varying Widely by Region
• Ad-rev model – free with lots of ad placement potential
• Charging brands to send out promoted messages to Korean user base
• Charging users for packs of emoticons/stickers
• Selling virtual goods and gifts
• Free – money made from iOS device lock in
• Initially free, but now charge $0.99 as one-time purchase
• Charge $9.99 for the app for unlimited SMS/text messaging

The Future of Messaging Apps in Asia…
• Each country is exploding into a different battle ground
– First battle is domestically in each country, but the bigger war is regionally, then globally
– Winner likely to come from Asia
• Due to strong network effects, it’s a Winner takes all market
– Could be divided by country or communication type though
• Switching costs are minimal and decreasing
– With FB connect and deep contact list integration on the phone, it is extremely easy to
migrate
– This war will never be over – its going to be very long ongoing
• UI & UX are key – not feature breadth
– FB spun off Messenger for exactly this reason; Instagram the best example of UX vs.
Features
• Careful curating of the community early on is extremely important
– Facebook and Twitter did it extremely well early on – not as good though early in Asia

In Summary…
Asia is a MASSIVE Mobile Market, but Extremely
Diverse
1
Monetization approach has to be VERY different
in Asia
2
Messaging Apps are EXPLODING, but the Battle
is far from over
3

Echelon 2013: The Future of Mobile in Asia by Thomas Clayton

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