Mobile Megatrends 2008 (VisionMobile)

Slide 1: VisionMobile Research Mobile Megatrends 2008 Knowledge. Passion. Innovation.

Slide 2: Knowledge. Passion. Innovation. Mobile Megatrends 2008 Andreas Constantinou, Ph.D. Research Director, VisionMobile updated: 14 December 2007 licensed under a Creative Commons Attribution 3.0 license.

Slide 3: 15 Mobile Megatrends From mega-portals to me-portals. Content is aging; Content communication is king. The internet is reaching into the phone. The war of the application environments. Value in mobile software is bubbling up. OEMs go for services and vertical propositions. Brand as the new form of equity in handsets. Network operator strategies are shifting. Browsing is out; engaging experiences are in. Browser proxies bring the internet to the masses. Open source is disrupting the status quo. Nokia is now a tier-0 OEM. Mobile is transforming to a FMCG business. Channel ARPU: a new source of revenue.

Slide 4: VisionMobile :a research & market intelligence firm selected 2006/7 analyst reports Five Defining Traits MDM Case Study: The New Age of On-Device Portals: of Open Source Motorola Handset Beyond WAP (Informa) (Ovum) Customisation: (ARCchart) 2006-2011 (ARCchart) GPLv2 vs GPLv3 Firmware OTA: Mobile Operating High-Capacity SIMs White Paper From Hype to Systems: The New (Informa) Market Reality Generation (ARCchart) Open Source in Mobile Software Activating the Idle Mobile: 2007-2012 Management Screen: Uncharted (Informa) Report Territory (Informa)

Slide 5: VisionMobile :delivering strategic market know-how to the mobile industry ecosystem. selected clients

Slide 6: Mobile Megatrends 2008

Slide 7: 1 From mega-portals to me-portals.

Slide 8: 1 From mega-portals to me-portals. From all-in-one mega-portals (e.g AOL), to vertical portals (vortals, e.g. music, sports, healthcare), to personalised my-portals (e.g. iGoogle), to user-centric me-portals (e.g. Facebook) The history of web portals and mobile portals Mega-portals are aging: 1995 2000 2005 2010 portals mega-portals my-portals web me-portals vortals mobile portals my-portals me-portals vortals Source: eMarketeer, company reports (via NY Times) Coming next: community OSes, COMOs (e.g. Open Social)

Slide 9: 2 Content is aging; Content communication is king

Slide 10: 2 Content is aging; Content communication is king The sale value of content is decreasing and DRM walls are falling % of subs buying a ringtone fell consistently over 12 months in GB, FR, DE, IT, ES (M:Metrics, 4Q07) see also Amazon mp3, Y! Music, Virgin Digital, Nokia Comes With Music (subscribe, but own) Content communication, personalisation and remixing is attracting capital 10s of photo sharing sites: Facebook, MySpace, Picnik, Picasa, flickr, flauntr, thebroth, snipshot, ClickFriends, Faces, Photoshop Express online, Shozu, Mosh, Pix-Yu MoJungle, PixPulse, PixSense, SharpCast, SnapFish, rmbr, Kodak gallery, Shutterfly, Photobucket, Webshots, Smugmug, Fotki, Dotphoto, Phanfare, Splashup, Vi.sualize.us, Pixrat, FFFFound, PicURLs, Zoomorama ”up to 25% of the entertainment being consumed in five years will be what we call 'Circular’.. people will have a genuine desire not only to create and share their own content, but also to remix it, mash it up and pass it on within their peer groups”. Mark Selby, VP Multimedia, Nokia, Dec 07

Slide 11: 3 The internet is reaching into the phone

Slide 12: 3 The Internet is reaching into the phone 2001+: the phone reached out to the internet through WAP and web. But the phone was only open to the short head of 10s of 2nd parties (OEM partners) and 100s of 3rd parties with strong funding. 2007+: the internet is reaching into the phone.. The long tail of 1,000s to 1,000,000s of 3rd party developers and scripters are reaching out to the phone thanks to availability of AJAX, Widget platforms and Web runtimes e.g. Nokia Web RunTime, Nokia S60 browser, Motorola WebUI, Nokia WidSets, Opera Widgets, Bling Software, Webwag. 2009+: the phone becomes an active node of the internet Consuming and producing services, e.g. Nokia S60 web server, efforts by Conveneer

Slide 13: 4 The war of the application exec. environments

Slide 14: 4 The war of the application exec. environments 2002+: the war of the operating systems has faded - Symbian OS shipments are dominated by Nokia (outside Japan) and DoCoMo (in Japan) - Windows Mobile is for enterprise segments only (at least up to version 6). - The new Palm OS is still slideware and one year away. Will it follow the fate of Cobalt ? - Most mobile Linux operating systems are in alpha stage (Celunite, ALP, A la Mobile, OpenMoko), not shrink-wrapped (Greensuite), or not backed by a big services firm (Purple Labs). 2007+: the war of the application exec. environments (AEEs) is raging - Flash Lite vs Java; Adobe’s aggressive subsidy vs Sun’s JCP standardisation process. - Java SE vs Java ME; Android’s Dalvik, and Sun’s strategy to phase out Java ME - web programming vs open OS; AJAX, Widgets and web runtimes vs open OS platforms (S60, WM) - interpreted languages vs C++; AppForge, Python, Ruby, .NET (Red Five Labs) vs S60

Slide 15: 5 Value in mobile software is bubbling up

Slide 16: 5 Value in mobile software is bubbling up Mobile software carries high risk & reward and long lead times If you are a software vendor in the OpenOS or RTOS business, you need OEM deal s/w handset handset - $2M - $30M seed capital biz dev agreed embedded launch lifecycle - 2 years technology development -18 -6 (months) -12 +6 - OEM sales cycle of 6-12 months - operator sales cycle of 18-36 months investment - 18+ months for royalties to kick in - but biz model requires scale returns NREs NREs royalties - scaling to new regions, OEMs and operators is non-linear - a lot of factors outside control to do with handset sales The mobile software business is like the Hollywood business; you ‘re either big or you’re out.

Slide 17: 5 Value in mobile software is bubbling up The sale value line (line of commoditisation) is moving up the stack .. accelerated by open source per-unit cost to services and revenue build content collaborative software development $2 $0.1m efforts (e.g. Web Kit) - Google’s Android will further accelerate this commoditisation effect $0.2 $20m - Value will bubble up to UI and service UI & service layer delivery layers. value line $0.1 $5m Embedded apps - Software vendors without unique IPR are not viable $0.1 $10m Middleware $2.5 $500m Operating System

Slide 18: 5 Value in mobile software is bubbling up Value Quadrants for mobile handsets & services extra-device value Delivery Tools & platforms Browse, buy, create, for building content, view, share content, UIs, and services UIs, services pre-sales post-sales Handset intra-device value User data software Messages, photos, stack videos, profile, preferences..

Slide 19: 5 Value in mobile software is bubbling up Value Quadrants represent a shift in revenue models NRE, per-developer seat per user, per use, flat rate, per transaction, per level, subscription. extra-device value Delivery Tools & platforms Browse, buy, create, for building content, view, share content, UIs, and services UIs, services pre-sales post-sales Handset intra-device value User data software Messages, photos, stack videos, profile, preferences.. NRE, free or per unit bundled

Slide 20: 5 Value in mobile software is bubbling up ..but device software is an essential enabler NRE, per-developer seat extra-device value Delivery Tools & platforms Browse, buy, create, for building content, view, share content, UIs, and services UIs, services pre-sales post-sales Software intra-device value User data stack Messages, photos, videos, profile, preferences.. NRE, per unit

Slide 21: 6 OEMs go for services and vertical propositions

Slide 22: 6 OEMs go for services and vertical propositions in order to increase ailing profit margins. OEM acquisitions 2006-7: - Nokia acquired Avvenu (file sharing), Navteq (LBS), EnPocket (mobile advertising), Twango (media sharing), Pixto (physical world connection), Loudeye (digital music), gate5 AG (LBS) and Intellisync (mobile device management). - Motorola invested in Tilefile (content sharing) and acquired Leapstone (SDP), Modulus Video (video codec), Tut Systems (content distribution), Broadbus (content on demand) and Good Technologies (email sync). Own OEM services: - Nokia (Ovi, Maps, Mosh, Medeo, Comes with Music, Internet Radio, Download!), Motorola Screen 3, SEMC (TrackID, PlayNow) Vertical propositions: - Sony Ericsson Walkman & Cybershot, Nokia E-Series, N-Series.

Slide 23: 7 Brands as the new form of equity in handsets

Slide 24: 7 Brands as the new form of equity in handsets "The mobile-wireless environment is going to create a whole new set of brands: brands around devices, brands around the experiences, and also brands around the way people are connecting and researching on the Internet. You'll see new brands around this mobile world, hopefully some from Motorola, because we are thinking about creating distinct brand experiences underneath the parent brand Motorola in the mobile space in the future." Kenneth “Casey” Keller, Chief Marketing Officer, Motorola in Advertising Age, October 2007

Slide 25: 7 Brands as the new form of equity in handsets OEMs have been creating co-branded handsets since 2004: - Sony Ericsson: Walkman, Cybershot - Nokia: E-series, N-series, location-aware devices, Zac Posen, Versace, Aston Martin, WESC - LG: Prada, Shine, Chocolate, SD410 sports - Samsung: Armani, B&O Serene, B&O Serenata, credit-card sized phones - Motorola: D&G, Pininfarina, Aston Martin, Vivienne Westwood, Red Operator own-brand devices are making a comeback: - Vodafone tried with 4 Simply handsets since 2005, but scaled down due to retailing challenges - Huawei, ZTE and Sharp devices are still going strong, as are partnerships with Ferrari - Vodafone hinted that own-brand devices might make up 10-20% of portfolio (May 2007) - Lots more to come in 2008.

Slide 26: 8 Network operator strategies are shifting

Slide 27: 8 Network operator strategies are shifting Operator one-stop-shops and walled gardens are not viable. Operators are moving to - traffic pipes, or multi-network connection services, e.g. TMO, Telenor or wholesalers, e.g. KPN) - service-pipes enabler strategies focusing on device-based service delivery (e.g. Vodafone, Three, DoCoMo) T1 operators are now at third era of service-delivery: container projects container projects leverage on economies of scale for development & deployment and aim to control the relationship with service delivery suppliers.

Slide 28: 9 Browsing is out; engaging experiences are in

Slide 29: 9 Browsing is out; engaging experiences are in Mobile operators, handset OEMs and media brands are deploying on- device portals as the evolution of web/WAP. e.g. Orange Downloads, Vodafone ODP, Nokia Content Discoverer, Nokia Download!, Three ODP, Refresh Mobile ODPs surpass web/WAP in terms of - reduced click-distance to purchase, therefore increased revenue - preview before buying - faster startup time & less resource-hungry - better device integration - graphical richness & improved user interaction, - low latency (background content fetching & intelligent caching) - lower bandwidth costs.

Slide 30: 10 Service delivery spills out of the browser into the user journey

Slide 31: 10 Service delivery spills out of the browser, into the user journey i.e, into: - silo’ed applications (e.g. ODPs, music and mobile TV applications) Action Engine, Adobe FlashCast, Airmedia, Cibenix, Communology, Crisp Wireless, Geniem, Handmark, Mobile Scope, Itfinity, mPortal, Mobinex, Nellymoser, Nokia Download!, Nokia WidSets, Opera, uiOne, RefreshMobile, Streamezzo, SurfKitchen, U-Turn, weComm, Yahoo! Go, uActive. - active idle screen (AIS) applications Abaxia, Acuity Mobile, Aditon, Adobe Flash Home, Bling Software, Celltick, Cibenix, IntroMobile, MobiComp, Mobile Posse, Qualcomm uiOne, SurfKitchen Surftop, Nuance T9 Tool, Zi Qix. - web, widget and AJAX runtimes e.g. Nokia Web RunTime, Nokia WidSets, Opera Widgets, Bling Software, Webwag, Openwave MIDAS - UI Frameworks: end-to-end platforms for designing core applications e.g. Acrodea, Digital Airways Kaleido, TAT Cascades, Mentor Graphics Inflexion, uiOne HDK, Flash UI

Slide 32: 11 Browser proxies bring the internet to the masses

Slide 33: 11 Browser proxies bring the internet to the masses Proxies optimise web content delivery for increased addressable market, lower latency, lower traffic and higher speed. - Speed proxies: image compression, efficient page contents caching, HTTP & content pipelining. e.g. Bytemobile, NSN, Flash Networks (NettGain), Venturi VServer, Novarra - Transcoding proxies: page reformatting, image reduction, menu simplification, session tracking, SSL session handling, XHTML/MP adaptation e.g. InfoGin IMP, Google Wireless Transcoder (ex Req Wireless), Novarra nweb, Volantis Transcoder, WiderWeb, Greenlight Wireless Skweezer, Clicksheet - Pre-rendering proxies: pre-renders page before sending and improves navigation. e.g. Opera Mini, Bitstream ThunderHawk

Slide 34: 12 Open-source is disrupting the status quo

Slide 35: 12 Open-source is disrupting the status quo starting with the browser industry.. 2003-2006: 80% market = Openwave, Obigo (Teleca), ACCESS Netfront But the mobile browser industry has been facing many challenges - declining per-unit royalties - rendering of ‘street HTML’ and scripting are very complex software to maintain. - mobile devices exposed to billions of web pages vs 1,000 simplified WAP pages - browser value is in zooming, navigation, device integration, not the rendering and scripting core. May 2007: Openwave and Teleca break the dismal story In May, browser vendor Teleca announced that it ‘had halted investments into renewal of Obigo product’, while Openwave announced it was up for sale following a 50% tumble of its share price in 12 months. Open source Web Kit -based browsers used by KDE, Apple, Nokia, Android and Motorola

Slide 36: 12 Open-source disrupting the industry status quo .. continuing with handset operating systems. Android is not a service delivery, but a service access platform. Designed to liberalise service delivery and platformise the OS business, so that Google can offer the best, easiest, friendliest service delivery platform to every developer. Android is unique for several reasons: - Declarative XML UI framework helps rapidly develop the UI for new applications. - Every application (incl. idle screen, dialer, main menu) is a Web 2.0 citizen. - source code to be released under Apache 2 (non-copyleft) license); modify code, ship, retain IPR - Java SE platform deeply integrated with OS; a departure from Linux development - Android’s Dalvik Java VM means OEMs don’t have to pay TCK royalties to Sun - zero royalty to use the Android OS (purported but not confirmed) - Open Handset Alliance comprises of handpicked members; covering complimentary regions (OEMs, MNOs) and complimentary technology solutions; very different to LiMo, OMTP, LiPS, GMAE.

Slide 37: 13 Nokia is now a tier-0 OEM

Slide 38: 13 Nokia is now a tier-0 OEM The only OEM left with cash-flow for heavy investments .. with an unbeatable cost + supply chain mgmt (300 million components per day) .. and who is strong at both the high-end and low-end of the market Operating profit (US$ million) Global market share (3Q07) + 39.20% 37.10% source: Strategy Analytics source: Fitch Ratings, Reuters 3Q07 operating margins: Nokia 22.2% SEMC 12.4%, Samsung 12.3%, LG 8.4%, Moto -3.1% (Reuters)

Slide 39: 14 Mobile is transforming to a FMCG business

Slide 40: 14 Mobile is transforming to a FMCG business Making phones has tiny margins and no consumer value. As in the fast moving consumer goods (FMCG) business, value is in: a) defining the right niche segment & proposition, b) last mile customisation, retailing and placement, c) in-life experience; delivering compelling services across the user journey assembly & channel service product industrial certification sale manufact. distribution delivery definition design & QA software last mile retailing & customer market brand hardware integration customisation placement support research licensing design value opps

Slide 41: 15 Channel ARPU: a new source of revenue

Slide 42: 15 Channel ARPU: a new source of revenue Beyond voice and data ARPU, there is a new source of revenue revenue from delivering 3rd party services/products through the last mile to the end user. Channel ARPU comes from: - UI inventory leasing through auctioning of handset UI inventory to advertisers and promoters - Retail sub leasing leasing of shelf space to OEMs and service providers, e.g. visual service retailing - Service delivery channels e.g. Vodafone, Telefonica, TIM revenue share with Nokia’s Ovi - Bundling e.g. Amazon Kindle + newspaper subs or Nokia Download! bundling of service providers. - Access to consumers e.g. iPhone subscription revenue share, Blyk ad-funded MVNO - User analytics leasing e.g. info on user location, billing, call graphs, presence, service usage Channel ARPU is about growing wallet share based on collaboration Contrary to voice and data ARPU which are about growing wallet size based on customer ownership

Slide 43: Contact: Andreas Constantinou, Research Director andreas@visionmobile.com Further reading: Mobile Operating Systems: The New Generation Five Defining Traits of Mobile Open Source www.visionmobile.com/whitepapers