Dataquest Insight The Top 10 Consumer Mobile Applications In 2012

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  • 1. Dataquest Publication Date: 13 October 2009 ID Number: G00171017 Dataquest Insight: The Top 10 Consumer Mobile Applications in 2012 Sandy Shen, Tole J. Hart, Nick Ingelbrecht, Annette Zimmermann, Jessica Ekholm, Nick Jones, Jonathan Edwards, Andrew Frank We identified what we consider will be the top 10 consumer mobile applications in 2012, based on their impact on consumers and industry players, considering revenue, user loyalty, business model, consumer value and estimated market penetration. This report analyzes market trends and the impact on the industry of these top 10 consumer mobile applications. It gives examples of how these applications have been implemented, and advises industry players on how to take advantage of the growing opportunities. Key Findings • Technology alone cannot provide a sustainable competitive advantage, and needs to be supplemented by a well-designed user experience and the application's value proposition. • After 10 years of experimentation, mobile carriers have not demonstrated that they can create and operate a compelling content platform, and are losing out to external platforms from media, Internet and device players. • The ultimate competition between industry players is for control of the "ecosystem" and user experience, and the owner of the ecosystem will benefit the most in terms of revenue and user loyalty. • Most consumers will use no more than five applications at a time, and most of the future opportunities will come from niche market "killer applications." • The advertising-funded business model saw early signs of success but a working formula is yet to be discovered for mass-market deployment. Recommendations • Mobile carriers should build sophisticated user data mining and analytics skills, as well as agile billing platforms. These will be the key assets they rely on to bring in new service revenue. • Mobile carriers should build context-aware applications by sharing common user data, such as contact lists, location and presence, to increase the "stickiness" of the portfolio. • Device vendors should carefully investigate their ambition (if any) as a service/application provider, as not all companies can accomplish that, and that ambition could potentially disengage their carrier customers. © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.
  • 2. • Device vendors should devote sufficient resources to user interface (UI) innovation, which is paramount to product differentiation and user loyalty. • Media and Internet companies should keep partnering with mobile carriers and device vendors to expand their reach to mobile users. But there is nothing stopping them from becoming leaders in delivering superb content and user experience, out-competing that of their partners. • Enterprises should explore marketing and advertising opportunities via the mobile phone, as this would definitely affect their communication with customers. Publication Date: 13 October 2009/ID Number: G00171017 Page 2 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 3. TABLE OF CONTENTS Analysis ............................................................................................................................................. 4 No. 1: Mobile Money Transfer .............................................................................................. 4 No. 2: Location-Based Services ........................................................................................... 7 No. 3: Mobile Search .......................................................................................................... 10 No. 4: Mobile Browsing....................................................................................................... 11 No. 5: Mobile Health Monitoring ......................................................................................... 13 No. 6: Mobile Payment ....................................................................................................... 14 No. 7: Near Field Communication Services ....................................................................... 16 No. 8: Mobile Advertising.................................................................................................... 17 No. 9: Mobile Instant Messaging ........................................................................................ 18 No. 10: Mobile Music .......................................................................................................... 20 Application to Watch........................................................................................................... 22 Mobile Social Networking ...................................................................................... 22 Background and Context ................................................................................................................. 24 The Impact....................................................................................................................................... 25 Conclusion ....................................................................................................................................... 25 Recommended Reading.................................................................................................................. 25 LIST OF TABLES Table 1. Maxis' NFC Phone Price and Service Plans ..................................................................... 17 Table 2. SingTel's BroadBand on Mobile ........................................................................................ 21 Table 3. SingTel's 3G Flexi Plans ................................................................................................... 21 LIST OF FIGURES Figure 1. The Tariffs for M-Pesa........................................................................................................ 6 Figure 2. INQ1's Address Book and In-Box..................................................................................... 23 Publication Date: 13 October 2009/ID Number: G00171017 Page 3 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 4. ANALYSIS We analyzed the impact of various consumer mobile applications on industry players and consumers in "Dataquest Insight: Impact Ranking of Consumer Mobile Applications, 2009," and identified the top 10 applications that will make the biggest "bang" in 2012. In this report, we take a closer look at the top 10 applications in terms of market trends, impacts and "real world" examples, and advise industry players on how to prepare for, and take advantage of, the upcoming changes. The top 10 list should be viewed in totality versus those applications that didn't make it onto the list. This report is for companies that are, or are considering, using mobile applications and technologies. It especially targets mobile carriers, device vendors, media and Internet companies, brand companies and developers. No. 1: Mobile Money Transfer Market Trend: This service allows people to send money to others using Short Message Service (SMS). It can be used, for example, to pay for purchases, bills and tuition, and to make donations. The service's lower costs, faster speed and convenience compared with traditional transfer services have strong appeal to users in developing markets, and most services signed up several million users within their first year. This section focuses on money transfer; generic mobile payment will be covered later in this report. Following its success in the Philippines, mobile money transfer is quickly gaining traction in Africa, the Middle East and Southeast Asia. So far, a score of countries have launched services, including the Philippines, Malaysia, Thailand, Indonesia, India, Pakistan, South Africa, Kenya, Tanzania, Uganda and the United Arab Emirates (UAE), with more launches expected in the next 12 months. In developed markets, there are sporadic deployments, partly to support remittance to developing markets and partly for domestic peer-to-peer transfer. In the latter case, the service allows people to settle payments more easily, such as splitting lunch payments, paying for home delivery and children's pocket money. Because of the well-established banking and payment infrastructure in these markets, the service's value proposition is not as strong as in developing markets. Market uptake, therefore, will be much slower. Impact: The reason mobile money transfer is No. 1 on our list is because it revolutionizes the way people send and receive money, and is disruptive to the traditional model of remittance that is costly and less efficient. It also has a major social impact by giving people access to financial services so that they can improve their quality of life. Mobile carriers can expect higher messaging traffic because of the use of the service. In addition, they can generate new revenue streams that may include transaction fees, commission from billing partners, interconnection fees from merchants and treasury benefits if carriers take custody of deposits. The indirect benefit is reduced churn. Financial institutions may view mobile money transfer as an opportunity to reach new bank customers, especially in markets that have underdeveloped banking infrastructures. However, the business models for banks are complex and challenging. Any banks attempting to enter these markets should plan for the long term and ensure that they develop an integrated mobile financial services strategy (see "Four Scenarios for Mobile Financial Services in Southern Africa" and "Mobile Phone Payment Systems: Banks Must Wake Up to the Hype"). Publication Date: 13 October 2009/ID Number: G00171017 Page 4 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 5. The challenge lies in both regulatory and operational risks. Because of the fast growth of mobile money transfer, regulators in many markets are piling in to investigate the impact on consumer costs, security, fraud and money laundering. The lack of definitive regulation poses big risks if service providers fail to secure a letter of understanding or a nonobjection from the administration. The potential changes in regulatory direction can also adversely affect the market. On the operational side, some markets — such as South Africa, Kenya and Tanzania — are seeing increasing competition with more players entering the market. As market conditions vary, as do the local resources of service providers, providers need different market strategies when entering a new territory. This creates complexity and increases deployment costs. So the wide spread of the service and its success should not be taken for granted. Mini Case Study: M-Pesa is a money transfer service in Kenya offered by Safaricom, a local mobile carrier, independently of any bank. Every account is a stored value account (SVA) that holds interest-free e-money. The service offers deposit, withdrawal, transfer, bill payment and airtime top-up functions, and uses the subscriber identity module (SIM) Application Toolkit (STK) for a better user interface and enhanced security. It allows Safaricom's users to send money to anyone in Kenya, even those that are not Safaricom customers. This is a viral function that works in the favor of the carrier, as people experiencing M-Pesa could be tempted to sign up for Safaricom's services. Safaricom receives direct revenue from transaction fees (see Figure 1) shared with the agents. As the fee schedule favors registered users, it encourages nonregistered users — and even non-Safaricom users — to sign up. Publication Date: 13 October 2009/ID Number: G00171017 Page 5 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 6. Figure 1. The Tariffs for M-Pesa KSh = Kenyan shilling SIM = subscriber identity module SMS = Short Message Service Source: Safaricom The carrier is actively acquiring agents, and their coverage is key to the success of the service. Safaricom uses not only its own dealers, but also recruits retail chains, gas stations, post offices, Publication Date: 13 October 2009/ID Number: G00171017 Page 6 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 7. airtime resellers and banks to expand its network, and increased its number of agents from 2,000 to more than 9,000 within a year. M-Pesa also offers users the ability to withdraw cash from an automated teller machine (ATM) without a bank card. This is convenient when the agent is closed or has insufficient cash. Users push a button on the ATM to activate the machine, in the absence of a card. They then enter their mobile number to allow the system to send a one-time password to their phone. They enter this password into the ATM to withdraw cash. Within three months of launch, a total of 480 million Kenyan shillings ($6.2 million) was cashed from ATMs using mobile phones. Advice: Financial institutions and mobile carriers may collaborate on the mobile money transfer service, depending on the business model. Either way, they need to consult with the regulator about requirements before designing the service. They need to select vendors with proven track records that can help them achieve scale in a number of markets. Agent acquisition should go beyond carriers' or banks' own distribution networks to include other systems, especially those in strategic locations. Analysis by Sandy Shen No. 2: Location-Based Services Market Trend: Location-based services (LBS) form part of context-aware services, a technology that Gartner expects will be one of the most disruptive in the next few years. The industry has continued to mature rapidly in recent months, through a mixture of consolidation, improved price/performance of enabling technologies, and compelling applications that have sharpened consumer demand. We expect the LBS user base will grow globally from 96 million in 2009 to more than 526 million in 2012, and user spending will grow from $2.2 billion to more than $9 billion in the same period. GPS, because of its high accuracy and maturity, will be included in more than 50% of the mobile phones sold in 2012. The combination of GPS and Wi-Fi has been endorsed by large players such as Qualcomm, Apple and Nokia. Since the beginning of 2009, several major announcements have been made that will accelerate further the uptake of location services. Examples are Vodafone's acquisition of Wayfinder, Telefonica's introduction of the "friend finder" solution Akstoy across Latin America, and GyPSii's extended relationship with China Unicom to power the carrier's social networking platform. The plethora of application stores has increased awareness and use of location applications. In a wider sense, it is not the number of storefronts that serves as a multiplier for location services but the level of success of the ecosystem around it. A successful ecosystem owner attracts good developers that invent great, useful applications, such as Wikitude, that help drive adoption. We expect competition to increase further, based on these key developments: • Mobile carriers have started to introduce more flexible pricing schemes, with daily, weekly and monthly subscriptions. • The percentage of users that use advertising-sponsored or free applications will grow in the coming years. Currently, in North America and Western Europe, the number of users taking advantage of free services is approximately 10% to 15%; this will grow to about 40% in 2012. • Google, Nokia and, to some extent, Apple are influencing the market: • Google Maps and Latitude work on different mobile operating systems, with further extensions such as Google Talk and widgets for third-party sites. Publication Date: 13 October 2009/ID Number: G00171017 Page 7 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 8. • Apple's iPhone (and iPod) user base currently has a choice of approximately 2,800 location-related applications from its App Store, of which about 25% are free. • The basic version of Nokia Maps is free, but Nokia is working on an advertising solution to provide premium services for free. The vendor has also started bundling navigation services with device sales, starting with its 5800, which comes with a car toolkit, car charger and a lifetime navigation license. Carriers' business models vary by region. A few carriers in Europe — such as Bouygues Telecom, Optimus and Vodafone UK — have implemented, or are testing, advertising-based solutions. Most let subscribers test an application for free for a certain period, which later turns into a paid-for service. The main issues that hinder the adoption of the advertising business model are: • Involvement of many different parties in the value chain, such as advertising agencies, advertisers and technology providers. There are technology providers, such as LocatioNet, that offer a "one stop" shopping solution, but this is not the norm. • Carriers are rather hesitant to rely on this type of business model, as there are few reference cases available. Carriers are yet to be convinced about the demand for location services, and trying a new business model with a high degree of uncertainty is seen as too risky. • Most location services based on advertising are "pull type" services, rather than actively "pushing" new "events" to the user. It would enhance the user experience and increase the number of interactions if the applications were based on the true push mode. The U.S. market, which is the largest today in terms of the number of LBS subscribers and the amount of user spending, is based entirely on paid-for services that enable revenue sharing between carriers and technology providers. However, carriers are beginning to feel the competition from free services, such as Google. Google has pushed MapQuest, which was the U.S. market leader on the PC, into second place, and Google's mobile user base is growing as well. Carriers have started to react to the competition by locking their devices from other players' services. One example is AT&T's network — location applications downloaded from the BlackBerry App World will not function on it. In other words, AT&T allows its customers to use only LBS applications that were downloaded from the AT&T portal. Impact: LBS is ranked No. 2 in the top 10 because of its perceived high user value and its influence on user loyalty. Its high user value is the result of its ability to meet a range of needs, ranging from productivity and goal fulfillment to social networking and entertainment. These services influence the way users communicate with each other, as well as shaping people's behavior in their daily lives in a way that was previously not possible. One good example is Wikitude by Mobilizy, which was one of the winners of the Android developer challenge. It is an "augmented reality" application that combines integrated GPS and a compass to provide useful information about objects in the user's surrounding area. When an object is viewed through the camera, background information about the particular object is overlaid on the image. The information is sourced from the Wikipedia database. This feature could be of interest to travel content publishers, hotels, the real estate sector and the retail industry. The advertising business model will become more important, as it will be one of the carriers' defense mechanisms against larger players, such as Nokia and Google, which offer some location services for free. Findings from a Gartner end-user survey revealed that young users in many regions look for free alternatives on the mobile phone and the Web, and are even willing to sacrifice quality. There is demand for advertising-based services and better value for money from bundling of different services and more flexible pricing schemes. Publication Date: 13 October 2009/ID Number: G00171017 Page 8 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 9. Mini Case Study No. 1: LocatioNet provides audio navigation and point of interaction (POI) search on the mobile phone, either via mobile carriers as a white-label solution or via a free Web download (called amAze) as a direct consumer channel. In its carrier deals, it uses both the charging model and the advertising-funded model. Its service offered via Orange Israel and Vodafone Romania is a subscription service, with LocatioNet sharing the revenue with the carriers. In the cases of its deals with Bouygues in France and Optimus in Portugal, it uses an advertising-based model, with the advertising revenue remaining with LocatioNet. Gartner sees the dual business model as a strength, as it allows LocatioNet to generate revenue from different sources and appeal to different partners. The advertising solution in this application is nonintrusive, as the ads are under a specific menu in the application, instead of popping up while the user is using mapping or navigation. The ads are based on the location of the user and are pushed to the device when the user reaches the vicinity of, for example, a store or restaurant. The user can click on the ad to find the phone number of the store/restaurant and directions to it. Mini Case Study No. 2: Where is a GPS-based location application that is open to third-party developers for an extended range of features. To some extent, it is less of a mapping or navigation application and more of a local search application. It includes a large number of widgets, from restaurants, coffee shops, inexpensive gas and stores, to price comparison, movie times, local news and events, Yellow Pages, weather, directions and traffic updates. It works with a number of brand companies, such as Starbucks, Burger King, Yelp and Yellow Pages, as a marketing and advertising channel. It also allows users to interact with each other through Buddy Beacon and Where Wall. The application is preinstalled for a number of U.S. carriers, including AT&T and Sprint, and can be downloaded from the application stores of iPhone, BlackBerry, Android and Palm. For phones for which no downloadable client is available, users can access it from the phone browser. Where presents marketing and advertising opportunities for brand companies, using users' location and search preferences. According to the company, the top five search categories are restaurants, stores, events, inexpensive gas and coffee. Using the user-friendly client, those searches can be turned into purchases. The company generates its revenue from advertising, search and subscriptions. In contrast to most LBS applications, which focus on mapping and navigation functions, Where focuses on using location as a platform for content publishing and advertising. The strategy of opening up the platform to developers, and especially brand companies, has helped increase its appeal, thus speeding market uptake. The company reported to have generated 40,000, 16,000 and 7,000 downloads from the iPhone, Android G1 and BlackBerry Storm respectively within 24 hours of its launch. Advice: Mobile carriers need to address privacy issues and communicate clearly with their users. This becomes critical when an application is preinstalled on a device — users may not be as familiar with the application as they would be with one they downloaded themselves. Carriers also need to evaluate the possibility of offering advertising-sponsored LBS, which may increase retention. Social networks should look at integrating location and presence information to make their applications more compelling. Device vendors have to expand their GPS-enabled devices portfolio, and include multiple location technologies, such as Wi-Fi, Bluetooth and cellular- network-based technologies. Analysis by Annette Zimmermann Publication Date: 13 October 2009/ID Number: G00171017 Page 9 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 10. No. 3: Mobile Search Market Trend: The ultimate purpose of mobile search is to drive sales and marketing opportunities on the mobile phone. To achieve this, the industry first needs to improve the user experience of mobile search so that people will come back again. On this front, companies have experimented with various approaches, including: (1) voice-based search that eliminates the need to type on the phone; (2) image-based search that allows people to take a picture with the phone and send it to the server for results; (3) natural language search that allows people to ask a question and receive an answer back; and (4) application-embedded search that serves the particular application it associates with, such as a music store and LBS. In parallel, search engine optimization (SEO) efforts are ongoing to make the results more relevant, despite the much smaller content inventory on the mobile Web than on the Internet. These efforts have seen mobile search experience much improved in the past two years. This has set the basis for driving marketing and sales opportunities via mobile search. Keyword search is the most common format used, and is usually linked with mobile banner ads. We expect banner ads to generate $4 billion of revenue in 2013, accounting for 30.5% of total advertising spending on the mobile channel. Application-embedded search is an indispensable feature of the application itself, but it also targets product and content purchases. For example, MapABC's free LBS applications offer not only search of local points of interest, directions, traffic and weather, but also allow users to search for train and flight information, and book a ticket by calling the sponsor's phone number. Even for natural language search that is designed to be conversational, ads can be inserted in the answer, based on the content and context of the query. Companies offering mobile search include: • Branded search providers, such as Google and Yahoo. • White-label mobile search engine providers that work mostly with mobile carriers and content providers, such as Medio and Targetize, and some that are starting to transition into a branded advertising platform, such as Jumptap. • Independent startups that rely mostly on advertising revenue and have a specific service focus, such as ChaCha (SMS-based natural language search), Taptu (search that shows only mobile results, not page links) and Picollator (face image search). • Mobile phone vendors, such as Nokia, that integrate search from different providers in mobile phones. With the number of companies in the field, we expect consolidation in the future, and those with interesting technologies are likely to be acquired. Impact: Mobile search is ranked No. 3 because of its high impact on technology innovation and industry revenue. Consumers will stay loyal to some search services, but instead of sticking to one or two search providers on the Internet, we expect loyalty on the mobile phone to be shared between a few search providers that have unique technologies for mobile search. Because of the limitations of the mobile phone, various technologies are being developed, and will continue to be developed, to facilitate text and rich media search, such as voice, music, video and pictures. We don't think there can be one technology for everything — we expect different technologies will be employed, depending on the input mode and content format. This will stimulate innovation in the field to explore the unlimited possibilities. What is more interesting is the possibility to explore the real world with mobile search. As people carry phones with them wherever they go, they can use them to search the physical world, depending on where they are, what they see and hear, who they meet, and how they want to be Publication Date: 13 October 2009/ID Number: G00171017 Page 10 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 11. served. This brings endless commercial opportunities to promote products and services. This ties back to the technology innovation that needs to take place before these commercial opportunities are possible. Mini Case Study: SnapTell, an image search provider, allows users to take a picture of a printed ad with a camera phone and send it via Multimedia Messaging Service (MMS) or e-mail. In return, users receive results that include production information, coupons and special offers. The results can give a list of vendors, product reviews and prices. Users can visit the vendor's site, and even find a nearby store with the lowest price using their phone's location data. The service currently supports downloadable applications on iPhone and Android devices. The service was designed for mobile marketing, and offers a good user experience by doing away with typing text or scanning a bar code. It works well in the mobile environment, and can be a good fit with the retail and online shopping business. In April 2009, SnapTell was acquired by Amazon to be integrated with A9.com, its search and personalization technology subsidiary. By extending the online platform to the mobile phone, Amazon can potentially capture a portion of the business of shoppers on-the-go and spontaneous purchases. Advice: Brand companies should be aware of the marketing opportunities of mobile search, and experiment with keyword placement on search engines. They should also consult with search engines about Web page indexing to make their mobile sites more searchable. Startup mobile search providers should not try to compete with the likes of Google and Yahoo as generic search engines, but should develop unique and effective search technologies and carve niche positions in the crowded market. Mobile device vendors may partner with search providers for incremental revenue, and some may even consider putting a search button on their hardware. Analysis by Sandy Shen No. 4: Mobile Browsing Market Trend: Mobile browsing is a widely available technology present on more than 60% of handsets shipped in 2009, a percentage we expect will rise to approximately 80% in 2013. The mobile Web takes two basic forms: (1) lower-end devices use Wireless Application Protocol (WAP)/Extensible Hypertext Markup Language (XHTML), which is a cut-down Web variant for mobile devices; and (2) high-end smartphones use full HTML, which is broadly compatible with a desktop browser. Some very low-end browsers, such as Opera Mini, are supported by a special-purpose server that renders pages specifically for that browser; WAP/XHTML applications often use an adaptation server to transform generic mobile Web pages to match the screen size and characteristics of a specific device. Such mobile Web adaptation servers can support several thousand different device types. Even when the mobile browser supports full HTML, websites need to be designed specifically for mobile devices to ensure a good user experience. Some Web technologies, such as Ajax, don't work well on mobiles, and the restrictions of mobile screens and keyboards mean that simple pages optimized for smaller devices will be required. Mobilizing an existing website is usually the wrong approach because many transactions are either unusable on a small screen or irrelevant to a mobile user. A related technology that will become more important for mobile applications is widgets — installable Web applications. These can be used for simple data streaming tasks, such as displaying weather or news feeds on a mobile home screen. However, widgets are today technically fragmented with several competing "standards," but by 2012 we expect more consistency and fewer variations. Publication Date: 13 October 2009/ID Number: G00171017 Page 11 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 12. The main disadvantages of the mobile Web are the need for continuous signal coverage, the relatively unsophisticated applications compared with native code, and the lack of standards for Web applications to access handset services, such as the camera and GPS. We expect extensions to technologies such as JavaScript will emerge in the next five years to allow more sophisticated mobile Web applications. One long-term development that will strongly influence the mobile Web is HTML5. This is a proposed new HTML standard that includes browser features such as persistent data storage, server-initiated events and improved JavaScript programming. If adopted, it would enable high- end devices to implement offline mobile Web applications and make the mobile Web more of a general-purpose mobile development environment. However, even if the standard is approved quickly, it's unlikely to appear on a large number of mobile devices before 2012. Impact: It is ranked No. 4 because of its broad appeal to all businesses. As it's available on such a wide range of devices, it combines a broad audience with a significantly better quality of experience than simpler technologies such as mobile messaging. In many regions, it can also leverage a user's existing familiarity with the static Web. Mobile Web systems have the potential to offer a good return on investment. They involve much lower development costs than native code, reuse many existing skills and tools, and can be agile — both delivered and updated quickly. Therefore, the mobile Web will be a key part of most corporate business-to-consumer (B2C) mobile strategies. Mini Case Study: Auto Trader, a magazine in the U.K., and autotrader.co.uk, its associated website, sell used cars and provide information for car buyers. They are funded primarily by advertising and magazine sales. Auto Trader has created a mobile subset site — Auto Trader Mobile — as part of a multichannel strategy that includes print, classic Web and the mobile Web. The mobile site provides basic search for cars by model, within a specific price range, and within a certain distance of the user's location (specified using a U.K. postcode). The mobile site also provides short auto news and auto review articles, and appears to be partly funded by third-party advertising. We believe Auto Trader is a good example of the mobile Web, as it's simple enough to access on a mobile phone but provides enough information to be useful to a car buyer who's away from the Internet or doesn't have access to the printed magazine. The information it delivers is appropriately sized for a mobile user and suitable for "info snacking" by readers with a few minutes of "dead" time. Advice: Any company with a classic Web presence should explore the mobile Web, but mobilizing all, or even part, of an existing website may not necessarily be the correct approach. The key to success will be identifying moments of need — services that the customer needs when he or she is mobile. The most successful mobile business propositions will combine mobility and immediacy, that is, time-sensitive services and information. Companies contemplating a mobile Web presence must also consider which of their customers: (1) own devices and data contracts that will permit a good mobile Web experience; and (2) are already familiar with using the Web on a mobile device. Mobile Web habits are likely to be stronger among younger customers, and the most reliable way to determine which customers are prepared to use the mobile Web is usually to conduct a small survey. Some indications of mobile Web interest may be gleaned from reviewing Web server logs to identify when the corporate website is already being accessed by mobile browsers. For most companies, the mobile Web will be part of a wider mobile strategy that may include technologies such as SMS for notifications and to get Web links onto a mobile device. Publication Date: 13 October 2009/ID Number: G00171017 Page 12 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 13. Analysis by Nick Jones No. 5: Mobile Health Monitoring Market Trends: Mobile health monitoring is the use of IT and mobile telecommunications to monitor patients remotely, and to help ensure that appropriate action is taken. Patients are given devices that measure variables, such as blood pressure, blood glucose level and heart rate, and that transmit the data via Bluetooth, wireless LAN and radio frequency identification (RFID) to clinicians via a mobile phone. We consider mobile healthcare monitoring to be distinct from mobile fitness monitoring, which is typically paid for by consumers and fitness companies. We also consider mobile health monitoring to be distinct from store-and-forward imaging transfer; for example, teleradiology. Mobile health monitoring has generated interest from care delivery organizations (CDOs), healthcare payer organizations and government healthcare agencies as a reaction to an increased burden of chronic disease, and where deploying mobile versions of home health monitoring devices could save costs and increase patients' quality of care and quality of life. Furthermore, as monitoring is done on a more frequent basis by using a mobile solution rather than having to wait till the next doctor's visit, anomalies may be spotted and acted on at an earlier stage than previously. Currently, mobile health monitoring is at an early stage of market maturity and implementation, and project rollouts have so far been limited to pilot projects. There have been several pilots and trials, including: SIMpill in South Africa to manage tuberculosis (TB) patient treatment compliance; Proteus' Raisin technology to track medicine intake and compliance; medical imaging using mobile phone and data acquisition devices in the field that can provide imaging services in remote areas with dramatically reduced costs; and the Austrian MOBIle TELemonitoring in Heart Failure Patients Study (MOBITEL). The conclusion drawn from the Austrian trial was that using mobile phones as patient terminals has the potential to reduce the frequency and duration of heart failure hospitalizations. To extend beyond pilot projects will require CDOs to make fundamental changes to processes and payers to commit to funding. CDOs will need to be able to deal with a large influx of data, and will need to involve clinicians in determining which data needs to be collected, and how frequently. CDOs will need to change their staffing models to ensure they have enough resources to monitor the data and to intervene when necessary. They will need to implement electronic medical record systems that can integrate data from mobile devices. CDOs and healthcare payer organizations will need to change accounting and reimbursement models from those that favor episodic care to models that recognize the value of ongoing preventative care and that reward quality care. Impact: Remote mobile monitoring of chronic diseases, such as heart disease and diabetes, could help governments, CDOs and healthcare payers to reduce costs related to chronic diseases and improve the quality of life of patients. In developing markets, the mobility aspect is key, as mobile network coverage is superior to fixed network coverage in most developing countries. The gap between mobile and fixed access will widen further beyond 2013, as mobile carriers continue to invest heavily in faster networks. Portable monitoring device vendors and mobile carriers would be able to monetize mobile healthcare monitoring by offering mobile healthcare monitoring products, services and solutions to CDOs. Network infrastructure providers would also be able to gain an advantage by jointly working with mobile carriers to offer mobile healthcare monitoring to public and private CDOs. Publication Date: 13 October 2009/ID Number: G00171017 Page 13 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 14. Mini Case Study: According to the British Heart Foundation, cardiovascular disease (CVD) causes more than 2 million deaths each year in the European Union (EU), which equates to slightly more than 40% of all deaths in the region. Additionally, CVD is estimated to cost the EU economy 192 billon euros a year. Cardiac arrhythmias are disorders of the regular rhythmic beating of the heart. Delays in arrhythmia diagnoses and treatment often result in increased morbidity, mortality, and high medical expenses. Diagnosing arrhythmias is challenging for physicians, as arrhythmic events may occur infrequently and briefly. In many cases, patients are unaware of arrhythmic events when they occur. U.S.-based company CardioNet is an example of a vendor that has developed a continuous mobile electrocardiogram (ECG) monitoring solution. Its Mobile Cardiac Outpatient Telemetry (MCOT) system provides 24-hour ECG monitoring via a sensor that the patient wears on a neck strap or belt clip; the sensor continuously monitors the heartbeat and transmits an ECG to a PDA that analyzes it. When an abnormal rhythm is identified, the data is sent to CardioNet's monitoring center where technicians review, respond and report the information as needed. If an arrhythmic event occurs when the patient is at home and the monitor is in the base, the normal telephone line transmits the data. Away from home, the monitor uses an embedded cell phone to transmit the data. The company says the solution is three times superior to a loop event monitor in detecting arrhythmias. Loop event monitors record information only when triggered by the patient when he or she feels symptoms such as chest pain, dizziness or palpitations. Advice: Mobile carriers and equipment providers should jointly seek CDOs and disease-specific organizations that are committed to adopting mobile healthcare monitoring as part of sustainable chronic care management programs, and that are, at the same time, willing to make the changes in care processes that are necessary for successful adoption of remote monitoring. CDOs should carefully investigate which process changes they will have to make to implement the program. All parties need to instill confidence in the value of mobile healthcare monitoring among patients, clinicians and healthcare payers. Analysis by Jessica Ekholm and Jonathan Edwards No. 6: Mobile Payment Market Trend: Mobile payment usually serves three purposes. First, it is a way of making payment when few alternatives are available. This applies to many emerging markets that lack payment instruments and infrastructure. Second, it is an extension of online payment for easy access and convenience. This applies to markets where payment instruments and infrastructure are available, such as most developed markets. Third, it is an additional factor of authentication for enhanced security. This usually applies to online transactions where the use of a mobile phone can be a separate factor of authentication. The first use evolves from two starting points, mobile money transfer and mobile banking, and sometimes they are intertwined. Some deployments focus on money transfer initially, such as M- Pesa, and G-Cash in the Philippines, and evolve to include more payment options and merchants. Some start with mobile banking, such as MTN Banking in South Africa, and include fund transfer between accounts and bill payment. The second use provides mobile access to existing payment tools, such as a bank account or bank card, and is often seen in developed markets. For example, iPhone users in the U.S. are reportedly active in making purchases via a WAP browser using credit cards. PayPoint, a U.K.- based payment collection network, offers SMS alerts for bill payment. Deutsche Bahn allows people to purchase tickets via their phone up until 10 minutes before their train departs. Obopay and PayPal allow people to send money to others using SMS. There are also cases in developing Publication Date: 13 October 2009/ID Number: G00171017 Page 14 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 15. markets where people can access existing payment tools using a mobile phone. For example, OxiCash in India offers an SVA service that can be used, for example, for purchases, bill payment and prepaid top-ups, and all features can be accessed from a phone and PC. The third use is not, strictly speaking, mobile payment according to the definition of that term (see "Dataquest Insight: Mobile Payment, 2007-2012"), but an associated mechanism for better security. When a user wants to make a transaction online, the service can send a one-time password to the user's phone, and the user enters the password online to authenticate the transaction. Alternatively, it can be an automatic call from the service center to the user to verify the transaction and password. This mechanism is usually used in combination with the first two uses. Impact: Mobile payment made our top 10 list because of the number of parties it affects — including mobile carriers, banks, merchants, device vendors, regulators and consumers — and the rising interest from both developing and developed markets. This is also an area in which we expect to see innovations. The immediate benefits to mobile carriers are the increased network traffic of SMS messages or increased Internet access, user acquisition, and increased revenue because of the convenience of mobile payment. Small and midsize merchants, especially those in developing markets, may also avoid investment in point-of-sale (POS) terminals by using mobile phones to accept payment. Because of the many choices of technologies and business models, as well as regulatory requirements and local conditions, mobile payment will be a highly fragmented market. There will not be standard practices of deployment, and parties will need to find a working solution on a case-by-case basis. Mini Case Study: Vodafone and O2 launched a mobile payment service called mpass in Germany in October 2008. The service targets online shopping — users need only to enter their mobile phone number on the shopping site, and confirm the purchases with a PIN using SMS. The process is very straightforward and convenient to use. The payment is debited from the user's bank account. Vodafone and O2 postpaid customers don't need to register, and their direct debit information will automatically be made available. Vodafone and O2 prepaid customers and customers of other mobile carriers need to register for the service by giving their personal information, including their bank details. The service integrates two steps seamlessly. First, it uses the mobile number to identify the user and his or her bank account, so the user doesn't have to enter payment details each time. Second, it uses the mobile phone for multifactor authentication — the user owns the phone and knows the PIN. The other advantage is that it uses a bank instrument instead of a mobile phone account for payment. This is the only way to support large payments, and make the service work across carriers. In comparison, Payforit, a carrier-sponsored payment scheme in the U.K., uses mobile phone billing, so the purchase amount is limited to £10. This dramatically limits the potential of the service. Despite mpass being relatively new, it has already signed up 19 online merchants, with seven others coming soon. The extensive merchant network will be key to its success. In comparison, Payforit, which was launched in 2006, has only six merchants, mostly selling mobile content. Advice: Mobile carriers should design the service to be easy to use, without lengthy registration or payment processes that could discourage usage. They should conduct small-scale pilots to fine-tune the process to optimize the user experience. They need to acquire as many merchants as possible, as that is key to the uptake of the service. They also need to understand fully the regulatory requirements before designing the service. Publication Date: 13 October 2009/ID Number: G00171017 Page 15 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 16. Analysis by Sandy Shen No. 7: Near Field Communication Services Market Trend: Near Field Communication (NFC) allows contactless data transfer between compatible devices by placing them close to each other, within 10 centimeters. The technology supports content transfer and authentication, and can be used, for example, for retail purchases, transportation, personal identification and loyalty cards. Beside Japan, a number of markets have commercialized the technology, including Germany, Austria, the U.K., the Netherlands, Taiwan, Malaysia and China. More than 60 trials are being, or have been, conducted, but only a few services have launched commercially. The biggest challenge is reaching business agreement between mobile carriers and service providers, such as banks and transportation companies. The trend in Global System for Mobile Communications (GSM) markets is to use the SIM card as the secure element that hosts various applications, and this is likely to put the carrier in the "driver's seat." Banks are concerned that this could dilute their customer relationship and branding, as well as pose potential security breaches, so they may find it hard to justify the business case. Even when the parties have an agreement, there is no standard practice as to who does marketing and branding, customer services, technical support, rollout of contactless infrastructure, application development, configuration and management of the over-the-air (OTA) platform, and revenue sharing. The huge amount of details that need to be worked out could deter partners and slow market adoption. We expect to see large-scale deployments starting from late 2010, when NFC phones are likely to ship in volume. Asia will lead the world in deployment because of its higher interest in NFC and the established contactless infrastructure in a number of markets, such as Japan, Taiwan, Hong Kong, Singapore and South Korea. The rollouts will see equal availability of payment and transportation services, with add-on applications such as loyalty cards and smart tags. Western Europe is likely to follow Asia in rollouts, most starting with transportation. France will be an exception, with retail payment available from launch. North America will lag in adoption because of the lack of contactless infrastructure outside metropolitan areas, large numbers of contactless cards in circulation, and the market divided between GSM and code division multiple access (CDMA) (CDMA may require a different business model and different phones from GSM). NFC services won't become mainstream in the next five years. Impact: The reason why NFC services feature in our top 10 is not because they can bring large revenues to the parties involved, but rather because they can increase user loyalty for all service providers, and they will have a big impact on carriers' business models. The convenience of NFC services is a big attraction for consumers. By offering NFC services, service providers will be able to not only establish a cutting-edge image, but also have real-time communication with customers by making them aware of new products, functions or promotions. This could increase user loyalty, with a potential for upselling. GSM carriers have an advantage in that they control the SIM card that hosts NFC applications, so this is likely to increase switching costs. NFC services will also see fragmentation in technology and business models. The party that controls the secure element usually takes a leading position in the deployment, and assumes more responsibilities for business arrangements, marketing, distribution and customer support. This also has implications for NFC phones, which require a different architecture depending on the choice of the secure element. Mini Case Study: In April 2009, Maxis, the largest mobile carrier in Malaysia, launched an NFC service called FastTap. The service currently includes two applications — the Maybank Visa Publication Date: 13 October 2009/ID Number: G00171017 Page 16 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 17. payWave credit card for purchases and Touch 'n Go for transportation. Both applications are preinstalled on the phone, and the NFC platform pushes the account details to the application during activation. Users can set a password for credit card payments, though none is required or allowed for the transportation card. NFC payment is accepted at all retailers nationwide that support Visa payWave, including Carrefour, 7-Eleven, Watsons, Burger King and Dunkin' Donuts. Touch 'n Go is a local electronic payment provider, and its network covers all highways in Malaysia, major public transport in Klang Valley, and selected parking lots. The downside of the service is that users cannot yet top up their Touch 'n Go card over the air, but have to go to a Touch 'n Go outlet or ATM to physically top up. Users pay between 499 and 799 ringgit ($141 to $226) for the NFC phone (Nokia 6212), depending on the service plan and contract term for which they sign up (see Table 1). Table 1. Maxis' NFC Phone Price and Service Plans 24-Month Contract 12-Month Contract Value Plus 150 MYR499 MYR699 Value Plus 80 MYR699 MYR799 MYR = Malaysian ringgit NFC = Near Field Communication Source: Maxis Advice: Mobile carriers should include multiple applications in their NFC portfolio to make the whole offering attractive to the consumer. They should be reasonable in fees so as not to deter potential partners. Banks tempted to test concepts in NFC payments should fully balance the potential benefits against the risks — contactless payments are still struggling to gain traction, and while the functionality of a mobile device can benefit customer usability, it will also bring additional risks to the security of customers' payment data. Analysis by Sandy Shen No. 8: Mobile Advertising Market Trend: Mobile advertising in all regions is continuing to grow through the economic downturn, driven by interest from advertisers in this new opportunity and by the increased use of smartphones and the wireless Internet. Total spending on mobile advertising in 2008 was $530.2 million, which we expect will grow to $7.5 billion in 2012. The top three areas of growth are Web banners, mobile search and downloadable applications, and we believe that together they will account for more than 90% of mobile advertising spending in 2012. The major inflection point will be in 2011, when brands increase advertising for a number of reasons, including reach, accountability and cost-effectiveness. Smartphones and flat-rate data plans will be affordable for most users from now onward (but accelerating in 2012 and onward) — this will probably be the biggest driver. In addition, there is brand and advertising agency recognition that mobile advertising is a good way to reach younger demographic segments, a variety of demographic segments and people on the move, and a good way to provide an interactive element to advertising, such as click to call. Some of the benefits to brands include personalized communication and location-based targeting, and the ability to use mobile advertising with other media to increase the overall response rate. Mobile advertising has existed for only three years and there are other forms of advertising that have a more proven track record, so much advertising expenditure is still going to those types of advertising. It will take time for the mobile medium to find the exact advertising types that work Publication Date: 13 October 2009/ID Number: G00171017 Page 17 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 18. best in that environment, just as TV found when it began airing commercials, and the Internet continues to find, primarily with video advertisements. However, these limitations will be mitigated over time, and advertising budgets will adjust in favor of mobile advertising. Impact: Mobile advertising is in our top 10 list because it will be an important way to monetize content on the mobile Internet. It will make an impact primarily on monetizing applications and services that are free to end users, and will be used as part of larger advertising campaigns in various media, including TV, radio, print and outdoors. The expectation is that mobile advertising will grow in 2009 and 2010, but begin to accelerate in 2011 when the world economies are strong and more people have smartphones. A significant change brought about by the increasing consumer interest in smartphones is the tendency to diminish the significance of mobile carriers' portals in the mobile experience. On- portal banner placement still tends to capture higher prices and more exposure than off-portal sites, but carrier portals are fading in their dominance of the handset experience. At the same time, the use of Wi-Fi as an alternative data delivery channel, along with open-access handset application programming interfaces (APIs), such as GPS, is shifting the media opportunities toward content, search and application providers, while the carrier opportunity seems to be moving toward providing demographic data for targeting assistance. Carriers may also discover opportunities in enabling transactions based on their billing relationship and infrastructure, but this currently remains speculative, as other mobile-commerce providers also see this opportunity. Mini Case Study: John Wiley & Sons, the company that publishes the "For Dummies" reference books, conducted a mobile campaign to increase awareness of its "Dummies Month" promotion. The campaign combined banner ads and text messages to invite customers to purchase For Dummies books at local retail stores, and to register for regular notifications. The company placed banner ads on a number of mobile websites, including Sprint's Mobile Media Network and the Nokia Ad Network that leads to the Dummies mobile site. The mobile site included a store locator and popular For Dummies titles, and an opt-in for updates. The campaign also included a text competition to win a sweepstake using the short code Dummies to reinforce the brand name. The winner received consumer electronic prizes, and everyone received a $5 rebate on any Wiley For Dummies title. The four-month campaign generated 1.3 million impressions, from both the mobile website and SMS. The click-through rate was 1.4% for the mobile banner ads, which is higher than the average online click-through rate. Of the people that participated in the sweepstake, the company saw a 34% conversion rate for the TXT4Dummies Club, which offers regular updates of For Dummies books. Advice: It's important for media companies, and broadcasters in particular, to realize that TV viewing and other media consumption activities are frequently accompanied by mobile activity, especially in younger audiences, and that they should build cross-channel campaigns that include the mobile medium to increase overall effectiveness. They should identify the right combination of mobile advertising with POS ads in retail stores to increase retail sales. Mobile carriers can create revenue streams by helping advertisers target users via user data and billing relations. Analysis by Tole Hart and Andrew Frank No. 9: Mobile Instant Messaging Market Trends: Price and usability problems have historically held back adoption of mobile instant messaging (IM), while commercial barriers and uncertain business models have precluded widespread carrier deployment and promotion. The GSM Association's (GSMA's) Personal IM initiative was shut down on 31 March 2009, claiming a "critical mass" of users and carrier deployments had been reached; it handed over further development to carriers and vendors. As Publication Date: 13 October 2009/ID Number: G00171017 Page 18 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 19. of that date, the GSMA claimed that more than 33 million mobile customers were using Personal IM services each month, served by 40 carriers in 20 different countries, mainly in Asia and developing markets in Africa and South America. However, deployments in North America and most of Western Europe have been slow to materialize, and the GSMA's user estimate is that less than 5% of the addressable subscriber base originally envisaged when Personal IM was first mooted in 2005 is using the services. The number also excludes millions of casual users and customers generating little or no incremental revenue for mobile carriers because they access IM services through their mobile devices via Wi-Fi or through an inclusive cellular data plan. Mobile IM's future prospects are contingent on convergence with other communication channels, such as SMS, e-mail, voice and video, as well as with phone and network features, such as address book, presence, location and social networking. We believe people will gravitate to IM clients that allow them to access as many communities and features as possible so that they don't have to switch gears often. For those offered by mobile carriers, interoperability with established IM and social networks is the minimum to start with. Mobile extensions from MSN, ICQ, Yahoo, Google Talk and others have come to support a rich variety of features, such as voice over Internet Protocol (VoIP), video and photo transfers. Other companies, such as Oz and Miyowa, have built sizable customer bases among device OEMs and carriers. Turnkey white-label solutions provider Miyowa has preconfigured the Rich Communication Suite (RCS) initiative through its Rich Address Book solution, which aggregates the major IM services on a single client, integrated with the phone address book to provide access to mobile e-mail, file sharing, user-generated content and location services. Impact: Mobile IM is in our top 10 list because of latent user demand and market conditions that are conducive to its future adoption. First, Gartner's end-user survey indicated strong consumer demand for mobile IM services. Consumers readily apprehend the concept of mobile IM and indicate a willingness to use such services. Second, the availability of competitively priced data plans, reduced latency of higher-speed networks such as High-Speed Packet Access (HSPA), and the increasing penetration of smartphones, especially those with qwerty keypads, will drive adoption in the near term. It has a particular appeal to users in developing markets who may rely on mobile phones as their only connectivity device. Nokia has introduced devices optimized for its messaging service, Nokia Messaging, which provides easy configuration and ready access to e-mail and the major IM services. Telefonica has rolled out mobile IM with competitive prices in a number of markets in Latin America, in anticipation of the huge potential there. Mobile IM presents an opportunity for mobile advertising, and this functionality has been built into some of the more advanced mobile IM clients. Mini Case Study: Fring provides a good example of how mobile IM can successfully evolve in tune with consumer usage patterns. The service provides mobile access to the major IM services, in addition to its own online community. The service provides integrated VoIP calling capability and, in 2008, added support for file sharing. Fring has further integrated support for social networks through the user's address book, providing links to Facebook, Twitter and other sites, and allowing users to mash up their buddies lists and feeds from different services on the one interface. Fring received a third round of funding in 2009, with the intention of extending its presence in the mainstream market. Fring is looking at a variety of business models, including advertising, customized VoIP and intercarrier connectivity services. It has struck deals with mobilkom (Austria) and The Cloud (U.K.), licensed to device vendors and service providers, and potentially to calling services such as Skype in the future. Publication Date: 13 October 2009/ID Number: G00171017 Page 19 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 20. Advice: Mobile carriers should not view mobile IM as a siloed application, but rather as part of an integrated suite of messaging services or as a supplement to other traffic-generating services, such as social networking or VoIP. Independent IM providers should use multiple channels to reach out to mobile users, which may include mobile carriers, device vendors, social networking providers and gaming providers. Device vendors may partner with branded IM communities, or build their own, depending on their corporate strategy and resources. The user case for mobile IM varies considerably between developing and developed markets and depending on the lifestyles of users in developed urban markets, so appropriate segmentation, product positioning and target marketing, including word-of-mouth marketing, must be considered. Analysis by Nick Ingelbrecht No. 10: Mobile Music Market Trend: The biggest question for mobile music is how to make people pay for it, and that still hasn't been fully resolved. Many people prefer to obtain free music from the Internet, then sideload it to their mobile phones. In our end-user survey of 10- to 22-year-olds, conducted in 4Q08 across 10 markets, more than three-quarters of those we surveyed said they accessed free music on the Internet. One issue is the high cost of downloading music to a phone. Many mobile carriers still charge between $1 and $2 per download, on top of the data cost. This compares with $0.69 to $2 per download from legitimate sources on the Internet. In response, the mobile industry has come up with several approaches: • Music Subscription: SK Telecom's MelOn service offers unlimited downloads for $5 per month. Users can download and stream an unlimited number of tracks, and play the tracks on multiple devices. The hook is that users need to renew the service otherwise the tracks will expire. Vodafone's MusicStation allows for unlimited downloads for £1.95 per week, free from data charges. The subscription model works better for heavy users, while average users may opt for "a la carte." • Device Bundles: Nokia's Comes With Music (CWM) and Sony Ericsson's PlayNow plus both support unlimited free downloads with the purchase of compatible mobile phones. After the contract expires, users can either pay per download or renew the subscription. PlayNow plus allows users to keep 200 digital rights management (DRM)-free songs at the end of the contract. • Service Bundles: SingTel and Orange have introduced free music services for when people sign up for certain plans or top up their accounts. These "freebies" are for user acquisition, as well as retention. Carriers don't make money from music services, but make money from service revenues instead. Compared with stand-alone music subscriptions, we think bundles work better, as the price is not so obvious and cannot be directly compared. Device bundles need to make the math work, as people will compare prices with unbundled prices plus service costs. So far, service bundles seem to work best, as the music is regarded as truly "free" with no hidden costs, and will work for most users who need a particular service. We expect more carriers to follow suit in the coming 12 months. The other issue is DRM. When users purchase a track from a legitimate source, they expect to be able to play it on any device they own. That's why several online music stores have started to offer DRM-free music. We believe DRM-free will be the trend, and any offering needs to consider how to maximize the number of devices on which tracks can be played. Publication Date: 13 October 2009/ID Number: G00171017 Page 20 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 21. Another consideration is downloads versus streaming. The benefit of streaming is that there is no DRM to worry about, though many users prefer to own the music. Price and choices are key elements here. Low price and a large repertoire will favor streaming over downloads. Of course, streaming needs to be coded so that the quality is good enough, while it can still be done under narrow bandwidth situations. Impact: So far, mobile music has been disappointing — except for ring tones and ring-back tones, which have turned into a multibillion-dollar service. On the other hand, it is unfair to dismiss the value of mobile music, as consumers want music on their phones and to carry it around. The industry needs to be more innovative in pricing models and in improving the user experience. iTunes makes people pay for music, which shows that a superior user experience does make a difference. We expect that DRM-free music can be justified by higher prices. This will require a change of mind-set in the music industry. Service bundles will become more important as carriers are yet to monetize full-track downloads, and users see clear benefits from these free add-ons. Device vendors will "fight an uphill battle" as they compete with carriers over music offerings, at the same time as they rely on the latter for competitively priced data plans. Mini Case Study: In June 2009, SingTel launched a free music download service called AMPed, available to users when they sign up for SingTel's BroadBand on Mobile service (see Table 2) or one of its three 3G Flexi plans (see Table 3). Table 2. SingTel's BroadBand on Mobile Monthly Subscription Data Included BroadBand on Mobile (200MB) S$9.9 200MB MB = megabyte S = Singapore Source: SingTel Table 3. SingTel's 3G Flexi Plans 3G Flexi Lite 3G Flexi 3G Flexi Plus Incoming Calls Free Incoming Calls All Day Monthly Subscription S$39 S$56 S$95 Free Local Calls (Outgoing) 100 Minutes 200 Minutes 500 Minutes Free Local SMS Messages 500 Free Local Data 500MB 1GB 2GB GB = gigabyte MB = megabyte S = Singapore SMS = Short Message Service Source: SingTel AMPed is free from any download or data costs, and gives unlimited downloads during the 24- month contract period. SingTel has a partnership with Universal Music, and featured 500,000 songs at the time of launch. The service requires installation of a Java client on the phone, and is currently supported on 16 mobile phone models, with more to come. The downloaded tracks are DRM-protected, but users can select 15 tracks to keep DRM-free every month. Publication Date: 13 October 2009/ID Number: G00171017 Page 21 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 22. As the service plans cost the same as before, AMPed can be regarded as completely free for the user. Compared with device bundles where the download cost is embedded in the phone price, AMPed provides transparency and better value for the customer. It is mainly designed for user acquisition and retention, but is also partly a response to the competition from device bundles. Although AMPed alone is more a cost item than a revenue contributor, SingTel expects to receive revenue from increased subscriptions that will more than offset the music costs. Advice: Music labels should actively seek opportunities in the mobile channel, as mobile distribution will gradually overtake traditional CD sales. Mobile carriers should make charges reasonable so as not to deter consumer demand. In addition, they should look at the potential of service bundles as an indirect revenue source from selling music. Device vendors should be aware of the competition from carriers' service bundles, and make the pricing and user experience of device bundles more competitive. DRM is a key factor that impacts the user experience, and collaborative efforts are needed from the mobile and music industries. Analysis by Sandy Shen Application to Watch Mobile Social Networking Market Trends: Mobile social networking is an important application to watch because consumers are increasingly accessing and managing their virtual presence through social networking services (SNSs) using their mobile phones. Facebook, for example, claims more than 250 million active users, with more than 120 million logging on to it at least once a day. It also claims that, as of August 2009, more than 65 million active users access the service through their mobile devices. People who use Facebook on their mobile devices are almost twice as active on Facebook as nonmobile users. There are more than 150 mobile carriers in 50 countries that have deployed, or are working to deploy, Facebook mobile products. In addition to the mainstream Internet social networks, mobile-only networks function as chat groups, and are optimized for mobile access. Jumbuck Island and MocoSpace are just two examples that fit into this category. Twitter has carved out a unique space for microblogging using the mobile phone. SNS business models are still evolving, with a few signs of becoming commercially successful. Facebook, for example, is expected to become cash-flow-positive in 2009, while Twitter's route to profitability remains doubtful. The advertising business model tends to favor the biggest sites, so it is a high-volume game and only the big players are making money. Yet advertising isn't the only business model. Digital content sales (for example, Cyworld in South Korea), links to paid-for games (for example, QQ in China), and ancillary services to business that provide user information (for example, LinkedIn) have been quite lucrative. For carriers, the value of SNSs lies in driving traffic over their networks (for example, Twitter uses SMS, Flickr uses MMS, and many SNSs include IM) and creating "sticky" services that attract and retain customers. The more tightly defined business models certainly yield greater financial returns in the short run but, in the long term, these may not prove to be the most successful business models. The value of SNSs is that they capture people's attention — their "eyeballs" — and the longer-term objective is to claim, monetize and retain the attention of consumers. This is still a work in progress, but people are making money out of this. Impact: SNSs are critical to the evolution of consumption patterns globally. The impact of mobile social networking may not be calculable in strictly economic terms, but SNSs' presence has already become pervasive, especially among younger consumers. Different social networks are popular in different regions (for example, orkut in Brazil, Mixi in Japan, Vkontakte.ru in Russia and Cyworld in South Korea), and more people are accessing those services from their mobile Publication Date: 13 October 2009/ID Number: G00171017 Page 22 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 23. phones. In some markets, such as the U.S., accessing SNSs is among the top reasons why people sign up to data plans. For companies, SNSs are becoming an important way of connecting with their customers, and positioning and promoting their brand. Companies are not only investing resources in SNSs, but also in multiple channels, including large social networking destinations such as Facebook, private-label community sites sponsored by the brand itself, such as Johnson & Johnson's BabyCenter, viral marketing, and through the mobile phone. This helps build multiple touchpoints through the customer's life experience. Tier 1 device vendors are presently trying to build ecosystems by way of application stores that leverage social networks to connect with customers and generate new service revenue streams. These efforts require significant back-end support and developer ecosystems that are beyond the capabilities of smaller players, which need to maintain a focused or differentiated strategy to compete. Mini Case Study: INQ1 is a mobile phone offered by mobile carrier 3, which says its social networking capabilities set it apart from every other phone on the market. The device has deeply integrated a number of SNSs, including Facebook, Skype, Windows Live Messenger and e-mail, as well as eBay and Last.fm. Users get a friendly interface where they can use the most common features of those services, such as status update, checking new messages and uploading pictures. What's more impressive is that those services are closely integrated with the phone's features, such as the address book, so that users can view their friends' status on multiple channels with one glance. This allows them to quickly decide the best way to reach their contacts. All incoming messages, whether from e-mails, IM or social networks, are consolidated in the single in-box, so users can manage all messaging communications in one central place (see Figure 2). Users can also make free Skype calls straight from the contact list. Figure 2. INQ1's Address Book and In-Box Source: INQ As this is a feature phone instead of a smartphone, the carrier intends to use this phone to cater to the mass market and boost data usage. Prepaid users can buy the phone for £69.99, which Publication Date: 13 October 2009/ID Number: G00171017 Page 23 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 24. includes £10 credit. Contract users can receive the phone for free after committing to a contract (£15 to £35 per month, for six to 24 months). The carrier reported in May 2008 that: • 65% of INQ1 users use Facebook, with most accessing it at least once a day. • Windows Live Messenger usage is three to four times higher than on other third- generation (3G) phones on the 3 U.K. network, with approximately 50% of INQ1 customers accessing the service every month. • 19% of INQ1 users use Skype. • 30% of INQ1 users regularly use e-mail. Similar results are observed in its Hong Kong operations. Building on the success of INQ1, the carrier launched two other INQ phones in August 2008: INQ Chat 3G (a qwerty device targeting the high end) and INQ Mini 3G (a feature phone targeting the price-sensitive prepaid market). The carefully designed user experience and deep integration of the phone features with SNSs are key lessons the industry can learn from. Advice: Mobile carriers should use social networking as a way of increasing data traffic and enhancing customer loyalty. They need to forge relationships with leading social network companies, and integrate user data, such as location and presence, to enhance the social experience on the phone. Otherwise, they will be decoupled from the application and become a bit pipe. Device vendors should explore the possibility of differentiating their products by integrating a social networking function. A tightly integrated UI, such as that of the INQ1, is a good example of the enhanced user experience of social networking. Social communities should keep improving the user experience on the mobile phone, and experiment with what could be the next step in their evolution. They should work with advertisers and marketers to bring advertising to the phone that is relevant to the end user. Brand companies should monitor social media references and customer feedback, and develop strategies for improved brand positioning and crisis management applicable to their product portfolio and customer profile. Analysis by Nick Ingelbrecht and Tole Hart BACKGROUND AND CONTEXT Consumer mobile applications and services are no longer the prerogative of mobile carriers. The increasing consumer interest in smartphones, the participation of Internet players in the mobile space, and the emergence of application stores and cross-industry services are reducing the dominance of mobile carriers. Each player will influence how the application is delivered and experienced by consumers, who ultimately vote with their attention and spending power. • Mobile carriers will remain important players in the near future because of their user base, billing relations and the user data they possess. But they are under increasing pressure of becoming a bit pipe with competition from all the other players. • Device vendors will increase their influence with their control of the UI and embedded/downloadable applications. The race for application stores between device vendors and mobile carriers is evidence of the fight for control of the end user and ecosystem. Publication Date: 13 October 2009/ID Number: G00171017 Page 24 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 25. • Internet companies will have an increasing presence on mobile phones. They are using their expertise in consumer insights, technology and business model innovation to drive mobile users to their own services. This is often at the expense of mobile carriers, through the disintermediation of their customers. • Media and content providers will keep partnering with mobile carriers, device vendors and Internet companies to expand mobile distribution. They are likely to allocate more resources to developing mobile content and applications. They are also active players in mobile advertising, as more content in the future will be funded by advertising. • Application developers are a key asset for application stores and phone operating systems. Whoever gets the best and most developers stands the best chance of winning customers. • Enterprises will increase their presence on mobile phones with the goal of enhancing user communication and loyalty. They will either extend existing products and services to the mobile channel, such as banking/payment and travel management, or advertise on the mobile phone. THE IMPACT When users download applications to a mobile phone, most use one application for a couple of weeks before switching to the next one, and use no more than five applications at one point. Thus, we believe that many of the applications mentioned in the report will be a niche opportunity, despite being in our top 10 list. This is inevitable, as user preferences are evolving along the "long tail" pattern, and the mobile environment is highly fragmented, with different operating systems, networks, channels, business models and geographies. It is the niche market killer application that will present most of the future opportunities. Because of its high fragmentation, the mobile medium also offers unlimited possibilities. By matching the application with a particular user segment and user case, using particular channels and business models, a provider can carve out a niche position in the market. Of course, the provider needs to have a unique technology or competence that cannot be easily copied by others, which, at the same time, is different enough so that it can be distinctively recognized by users. CONCLUSION Mobile carriers, while remaining important players, will continue to lose dominance in the mobile experience of consumers, and "over the top" providers will gain influence. It is a battle of who delivers the best value to consumers — and mobile carriers often don't have the agility to move quickly to address, and even foresee, consumer needs. The ultimate battle is for the control of the ecosystem. A rich ecosystem offers more choices to the end user, attracts higher traffic, and thus generates higher revenues and user loyalty for the players. The party that controls or dominates the ecosystem stands to benefit the most. This is a game of scale — whoever attracts the most users and developers will win. RECOMMENDED READING "Hype Cycle for Consumer Mobile Applications, 2009" "Dataquest Insight: Impact Ranking of Consumer Mobile Applications, 2009" Publication Date: 13 October 2009/ID Number: G00171017 Page 25 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
  • 26. "Dataquest Insight: Mobile Payment, 2007-2012" "Dataquest Insight: Consumer Location-Based Services, Subscribers and Revenue Forecast, 2007-2013" "Mobile Advertising Quietly Grows" "Emerging Technology Analysis: Mobile Portal VoIP, Global Consumer Communications Services" "Forecast: Mobile Messaging, Major Markets Worldwide, 2004-2013" "Dataquest Insight: The Outlook for Mobile Music" "Dataquest Insight: Mobile Applications, Hot or Not?" This document is published in the following Market Insights: Consumer Services Worldwide Mobile Communications Worldwide REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U.S.A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo 153-0042 JAPAN +81 3 3481 3670 Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, 12551 9° andar—World Trade Center 04578-903—São Paulo SP BRAZIL +55 11 3443 1509 Publication Date: 13 October 2009/ID Number: G00171017 Page 26 of 26 © 2009 Gartner, Inc. and/or its Affiliates. All Rights Reserved.