Building a digital ecosystem -Recos for telecom operators

A presentation by Subrahmanyam KVJ Building a Digital Ecosystem The Evolving Imperative July 2010

Telecom operators are facing significant pressure on their core voice services and competition from Internet players … And they are also facing significant competition from over-the-top players Apple’s iTunes ecosystem effectively cuts out the operator from the billing relation that they share with the customer Multiple Google services are aimed at generating revenue on top of infrastructure that telcos build and maintain Most mobile operators have been seeing a steady decline in ARPU… Vodafone ARPU in UK, in £, Q2 08/09 – Q4 09/10 Source: Vodafone annual report

Traditional content players are also facing tough times Music Print TV Source: IFPI Statistics; Newspaper Association of America; Ofcom’s Annual Communications Report, 2009 Music Industry Trade Sales (US $ Bn), Global, 2004-2008 News Paper Circulation (Mn), US, 2004-2008 TV as a proportion of total advertising spend, UK, 2003-2008

These pressures are forcing them to come together Source: Company websites Ecosystem Partners Details Nokia Ovi Nokia, Mobile operators, developers Ovi is Nokia’s attempt to create a mobile ecosystem that can act as an alternate to Apple’s iTunes platform Android Google, Mobile operators, Device vendors, developers, chipset vendors Android is Google’s attempt to create a strong ecosystem on an open-sourced platform that brings together a plethora of players

Telcos will need to take a clear three-step approach towards developing such ecosystems Drive Adoption Develop Partnerships Differentiate Portfolio 1 2 3 Partnerships with key players in the ecosystem, including developers, device vendors, and content players Follow consumer usage trends, lower usage barriers and make available multiple monetization models to partners Adopt sequential launch approach, simultaneous promotions from all stakeholders involved

The rapid rise of interactive applications on the three screens will require operators to focus on independent developers Mobile Rise of smartphones has given the mobile applications space a strong boost PC Rise in popularity of social gaming is encouraging development of apps for PC-based services TV Development of powerful software for third-party set-top boxes and increasing processing capabilities of TVs is likely to boost uptake of apps on TV
Independent developers play a key role in the development of an effective application ecosystem, as evidenced by Apple’s success
Apple offers developers an easy way of submitting their apps and earning revenues
Apple’s straight-forward 70% commission to developers was much more transparent and perceived fair when compared to mobile operators
The value of the ecosystem is directly proportional to the number of active developer community
Apple has over 225,000 apps available on a device base of around 60 Mn, while Symbian has only 6,900 apps on a device base of over 390 Mn
Source: Vision Mobile, “Mobile Developer Economics 2010 and Beyond”, July 2010

The mobile applications space currently has the most potential, following the significant success of Apple’s App Store Apple’s app store has seen strong uptake in downloads… … This growth is expected to be the key driver for overall mobile applications market Mobile applications stores’ downloads and revenue, in Millions, Worldwide, 2009-2013 Source: Gartner, “Gartner Says Consumers Will Spend $6.2 Billion in Mobile Application Stores in 2010”, Jan 2010; Apple press releases Apple App Store, No of Downloads (in Mn) and No of Apps, July 2008- Jun 2010

On the mobile platform, telcos should partner with device vendors, third-party app stores and independent developers Category of Partner Potential Partnership Details Indicative Examples Device Vendors Partnerships for operator billing for operator’s app store; Helps in reducing barriers to consumer usage Third-Party App Stores Partnerships for providing ready access to existing app portfolio; Helps in scaling rapidly Independent Developers Partnerships to encourage developers to write for the telco’s ecosystem; Helps in creating a thriving ecosystem of apps

The recent spate of announcements in the PC and TV content and applications space portend a potentially strong market
Xbox 360 partnership with ESPN
Roku’s Netflix player partnership with MLB
Acquisitions/ Partnerships Announcements TV
In-Stat estimates that TV apps will generate over $1.7 Bn by 2013 in the US
Yahoo’s TV Widgets are available in over 100 countries and over 25% of all new Sony TVs
Google TV launched
Market Indicators
Google’s acquisition of LabPixies
Zynga’s partnership with Yahoo and Google
Web
Social gaming market estimated at $639 Mn in 2009 and forecast to rise to $1.5 Bn in 2014
Google planning to incorporate social games into its rumoured upcoming social networking service
Platform Source: In-Stat, “TV Widgets/Apps Key to Monetizing OTT Video”, Apr 2010; Screen Digest, “Social Network Games: Casual Games' New Growth Engine”, Jul 2010; Press releases

Telcos should consider partnering with Internet players that have already made significant inroads into TV and web applications Source: In-Stat, “TV Widgets/Apps Key to Monetizing OTT Video”, Apr 2010; Screen Digest, “Social Network Games: Casual Games' New Growth Engine”, Jul 2010; Press releases Verizon’s Widget Bazaar for Fios TV and Softbank’s recent investment in Zynga come across as representative examples of telco involvement Platform Indicative Partner Nature of Partnership Benefits for Telco TV Yahoo A partnership with Yahoo can help telcos integrate widgets for their IPTV offerings A partnership with an established and tested platform can help telcos cut down on the time-to-market Web Zynga Telcos can explore partnerships with social gaming companies for web applications on their web portals For operators who are already focused on the online advertising opportunity through their portals, this offers a means of increasing stickiness

Differentiating the ecosystem and the service portfolio represents a significant challenge Key challenges faced in differentiating Threat of commoditization
Of late, there has been a spurt in the number of telecom and media players trying to set up ecosystems; in this rush, there appears to be a focus on quantity, rather than quality
New ecosystems should strive to steer clear of the race for the maximum number of apps, and instead focus on quality
Stakeholder Lethargy
Developers are loath to learn programming for new platforms since that involves significant investments on their part
Similarly, content players usually cite the significant costs involved in porting content for different platforms

A clear way to avoid the risk of commoditization is to encourage partners to stick closely to consumer usage
For instance, mobile app developers in the ecosystem should consider developing apps only for the most popular categories of applications on existing platforms
Similarly, in the online TV platform, ecosystem operators should carefully introduce content from partners that is already popular in the traditional linear TV
Usage statistics of mobile applications on iPhone and Android platforms, Jan 2010 Source: Flurry

Ecosystem operators should strive to lower the usage barriers in order to differentiate their platform Case Study of Amazon’s Kindle Benefits Feature
Kindle users do not need to pay for additional data access charges globally; the cost of network access is built into the cost of the device
This helps users focus on consuming content, than worrying about incidental costs of usage
Bundled Access Pricing
Kindle users can access their purchased content from the cloud on any of the multitude of devices that Amazon offers the Kindle application on
This helps consumers to move effortlessly between devices, yet seamlessly access content
Whispernet (Cloud Access)
Kindle’s E-Ink screen attempts to create an experience close to reading a physical book
By making technology work with consumer habits, rather than expecting consumers to change usage patterns, Amazon has separated itself from the competition
Reading Experience

Content services delivered in the ecosystem should ensure that they closely follow evolving consumer trends 3 On-Demand Real-Time Snacking Social
Media consumption is now ‘Pull’
Linear is passé
Attention deficit
Preference for short-form content
Content from social network takes priority
Hyper-local is the new buzzword
Consumers want content NOW
Real-time need is platform-agnostic

Ecosystem operators should also try and ensure that they have easy-to-implement monetization models available for partners Illustrative Use Cases of Various Monetization Models Pay Per Use Bundled with Device Subscription Advertising In-app Purchases TV On-demand Content Limited access to content with new TVs Subscription plans to premium content Ad support on TV widgets/apps Ability to purchase inside TV apps Web On-demand Content -NA- Subscription to web apps with premium content Ad support on web apps Billing integration inside web-based apps Mobile On-demand Content Kindle-style pricing iPad-style on-demand network access Integration of mobile apps with adverts In-app purchasing for mobile apps

Ecosystem operators should adopt a sequential launch strategy in releasing the elements of the ecosystem TV PC Mobile 1 2 3 Currently, the largest audience for any ecosystem is the PC-using consumer base, and they should ideally be made the first target After the ecosystem operator has gained experience, then they should move on to mobile, where innovation bar is quite high Since the TV digital ecosystem is still in a developing phase, it should be approached after gaining significant experience on the other platforms

Ecosystem promotion should be a simultaneous joint activity between all the players Developers Device Vendors Telecom Operator Social Media Content Partners

Ecosystem creation or participation in one is fast becoming an imperative for telecom and media players
In Summary… Image Credits: Flickr users Ben Heine and FlightlessXbird

Building a digital ecosystem -Recos for telecom operators

by Subrahmanyam KVJ

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Building a digital ecosystem -Recos for telecom operators Presentation Transcript