Business Models for    Mobile Broadband Media Services –           Case Study Indonesia Telecom Market                    ...
Question     How to make media servicesdelivered on top of mobile broadband       as a profitable business             in ...
OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
IntroductionShift in usage and expectationMobile broadband as preferred accessPotentials in multimedia servicesSustainable...
Problem Definition     Who are the players ? How do they play ?                  Mobile user characteristics ?        Pote...
ObjectivesSupply Side      Existing business models,      Indonesian Ecosystem (Regulation, Telecom, Media)               ...
OutlineBackgroundLiteratures ReviewMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
Business Models       Concepts categories and hierarchy *                                                                 ...
Business Models      Concepts categories and hierarchy *                                                                  ...
Business Models       Concepts categories and hierarchy *                                                                 ...
Network Centric Approach..linking of activities and resources within a network as a primary task .. enterprise should beco...
Technology Acceptance                                              “The diffusion of a new technology is                  ...
OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
Methodology                                                           Mixed Research approach Literature study    Business...
Methodology                                                            Mixed Research approachData analysis      Network c...
OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
Digital Music                                                                      Core Actors and Networks               ...
Digital TV/Video   Core Actor and Value Networks                                   Revenue stream / sharing line        Co...
Service, Distribution, Revenue models (Music)                             Service Model                                   ...
Service, Distribution, Revenue models (Video)                    Service Model                               Delivery Mode...
Telecom Actor’s Potential Positions (1)                                                                                   ...
Telecom Actor’s Potential Positions (2)                                                                                   ...
SpotifyThe idea is not very exclusive.. its like 20 percent of the idea, 80percent of the execution. And they’re excellent...
TeliaSonera - Spotify                                                                                Alliance Model       ...
OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
In the Spotlight                                                                            Demographic and Economics Aspe...
Telecom Market        Fixed networkDecreasing Fixed-line penetrationLow Fixed-broadband penetration (1.2 %)   The lowest p...
Telecom Market                                                                                         Mobile network     ...
Mobile Media Market    Digital Piracy        Twice legal market value (88 %)                                              ...
The Indonesian mobile userBehavioral Intention                                                      Effort & Performance e...
OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
Findings Formulation The players and the games    Actors        Pure players        Diversified players        Vertically-...
Positioning Options“Do nothing” Immature market (WTP, WTU, Piracy) Too low impact                                         ...
Tack Så Mycket
User SurveyBehavior Intention - WTU                                              Behavior Intention - WTP                 ...
User SurveyFacilitating Condition – Mobile network and billing                                     Facilitating Condition ...
User SurveyEffort and Performance   Expectancy                                            Social Influence                ...
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Master Thesis Presentation: Business Models for Mobile Broadband Media Services - Case Study Indonesia Telecom Market

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The increase mobile data traffic from the emerging Internet services, especially multimedia, has posed considerable challenges for the telecom industry. Their initial mobile data services business models are generally not compatible with these emerging Internet services. Thus, there is a substantial need to investigate the suitable options to make media as a profitable telecom business sector. However, there are different challenges and opportunity factors in developing sustainable mobile media business in each market, due to the unique circumstances applied as the result of customer characteristics, mobile market situation and regulatory/law enforcement.

The first purpose of this thesis is to explore the business model options to deliver media services on top of mobile broadband. Although, we limit our focus to Indonesia, we first analyzed the worldwide patterns toward the media services in order to get a broader view of the current trend. We mapped multitudes of actor involved in digital online / on the top (OTT) media service, which together they form different types of constellation in the value network, as well as service, delivery and revenue model. We also put our focus to get the lessons learned from Spotify’s business model, by framing it using Chesbrough and Rosenbloom’s model.

The second purpose is to understand the Indonesian mobile user's characteristic toward the mobile media services. We conducted survey to 119 Indonesians, analyzed the result with one sample T-tests and validated it with the correlation tests (Cronbach Alpha and Pearson correlation), within the Unified theory of acceptance and use of technology (UTAUT) framework. Our findings confirm the low willingness to pay, but an open attitude for the services. The mobile device and network quality are not the barriers for them to adopt the services, and there is a tight connection between the decisions to adopt the services with the perception that the service is popular.

Through those findings, we assessed the feasibility of the identified options and formulated the recommendations. We used our understanding about Indonesian market structure (telecom and media), regulation, and mobile user, as well as the lesson that we got from media services provisioning in Sweden and worldwide trend. We found that the pricing tiers, adjustable pricing, and differentiated features are some of the key success factors. Meanwhile, being part in the point-to-multipoint partnership with the well-known OTT player is the potential position that the Mobile network operators (MNOs) in Indonesia should take in provisioning OTT media services, rather than deliver the services by their own.

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Master Thesis Presentation: Business Models for Mobile Broadband Media Services - Case Study Indonesia Telecom Market

  1. 1. Business Models for Mobile Broadband Media Services – Case Study Indonesia Telecom Market Laili AidiJan Markendahl Greger Blennerud Konrad Tolmar(Supervisor, KTH) (Supervisor, Ericsson) (Examiner, KTH)
  2. 2. Question How to make media servicesdelivered on top of mobile broadband as a profitable business in Indonesia? 2
  3. 3. OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  4. 4. IntroductionShift in usage and expectationMobile broadband as preferred accessPotentials in multimedia servicesSustainable business challenges Global Indonesia Background 4
  5. 5. Problem Definition Who are the players ? How do they play ? Mobile user characteristics ? Potentials and challenges for MNOs ? MNOs’ strategic options ? Background 5
  6. 6. ObjectivesSupply Side Existing business models, Indonesian Ecosystem (Regulation, Telecom, Media) Recommendations Feasibility of solutions, Highlight suitable optionsDemand Side Consumption pattern, Indonesian users’ characteristic Background 6
  7. 7. OutlineBackgroundLiteratures ReviewMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  8. 8. Business Models Concepts categories and hierarchy * L1 - Concept point of view Definition and meta-models that should be found in a business model Functions of Business models* Definition value proposition market segment value chain structure revenue generation and margins Business model type X Business model type Y value network competitive strategy Business model company A Business model case X * C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research” “* J.H. Chesbrough and R.S. Rosenbloom, The role of business model in capturing value from innovations: Evidence from Xerox Corporation’s technology spin-off companies” Literatures Review 8
  9. 9. Business Models Concepts categories and hierarchy * L2 - Taxonomy point of view Common characteristics do not necessarily apply to businesses in general but to specific industries Revenue streams in Online business* Definition Subscription Brokerage Advertising Infomediary Business model type X Business model type Y Merchant Manufacturer Affiliate Community Business model company A Business model case X* C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research”* Rappa, "Managing the digital enterprise - Business models on the Web” Literatures Review 9
  10. 10. Business Models Concepts categories and hierarchy * L3 - Instant point of view Real world case or firms’ business model • Xerox’s business model Definition • HSPA roll out investment evaluation with cost elements, forecasted traffic & ARPU, profitability calculation* Business model type X Business model type Y Business model company A Business model case X * C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research” “* N.K. Elnegaard, K. Stordahl, J. Lydersen, T. Gunnar, Mobile broadband Evolution and the Possibilities” Literatures Review 10
  11. 11. Network Centric Approach..linking of activities and resources within a network as a primary task .. enterprise should beconceived as a transaction function rather than a production function * Actor, Relation, Activity (ARA) Modeling* Activities B1, B2, B3 Actor A Actor B Network of Actors D,E,F Relation type X Actor C Line of reasoning to collaborate*** Co-specialization Co-option Learning and Internationalization * H. Håkansson and I. Snehota. “No business is an island, the network concept of business strategy” ** J. Markendahl, “Mobile Network Operators and Cooperation - A Tele-economic study of infrastructure sharing and mobile payments services” “ *** Y.L. Doz and G. Hamel, Alliance advantage: The art of creating value through partnering” Literatures Review 11
  12. 12. Technology Acceptance “The diffusion of a new technology is a result of decision series and comparison factors from user’s perception about benefits and costs of adoption” Technology Acceptance Model (TAM)* But..  Inadequate to explain variances  Cite success 17-53%  Tested later, not during decision-making Unified theory of acceptance and use of technology (UTAUT)* Explaining 70% of observed variances  Intention to use  Usage Behavior  Demographic factors* F.D. Davis, “A technology acceptance model for empirically testing new end-user information systems: theory and results”** V. Venkatesh, M.G. Morris, G.B. Davis, F.D. Davis. “User acceptance of information technology: toward a unified view” Literatures Review 12
  13. 13. OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  14. 14. Methodology Mixed Research approach Literature study Business model concepts and frameworks Technology Acceptance theories Media Service related studies Data collection Secondary sources Qualitative interviews Online survey (unobtrusive technique) (expert sampling) (simple random sampling) • MNOs• Market reports 119 Indonesians• Scholarly journals - TeliaSonera (SWE) • Pearson correlation tests• Business articles - Telkomsel (IND) • Cronbach Alpha tests• Technology reviews - Axis (IND) • Telecom regulator BRTI (IND) • OTT music provider Spotify (SWE) • TV broadcaster TV4 (SWE) • Mobile content provider NST (IND) Methodology 14
  15. 15. Methodology Mixed Research approachData analysis Network centric approach Pre - Study Actors identification and constellation (ARA modeling) “Taxonomy point of view” approach Service, Distribution, Revenue models “Instance point of view” approach Spotify business model (Chesbrough and Rosenbloom) Market scouting Media and Telecom Regulatory scouting Post - Study Policy and Law enforcement Mobile media user characteristics Mean measurement, Cronbach Alpha, Pearson correlation, UTAUTFinal Conclusions Findings Formulation Actors’ roles, Value networks, Service models, Distribution models, Revenue models Recommendation Methodology 15
  16. 16. OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  17. 17. Digital Music Core Actors and Networks Revenue stream / sharing lineCore music actors Artist > Singer, composer, songwriter network box > Recording contract, publishing contract,Major Record Label Publisher Indies Record Label > Blanket license, Individual license, > 360-degree agreement Content Aggregator Collecting Society Other Actor(s) Typical Direct-To-Fan model Core music actors Brand Partner network box Universal via getmusic.com.au (Label), U2 via U2.com (Artist) Customer MUSIC AND BROADCASTING 17
  18. 18. Digital TV/Video Core Actor and Value Networks Revenue stream / sharing line Core broadcasting actors network box Studio Content Aggregator / TV Broadcaster Distributor Other Actor(s) Brand Partner Typical Direct-To-Fan model Core broadcasting actors BBC (Youview, iPlayer), network box Discovery Channel, TV4 (TV4 Play)Mobile Device OEM & CE Provider OS Provider Customer MUSIC AND BROADCASTING 18
  19. 19. Service, Distribution, Revenue models (Music) Service Model Delivery Model Revenue Model Personalization Ring tone, RBT Retail, Subscription DRM/Free-DRM à-la-carte Ownership Retail, Subscription, Subsided download On-demand / Internet radio Access Subscription, Subsided streaming Integrated Telco’s Point of View Cross- Stickiness promotional Up-selling Recur“Media IAS Online Music Forecast, 2011-2015: Social Media, Subscriptions and the Cloud” - Gartner MUSIC AND BROADCASTING 19
  20. 20. Service, Distribution, Revenue models (Video) Service Model Delivery Model Revenue Model DRM/Free-DRM à-la-carte Ownership EST (Retail) download, physical delivery On-demand / Live / Catch TV PPV (Rental), Subscription, Access Subsided streaming Integrated The local advertising is very very profitable for TV4, and its (a) growing business. The onlycompetitors.. today are only local newspaper, local direct mailings, and so on.. How do you manage that on the mobile device distribution? .. It’s not done yet. All channels(around the world) that have regional versions, they are facing the same problem (measure system).Märta Rydbeck, Interviewed ““Over the Top (OTT) and Through the Middle (TTM) Video - Advertising, Subscription, Rental,Ex-Director of Distribution and Affiliate sales at TV4 and Sale Markets”, ABI Research MUSIC AND BROADCASTING 20
  21. 21. Telecom Actor’s Potential Positions (1) Typical Point-to-Point Napster, iTunes, 7Digital, Hulu, Partnership Neflix, Voodler, Microsoft (MSN)… TDC (YouSee Play), SK Telecom (MelOn), Telefonica (Sonora), Customer Orange (Orange Music), AAPT (AAPT Music), Virgin Media (Virgin Digital), BSkyB (Sky Songs), OTT Retailer and CSP CE Provider Mobile Device OEM TeliaSonera (Musikbutiken), … Service Provider & OS Provider Sony (Sony music unlimited, PS), Microsoft (Xbox), Nintendo (Wii), Core Music/Broadcasting actors network box Apple (Apple TV), Google (Google TV), … Nokia (Ovi music store), Samsung (Music Hub), Blackberry (BBM music service), HTC (Mog), … Weve taken the difficult decision to close Sky Songs. Although we are extremely proud of the service we built and the experience it Platform offers, we just didnt see the consumer development and demand wed hoped for. maintenance BSkyB’s Spokeman, 2010* Sustainable and updated contents Effort Telco Marketing and vs. vs. We reversed the business models.. They (MNOs) branding Impact International OTT were very upset with Euro Sport at that time.. but the thing was people like the channel.. so the operators came back and said how much do you want’? Märta Rydbeck, Interviewed Ex-Director of Distribution and Affiliate sales at TV4 * The Telegraph, “BSkyB to close iTunes rival Sky Songs due to weak demand” MUSIC AND BROADCASTING 21
  22. 22. Telecom Actor’s Potential Positions (2) Typical Point-to-Multipoint Partnerships Spotify (TeliaSonera, Virgin Media, 3UK, KPN, MTV Mobile Europe), Deezer (Orange, Customer Belgacom, Everything Everywhere, T-Mobile), Rhapsody (MetroPCS, Comcast), Vehicle Provider Wimp (Telenor, Canal Digital, CSP CE Provider Mobile Device OEM & Portugal Telecom), … OS Provider Sonos (Rhapsody, Spotify, OTT Retailer and Deezer, iheartradio, Last.fm, Service Provider Napster), Sony (Netflix), Samsung (Amazon LoveFilm), Core Music/Broadcasting Dell (Rhapsody, Napster), actors network box HTC (Mog), … Pandora (Ford, BMW), .. We actually started with our own service, much more like Spotify…But it was not great.. we need to spend all our communication explaining ‘what the service was’, ‘how it works’, and ‘why you should get it’. (At the end) the Churn rate Market share perception and value we gained was very low… They (OTT) focus on the quality, and we also (have) tried to build (it through) our brand… but Spotify is extremely oriented building the brand through the product.. We cant really do that, because our competitor are following us ARPU quite fast. Lars Roth, Interviewed Vice President Consumer at TeliaSonera MUSIC AND BROADCASTING 22
  23. 23. SpotifyThe idea is not very exclusive.. its like 20 percent of the idea, 80percent of the execution. And they’re excellent at the execution… The IngredientLars Roth, InterviewedVice President Consumer at TeliaSonera Peer discovery strategy Multiple data sources Dual request mechanism The Recipe Multi-device integration Price tiers & Demand-based pricing Geographic segmentation Feature differentiation Revenue generation The Freemium model Streaming subscriptions (paid + subsided subscription ) Advertisement The retail model Free-DRM Download purchase MUSIC AND BROADCASTING 23
  24. 24. TeliaSonera - Spotify Alliance Model Short -term agreement post-paid (Triple-Play) and pre- paid Soft cap with Throttling Discount arrangement Values ExchangedResource acquisitionSpecializationCo-opetition “Spotify monthly revenue by service type in Europe, Sept. 2008 – March 2011 ”, Analysis Mason MUSIC AND BROADCASTING 24
  25. 25. OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  26. 26. In the Spotlight Demographic and Economics Aspects GDP and domestic consumption Middle-class income segment Young population (57 %, ~27 years) Bank account penetration (20 %) Regulatory and Policy No Entry barrier for cloud services No QoS policy for broadband Low TRE Score for mobile and broadband QoS Internet lemot (slow internet connection). Cuma ada tanda muter-muter aja tuh, proses connect, tapi ngga nyambung (only connecting process but not connected at all) Customers’ quotes, 2012*** “Smarter MBB Offering The Consumer View”, Ericsson Consumer Lab, March 2012 THE INDONESIAN MARKET 26
  27. 27. Telecom Market Fixed networkDecreasing Fixed-line penetrationLow Fixed-broadband penetration (1.2 %) The lowest penetration among BRICI countries (per 100 pop) 6.9 % PC ownership penetration Perceived as expensive Complex geographical split and terrain “Fixed broadband penetration in the BRICI countries”, Deloitte THE INDONESIAN MARKET 27
  28. 28. Telecom Market Mobile network High mobile penetration (113 %) 98 % Pre-paid subscription 146 % High churn rate Multiple SIM ownership (starter pack, numbering cost, GSM vs. CDMA, number portability) Mobile internet: a Leapfrog trend Fast increase smart phone ARPU Decreasing trend in total ARPU (26000 IDR) Increasing contribution trend from data ARPU“Mobile phone penetration in the BRICI countries ”, Deloitte THE INDONESIAN MARKET 28
  29. 29. Mobile Media Market Digital Piracy Twice legal market value (88 %) Digital Music Low law enforcement Personalization services (RBT) Retail and Subscription revenue model Monthly, weekly, .. Point-to-point partnerships MNO, Mobile device OEM & OS provider, local OTT Digital TV/Video Domination of MNO’s role and appearance 50-50 sharing, cost excluded Access-based services (Live streaming) Subsided-based revenue (Ads) Why RBT? Because it is the most easiest, the internet connection (for most cases) is not really good Direct-to-fan model … Local TV Broadcasters In Indonesia its hard (to take off those digital services), it (piracy products) is really cheap here. Who will care about piracy acts? Yose T. Arizal, Interviewed** General Manager of Business development and support system at Axis Telekom Indonesia THE INDONESIAN MARKET 29
  30. 30. The Indonesian mobile userBehavioral Intention Effort & Performance expectancy WTU Compared with physical products.. Positive attitude to use the services (Video streaming, Music download) Video and Music streaming turns as the most “These services are more useful’ attractive service, if it is free “Using these services saves more money” WTP “Using these services saves more time” Low willingness to pay for all the services “These services are not complicated to use” Highest proportion of rejection to pay for Music streaming (~ 75 %), followed by Video download (~ 67 %)Facilitating condition Social InfluenceMobile Network and billing Respondents think the services will be popular “Mobile network is not a barrier to use these among Indonesians services” “I will not have to pay a lot for mobile account Respondents don’t think they’ll get any positive billing because of using these services” attention from others because of using the services Mobile devices The willingness to adopt the services correlates “My mobile device supports these services” with a perception that the services would be “I can afford to buy a mobile device that supports popular among other Indonesians these service” THE INDONESIAN MARKET 30
  31. 31. OutlineBackgroundLiteratures StudyMethodologyDigital Music and BroadcastingThe Missing BRIC in the WallLooking Forward
  32. 32. Findings Formulation The players and the games Actors Pure players Diversified players Vertically-Integrated players Network Telco-centric, Device centric.. Aggregator centric, Service provider centric .. Important Aspects Missing prominent international OTT players Piracy level and law enforcement Dependency to mobile & MNO’s bargain Bank account penetration country’s economy & young populationIn Indonesia, mostly the goal is not to decreasing the churn rate, butmore into increasing ARPU. The (MNOs) network quality is almostsame... we mainly play here with a tariff war…Yose T. Arizal, Interviewed* * General Manager of Business development and support system at Axis Telekom Indonesia Looking forward 32
  33. 33. Positioning Options“Do nothing” Immature market (WTP, WTU, Piracy) Too low impact “Do it alone” Vertically integrated player Point-to-point partnership“Collaborating” Aggregator centric / service provider centric Active role for a better bargain Integrated billing, product bundling, data delivery optimization, customer data,… Non-equity model Looking forward 33
  34. 34. Tack Så Mycket
  35. 35. User SurveyBehavior Intention - WTU Behavior Intention - WTP USER SURVEY DATA 35
  36. 36. User SurveyFacilitating Condition – Mobile network and billing Facilitating Condition – Mobile device USER SURVEY DATA 36
  37. 37. User SurveyEffort and Performance Expectancy Social Influence USER SURVEY DATA 37

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