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Handout Cambridge 10032008


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The handout that goes with the presentation from March 2008 in Cambridge. Numbers have changed since (I wirte this in March 2009) but the storyline still holds. Enjoy and I really would appreciate any feedback you have. Thanks!

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Handout Cambridge 10032008

  1. 1. Mobile Social Networking Wireless Developer Forum, Cambridge 10 March 2008 Per-Fredrik Hagermark, Acemob AB Acemob AB PO Box 10 SE-20120 Malmö, Sweden
  2. 2. Acemob AB on Mobile Social Networking Market and the potential 5 billion reasons to be in the mobile social networking business Despite many saying that the mobile entertainment model is broken and social networking is the next bubble about to burst, 2007 saw an estimated global revenue of 5 billion USD for mobile social networking services according to Informa. The majority of this comes from Asia then Europe & North America. Here we have players like Cyworld, MyGamma etc. Many are cross platform services - web and mobile. Let’s do a quick sanity check: Assume 5 USD ARPU for the average social networking service made up of a mix of subscription fee, sms notifications and other transactional revenue. That gives: 5x12 = 60 5 000 000 000/60 = 83 000 000 83 m users of mobile social networking, which equals just under 4% penetration of the total mobile user base. So it seems plausible even if we had lower ARPU or total revenues. This is good news. This market is ready for expansion. So it seems plausible in terms of users needed to generate the 5 billion, but is the 5 billion something we should care about. Does it matter? Well, in the digital media world it does. We have only found complete numbers for 2006 but they show that mobile social networking outperforms iTunes sales, TV-interactivity/SMS-voting, Internet gaming and even adult services on the internet! 2006 turnover per segment. • Mobile social networking: 3.45 Billion dollars • All of iTunes revenues 400 million dollars. • TV-interactivity (voting for Big Brother, Survivor Island, Pop Idol etc) were worth 900 million dollars. • Internet gaming revenues, all multiplayer games etc, were worth 1.9 billion dollars. • All internet adult site revenues were worth 2.5 billion dollars in 2005. 2.2 billion users in the largest communication network in the world There is no larger communication network in the world. Penetration rates are outperforming computers and even TV in Europe. According to IDC an estimated 1 billion people will access the internet with their mobile phone in 2008. Wireless Developer Forum, Cambridge 10 March 2008 1
  3. 3. Acemob AB on Mobile Social Networking Business models There are three principal models available today if we focus on the distribution and financial flows. Currently the mobile operator has a slightly too big grip of the value chain since they control distribution and the billing. Today the mobile operator portal is the most common starting point and by revenues very important distribution channel. More and more companies are developing their own direct-to-consumer portals, or off-portal business as often labeled by the industry itself. It can be a risky venture to run an off-portal business since the acquisition cost of new users often is under estimated. Secondly the only really efficient billing method for mobile content and services is via the consumers phone bill. A premium SMS or wap billing, where the latter is the easiest and thereby most efficient purchase process for the consumer. Mobile operators take half the end user revenue for offering the distribution and billings services. There are often wide-spread complaints of this modus operandi choking the entire mobile entertainment industry. This argument has some validity. Let’s start with billing: VISA charge a merchant about 5% for handling a transaction. A mobile operator, in the case it is made transparent, would charge 15-30% for the transaction. Then comes distribution. It is true that most users get on the internet with their mobile via the operator portal. That drives traffic. However the small screen makes any exposure beyond the first page and at top of categories very low value exposure. Operators do not distinguish between the various placements on their portal, but take a flat 20-40% for this distribution service. So if you are unlucky you end up paying on average 50% of the revenues to an operator for the billing service and next to non-existent exposure to consumers. Still the mobile operator is a required player in the value chain and there are many improvements made and coming so it is a matter of a sober analysis of each case at hand when designing ones distribution and billing flows. Mobile advertising the saviour of all content providers? Mobile advertising is rapidly becoming a way for content providers to re-balance the power in the value chain. The mobile operator offers access to the internet and the content developers offers a service that users care enough about to use frequently. In that scenario the traditional media model of free advertising funded programming/services works well. Mobile advertising is still new and all players are learning how it all works in detail but it does work and there are content providers today that have sound economics on the revenue side with 1-3 EUR per user and month in revenue in pure advertising revenue. A survey made by Nielsen Mobile validates the acceptance and potential of mobile advertising. In a survey of 22 000 mobile internet users in the US during the last quarter of 2007, the following facts surfaced: •Nearly 25% of all cell phone users in the US say they've seen an advertisement on their phones in the past 30 days •About 50% of those also responded to an ad Many mobile operators are also catching on to this after taking a step back and looking at the big picture. Mobile network operators have a Wireless Developer Forum, Cambridge 10 March 2008 2
  4. 4. Acemob AB on Mobile Social Networking core business of making money of usage of their network and access to it. Hence they can make their life easy by putting up free services on their portals. The word “free” here often means increased user numbers as opposed to when a consumer has to pay say 3 EUR per month for unlimited use (NB! This does not include the fees for the mobile internet usage). Hence the mobile network operator makes more money in its core business. The content providers offer the best possible experience to their customer segment and the more they know about this segment and the more users they have the more they can earn in advertising revenues since the advertisers pay for reach and targeting. Still one should be open to mixed or premium fee only models since they are highly relevant in many contexts. Developer opportunities Human behaviour is a natural driver for mobile social networking Humans are social by nature. Communication is key for our survival. Your prime reason for using a mobile phone is to communicate with others. So far voice and SMS communication are the killer apps for mobile content. Beyond that mobile social networking has a fair chance. We have already seen that very few mobile phone users are today active in the mobile social networking scene. This has a few reasons. The main one being an immature market for mobile services other than voice and sms. Ease of use is also a big factor that holds usage back. More about this later. The walls come tumbling down Luckily the commercial constraints are changing for the better. The most important being flat rate mobile internet fees. Just like when a consumer access the internet on his computer he would expect to pay a flat fee for accessing (the same!) internet with his mobile. Maybe at a premium to the computer access, but still a flat rate. Mobile operators are starting to open up their walled gardens, letting the consumer decide what they want to explore on their mobile, not what a content manager at the operator has decided is good. In addition the number of ways for a content provider to make money has increased. Third party billing services like bango, mblox and Ericsson IPX offer a way to go to market with control over the distribution. Finally mobile advertising has made it possible to capitalise on a user base’s attention just like traditional media companies. Offer the service for free in exchange for serving ads in the service that the users occasionally click on. Examples of mobile social networking services There are two breeds of players in this niche. The computer centric social networking sites, big and small, that branch out into mobile. Secondly we have the mobile centric players that start off in or only offer mobile as a channel. The computer centric players are way ahead in terms of potential. The user numbers in the table below speaks for itself. Wireless Developer Forum, Cambridge 10 March 2008 3
  5. 5. Acemob AB on Mobile Social Networking Traffic numbers for US market in February 2008 courtesy of Compete. If big web and computer centric networks play their cards right they have a fantastic opportunity in the mobile space. With that we mean the ones that manage to adapt to the context of mobile and offer the best possible mobile experience for their service. Facebook is one example where they have done a very good mobile centric version of the service. The focus is on access to feeds and updates, which benefits from the strengths of the mobile phone - it is always with us and nearly almost on. You can keep updated on what is going on at all times and you have a remote control to the service where you can add your own status updates etc. The mobile service requires that you have created an account at the website before you can use it. for the mobile for the computer Wireless Developer Forum, Cambridge 10 March 2008 4
  6. 6. Acemob AB on Mobile Social Networking One mobile centric approach is offered by Lifestylers. It is a community where the aim is to get to know as many people as possible and gain popularity by being active and a good citizen of the Lifestylers world. By users Lifestylers is described as “Big Brother meets chat in my mobile”. The service is much less rich in content than a computer centric service. The focus is on connecting people that do not know each other. Much unlike Facebook, where you connect first and foremost with people you know. The basis for your network in Facebook is your email address book. A new user in Lifestylers choose what Lifestyle they want to be and give that person a name. Then you enter the one of the seven locations to see who else is there. When you click on a name you get to see that persons facts such as gender, country and points. To start interacting there is a choice of pre-made actions that you just click on. This is one example of developing for mobile. It is difficult enough to come up with something interesting that gets attention when you meet a totally unknown person. Then typing that with T9 on your phone keypad adds to the problem. In Lifestylers you read the short sentences with actions that you can make to the person, make your choice and click. The first interaction requires one click. This speeds up the contact making. After that users can add each other to their friends list, send text messages and photos to each other. Here one driver is the fact that you can be whoever you want to be. I.e. be anonymous. This also helps the initial interaction phase. Flirt and chat are two important reasons why people use Lifestylers. There has even been weddings as consequences of random meetings in Lifestylers! As soon as you have friends though you want to share and show off. That is where the photo gallery comes in where you can upload pictures and have your friends comment on them as well. for your mobile Developing for that horrible user interface called the mobile phone At a brief comparison between your average computer and mobile phone the natural reaction is that the mobile offers a horrible user interface with silly processing power. Even though today’s mobile phones have more processing power PC:s had not too long ago. In this case it is a matter of turning the limitations into advantages. The number one advantage in most contexts of mobile services is the moment of inspiration. I.e. the phone is always within reach, switched on and ready to go. This works both in pro-active - I see a nice car, take a pic and upload it to my photo gallery for friends to see - and reactive scenarios - my friends gets an SMS notification about my updated photo gallery. Now my friends can instantly know when there is something new and they can react to that. The human need for communication and sharing of experiences are powered by the mobile phone in this case. This is not a technical programming paper but it might be appropriate to bring up the numerous challenges to make the above use case a smooth experience. The fragmentation in number of browsers to support and workarounds for various handsets makes this a knowledge intensive undertaking. The good news is that as long as you stick to a browser based service as opposed to a downloadable client that resides on the mobile phone, the challenges are limited and decreasing. Wireless Developer Forum, Cambridge 10 March 2008 5
  7. 7. Acemob AB on Mobile Social Networking Shortlist for mobile social networking development Here is a list to stick to the wall when starting to develop or refine your mobile social networking service. This list focus on the product and its features. Marketing and smart viral campaigns and other considerations are outside the scope of this paper. • Keep it simple – user interface, sign-up and texts • Keep it relevant – don’t be everything to everyone • Keep it liquid – know what the critical mass is and get there and beyond. Metcalfe’s law is always relevant Value of the network = number of users squared. • Invitations. Let your users be your sales team and invite their friends • Friends list. We have seen that as soon as someone has more than 10 friends on a list they become very loyal to the service. • Reasons to check back in drives daily use. Competitions, notifications via SMS when friends send messages or log in etc. • High scores. Prestige and competition are human drivers that generates usage. Add suitable competition formats to this and you have added another relevant reason for people to use your service. • Inbox. Messaging in all its forms is key. We all have a phone to communicate with others, remember? • Matches/visits to profile. Let people know when they have had people visiting their pages. Vote on peoples profiles and pictures. • Cross media platform. The world is not centered around the content provider or the mobile operator. It is centered around the consumer. Over the course of a day the consumer use various platforms: computer, TV, mobile and more. Make sure you can offer the best (only if relevant!) experience in the media platforms/channels where your users spend time. • Carrier network agnostic! This is key. Never go exclusive with one mobile operator only. Anyone in the world should ideally be able to connect to your service. That is how you get critical mass in the vertical segment you have chosen to address. If you rely on a mobile billing business model this becomes a challenge but can be solved at least on a national level. This list applies only after you have addressed the three most important questions that you should have bullet proof answers to before proceeding with any service. • Who am I developing a service for? • Why should they care? • Can I address this segment in a financially viable way? Summary and tips First a list of sites and good sources for further information about mobile social networking. computer centric mobile centric good reading and facts m/brands/ Wireless Developer Forum, Cambridge 10 March 2008 6
  8. 8. Acemob AB on Mobile Social Networking This final sketch says it all really. Thank you for your attention! Humans are SOCIAL Viable BUSINESS MODELS Networked de- vice that is best at capturing the moment of INSPIRATION The three forces are moving towards each other, promising a solid future for mobile social networking. About Acemob Acemob produce and operate mobile networked services such as ChatUnited, Lifestylers, Souldate and online poker. The company was founded by Per-Fredrik Hagermark and Fredrik Fex, two mobile entertainment veterans with experience from the European and North American mobile entertainment markets since 2000. The company operates their services on some 20 mobile network operators portals. Among them are At&t, T-Mobile USA, Sprint, Verizon, Vodafone UK, Vodafone Germany, Orange France, TeliaSonera, Vox and Tele2 Sweden. The company is currently expanding its presence in the direct-to-consumer market. Acemob is based in Sweden and has been profitable since start. Please go to for more information. Wireless Developer Forum, Cambridge 10 March 2008 7