The total value of rich content belies the total value of a rich content proposition. While we estimate that mobile-operator-billed revenue for mobile content and applications (MCA) will be EUR3.5 billion in Western Europe in 2010, we believe that a further EUR21 billion in annual voice, SMS and data revenue will ‘follow’ subscribers that are likely to churn between mobile operators on the basis of an overall MCA proposition. Globally, MCA may influence USD78 billion of mobile spending.
If a mobile network operator (MNO) with a 35% share of subscribers in a developed market halts investment in its MCA proposition, it will lose four percentage points of its market share over the following five years.
In effect, the total negative impact on revenue of halting investment in MCA will be in excess of nine times the loss of direct MCA revenue, because of the indirect revenue effects of losing market share and corresponding voice, SMS and other data revenue. From this, it is clear that investing to maintain a competitive MCA portfolio is significantly more important to MNOs than direct revenue suggests.
Similarly, investment in MCA as a competitive differentiator can be disproportionately beneficial to MNO net margins. Adopting a leading-edge MCA strategy could result in approximately 6% uplift in net margins over five years if competing operators do not step up their investments in MCA to a corresponding level.
MNOs tend to adopt a ‘me too’ approach to their MCA strategy. Most MCA services are not exclusive, and competing operators can readily replicate those that prove to be compelling differentiators. Therefore, in most markets the net margin benefits of MCA can be expected to be symmetrical between operators because they develop their MCA propositions broadly in-step. We expect that any such symmetric benefits will be lost through competition in the form of tariff reductions and increases in subscriber acquisition costs.
MNOs do have opportunities to develop MCA propositions that act as long-term competitive differentiators. These primarily relate to multi-platform plays that either take the differentiating qualities of exclusive content in a fixed environment and apply them to a mobile environment, or that include the synchronisation and management of content and information across both fixed and mobile environments. The latter of these two opportunities is, in fact, under threat from over-the-top players such as Google. MNOs that are able to develop such long-term differentiating MCA services can expect to enjoy substantial indirect revenue benefits.
The implications for tariffing are profound: it is clear that operators must carefully balance the need to generate direct revenue from MCA against the competitive benefits of offering a compelling service to the maximum number of customers. Some elements of an MCA proposition should potentially be regarded as loss leaders - ‘super applications’ that are core to engaging the consumer.
Jim Morrish’s report on this topic, Value-added strategy is vital for mobile operator success, forms part of our Mobile Content and Applications subscription research programme and is available to purchase. Please contact Sales and Customer Services at research@analysysmason.com for further details.