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VisionMobile Research Mobile Megatrends 2008 Knowledge. Passion. Innovation.
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VisionMobile Research

Mobile Megatrends 2008

Knowledge. Passion. Innovation.

Mobile Megatrends 2008

Andreas Constantinou, Ph.D.Research Director,

VisionMobile

Knowledge. Passion. Innovation.

updated: 14 December 2007 licensed under a Creative Commons Attribution 3.0 license.

15 Mobile Megatrends

From mega-portals to me-portals. Content is aging;Content communication is king. The internet is reachinginto the phone. The war of the application environments.Value in mobile software is bubbling up. OEMs go forservices and vertical propositions. Brand as the new formof equity in handsets. Network operator strategies areshifting. Browsing is out; engaging experiences are in.Browser proxies bring the internet to the masses. Opensource is disrupting the status quo. Nokia is now a tier-0OEM. Mobile is transforming to a FMCG business.Channel ARPU: a new source of revenue.

selected 2006/7 analyst reports

On-Device Portals:Beyond WAP(ARCchart)

High-Capacity SIMs(Informa)

Mobile SoftwareManagementReport

The New Age ofHandsetCustomisation:2006-2011(ARCchart)

Mobile OperatingSystems: The NewGeneration

Activating the IdleScreen: UnchartedTerritory(Informa)

MDM Case Study:Motorola(Ovum)

Firmware OTA:From Hype toMarket Reality(ARCchart)

Open Source inMobile: 2007-2012(Informa)

Five Defining Traitsof Open Source(Informa)

GPLv2 vs GPLv3White Paper

VisionMobile:a research & market intelligence firm

selected clients

VisionMobile:delivering strategic market know-how to the mobile industry ecosystem.

Mobile Megatrends 2008

From mega-portals to me-portals.1

From mega-portals to me-portals.From all-in-one mega-portals (e.g AOL), to vertical portals (vortals, e.g.

music, sports, healthcare), to personalised my-portals (e.g. iGoogle), to

user-centric me-portals (e.g. Facebook)

Source: eMarketeer,company reports(via NY Times)

20001995

my-portals

2005

portalsvortals

2010

mega-portalsme-portals

web

mobile my-portalsportalsvortals me-portals

1

Mega-portals are aging:The history of web portals and mobile portals

Coming next: community OSes, COMOs (e.g. Open Social)

Content is aging; Content communication is king2

Content is aging; Content communication is king

The sale value of content is decreasing and DRM walls are falling% of subs buying a ringtone fell consistently over 12 months in GB, FR, DE, IT, ES (M:Metrics, 4Q07)

see also Amazon mp3, Y! Music, Virgin Digital, Nokia Comes With Music (subscribe, but own)

Content communication, personalisation and remixing is attracting capital

2

10s of photo sharing sites: Facebook, MySpace, Picnik,

Picasa, flickr, flauntr, thebroth, snipshot, ClickFriends,

Faces, Photoshop Express online, Shozu, Mosh, Pix-Yu

MoJungle, PixPulse, PixSense, SharpCast, SnapFish,

rmbr, Kodak gallery, Shutterfly, Photobucket, Webshots,

Smugmug, Fotki, Dotphoto, Phanfare, Splashup,

Vi.sualize.us, Pixrat, FFFFound, PicURLs, Zoomorama

”up to 25% of the entertainment being consumed in five years will be what we call 'Circular’.. people willhave a genuine desire not only to create and share their own content, but also to remix it, mash it up andpass it on within their peer groups”. Mark Selby, VP Multimedia, Nokia, Dec 07

The internet is reaching into the phone3

The Internet is reaching into the phone

2001+: the phone reached out to the internet through WAP and web.But the phone was only open to the short head of 10s of 2nd parties (OEM partners) and 100s of

3rd parties with strong funding.

2007+: the internet is reaching into the phone..The long tail of 1,000s to 1,000,000s of 3rd party developers and scripters are reaching out to the

phone thanks to availability of AJAX, Widget platforms and Web runtimes

e.g. Nokia Web RunTime, Nokia S60 browser, Motorola WebUI, Nokia WidSets, Opera Widgets,

Bling Software, Webwag.

2009+: the phone becomes an active node of the internetConsuming and producing services, e.g. Nokia S60 web server, efforts by Conveneer

3

The war of the application exec. environments4

The war of the application exec. environments

2002+: the war of the operating systems has faded- Symbian OS shipments are dominated by Nokia (outside Japan) and DoCoMo (in Japan)

- Windows Mobile is for enterprise segments only (at least up to version 6).

- The new Palm OS is still slideware and one year away. Will it follow the fate of Cobalt ?

- Most mobile Linux operating systems are in alpha stage (Celunite, ALP, A la Mobile, OpenMoko),

not shrink-wrapped (Greensuite), or not backed by a big services firm (Purple Labs).

2007+: the war of the application exec. environments (AEEs) is raging- Flash Lite vs Java; Adobe’s aggressive subsidy vs Sun’s JCP standardisation process.

- Java SE vs Java ME; Android’s Dalvik, and Sun’s strategy to phase out Java ME

- web programming vs open OS; AJAX, Widgets and web runtimes vs open OS platforms (S60, WM)

- interpreted languages vs C++; AppForge, Python, Ruby, .NET (Red Five Labs) vs S60

4

Value in mobile software is bubbling up5

Value in mobile software is bubbling upMobile software carries high risk & reward and long lead times

If you are a software vendor in the

OpenOS or RTOS business, you need

- $2M - $30M seed capital

- 2 years technology development

- OEM sales cycle of 6-12 months

- operator sales cycle of 18-36 months

- 18+ months for royalties to kick in

- but biz model requires scale

- scaling to new regions,

OEMs and operators is non-linear

- a lot of factors outside control to do with handset sales

The mobile software business is like the Hollywood business; you ‘re either big or you’re out.

-12-18

handsetlaunch

-6

biz dev

(months)

handsetlifecycle

NREs royalties

investment

returns

OEM dealagreed

s/wembedded

5

NREs

+6

Value in mobile software is bubbling upThe sale value line (line of commoditisation) is moving up the stack

.. accelerated by open source

collaborative software development

efforts (e.g. Web Kit)

- Google’s Android will further

accelerate this commoditisation effect

- Value will bubble up to UI and service

delivery layers.

- Software vendors without unique IPR

are not viableMiddleware

Operating System

services andcontent

Embedded apps

$0.1 $10m

$0.1 $5m

$0.2 $20m

$2 $0.1m

per-unitrevenue

cost tobuild

valu

e li

ne

UI & service layer

$2.5 $500m

5

DeliveryBrowse, buy, create,view, share content,UIs, services

post-salespre-sales

intr

a-d

evic

e va

lue

extr

a-d

evic

e va

lue

Tools & platformsfor building content,UIs, and services

User dataMessages, photos,videos, profile,preferences..

Handsetsoftwarestack

Value in mobile software is bubbling upValue Quadrants for mobile handsets & services

5

DeliveryBrowse, buy, create,view, share content,UIs, services

post-salespre-sales

intr

a-d

evic

e va

lue

extr

a-d

evic

e va

lue

Tools & platformsfor building content,UIs, and services

User dataMessages, photos,videos, profile,preferences..

per user, per use, flat rate, pertransaction, per level, subscription.

free orbundled

NRE, per-developer seat

NRE,per unit

Handsetsoftwarestack

5 Value in mobile software is bubbling upValue Quadrants represent a shift in revenue models

DeliveryBrowse, buy, create,view, share content,UIs, services

post-salespre-sales

intr

a-d

evic

e va

lue

extr

a-d

evic

e va

lue

Tools & platformsfor building content,UIs, and services

User dataMessages, photos,videos, profile,preferences..

NRE, per-developer seat

NRE,per unit

Softwarestack

Value in mobile software is bubbling up ..but device software is an essential enabler

5

OEMs go for services and vertical propositions6

OEMs go for services and vertical propositions in order to increase ailing profit margins.

OEM acquisitions 2006-7:- Nokia acquired Avvenu (file sharing), Navteq (LBS), EnPocket (mobile advertising), Twango (media

sharing), Pixto (physical world connection), Loudeye (digital music), gate5 AG (LBS) and Intellisync

(mobile device management).

- Motorola invested in Tilefile (content sharing) and acquired Leapstone (SDP), Modulus Video (video

codec), Tut Systems (content distribution), Broadbus (content on demand) and Good Technologies

(email sync).

Own OEM services:- Nokia (Ovi, Maps, Mosh, Medeo, Comes with Music, Internet Radio, Download!), Motorola Screen 3,

SEMC (TrackID, PlayNow)

Vertical propositions:- Sony Ericsson Walkman & Cybershot, Nokia E-Series, N-Series.

6

Brands as the new form of equity in handsets7

Brands as the new form of equity in handsets

"The mobile-wireless environment is going to create a whole new set of

brands: brands around devices, brands around the experiences,

and also brands around the way people are connecting and

researching on the Internet. You'll see new brands around this mobile

world, hopefully some from Motorola, because we are thinking about

creating distinct brand experiences underneath the parent brand Motorola

in the mobile space in the future."

Kenneth “Casey” Keller, Chief Marketing Officer, Motorola

in Advertising Age, October 2007

7

Brands as the new form of equity in handsets

OEMs have been creating co-branded handsets since 2004:- Sony Ericsson: Walkman, Cybershot

- Nokia: E-series, N-series, location-aware devices, Zac Posen, Versace, Aston Martin, WESC

- LG: Prada, Shine, Chocolate, SD410 sports

- Samsung: Armani, B&O Serene, B&O Serenata, credit-card sized phones

- Motorola: D&G, Pininfarina, Aston Martin, Vivienne Westwood, Red

Operator own-brand devices are making a comeback:- Vodafone tried with 4 Simply handsets since 2005, but scaled down due to retailing challenges

- Huawei, ZTE and Sharp devices are still going strong, as are partnerships with Ferrari

- Vodafone hinted that own-brand devices might make up 10-20% of portfolio (May 2007)

- Lots more to come in 2008.

7

Network operator strategies are shifting8

Network operator strategies are shifting

Operator one-stop-shops and walled gardens are not viable.

Operators are moving to

- traffic pipes, or

multi-network connection services, e.g. TMO, Telenor or wholesalers, e.g. KPN)

- service-pipesenabler strategies focusing on device-based service delivery (e.g. Vodafone, Three, DoCoMo)

T1 operators are now at third era of service-delivery: container projectscontainer projects leverage on economies of scale for development & deployment and aim to control

the relationship with service delivery suppliers.

8

Browsing is out; engaging experiences are in9

Browsing is out; engaging experiences are in

Mobile operators, handset OEMs and media brands are deploying on-

device portals as the evolution of web/WAP.e.g. Orange Downloads, Vodafone ODP, Nokia Content Discoverer,

Nokia Download!, Three ODP, Refresh Mobile

ODPs surpass web/WAP in terms of

- reduced click-distance to purchase, therefore increased revenue

- preview before buying

- faster startup time & less resource-hungry

- better device integration

- graphical richness & improved user interaction,

- low latency (background content fetching & intelligent caching)

- lower bandwidth costs.

9

Service delivery spills out of

the browser into the user journey10

Service delivery spills out of the browser,

into the user journeyi.e, into:

- silo’ed applications (e.g. ODPs, music and mobile TV applications)Action Engine, Adobe FlashCast, Airmedia, Cibenix, Communology, Crisp Wireless, Geniem,

Handmark, Mobile Scope, Itfinity, mPortal, Mobinex, Nellymoser, Nokia Download!, Nokia WidSets,

Opera, uiOne, RefreshMobile, Streamezzo, SurfKitchen, U-Turn, weComm, Yahoo! Go, uActive.

- active idle screen (AIS) applicationsAbaxia, Acuity Mobile, Aditon, Adobe Flash Home, Bling Software, Celltick, Cibenix, IntroMobile,

MobiComp, Mobile Posse, Qualcomm uiOne, SurfKitchen Surftop, Nuance T9 Tool, Zi Qix.

- web, widget and AJAX runtimese.g. Nokia Web RunTime, Nokia WidSets, Opera Widgets, Bling Software, Webwag, Openwave MIDAS

- UI Frameworks: end-to-end platforms for designing core applications

e.g. Acrodea, Digital Airways Kaleido, TAT Cascades, Mentor Graphics Inflexion, uiOne HDK, Flash UI

10

Browser proxies bring the internet to the masses11

Browser proxies bring the internet to the masses

Proxies optimise web content delivery for increased addressable market,

lower latency, lower traffic and higher speed.

- Speed proxies: image compression, efficient page contents caching, HTTP & content pipelining.

e.g. Bytemobile, NSN, Flash Networks (NettGain), Venturi VServer, Novarra

- Transcoding proxies: page reformatting, image reduction,

menu simplification, session tracking, SSL session handling, XHTML/MP adaptation

e.g. InfoGin IMP, Google Wireless Transcoder (ex Req Wireless), Novarra nweb,

Volantis Transcoder, WiderWeb, Greenlight Wireless Skweezer, Clicksheet

- Pre-rendering proxies: pre-renders page before sending and improves navigation.

e.g. Opera Mini, Bitstream ThunderHawk

11

Open-source is disrupting the status quo12

Open-source is disrupting the status quostarting with the browser industry..

2003-2006: 80% market = Openwave, Obigo (Teleca), ACCESS NetfrontBut the mobile browser industry has been facing many challenges

- declining per-unit royalties

- rendering of ‘street HTML’ and scripting are very complex software to maintain.

- mobile devices exposed to billions of web pages vs 1,000 simplified WAP pages

- browser value is in zooming, navigation, device integration, not the rendering and scripting core.

May 2007: Openwave and Teleca break the dismal storyIn May, browser vendor Teleca announced that it ‘had halted investments into renewal of Obigo product’,

while Openwave announced it was up for sale following a 50% tumble of its share price in 12 months.

Open source Web Kit -based browsers used by KDE, Apple, Nokia, Android and Motorola

12

Open-source disrupting the industry status quo .. continuing with handset operating systems.

Android is not a service delivery, but a service access platform.

Designed to liberalise service delivery and platformise the OS business,

so that Google can offer the best, easiest, friendliest service delivery platform to every developer.

Android is unique for several reasons:- Declarative XML UI framework helps rapidly develop the UI for new applications.

- Every application (incl. idle screen, dialer, main menu) is a Web 2.0 citizen.

- source code to be released under Apache 2 (non-copyleft) license); modify code, ship, retain IPR

- Java SE platform deeply integrated with OS; a departure from Linux development

- Android’s Dalvik Java VM means OEMs don’t have to pay TCK royalties to Sun

- zero royalty to use the Android OS (purported but not confirmed)

- Open Handset Alliance comprises of handpicked members; covering complimentary regions (OEMs,

MNOs) and complimentary technology solutions; very different to LiMo, OMTP, LiPS, GMAE.

12

Nokia is now a tier-0 OEM13

Operating profit (US$ million)

39.20%

37.10%

source: Strategy Analytics

+

3Q07 operating margins: Nokia 22.2% SEMC 12.4%, Samsung 12.3%, LG 8.4%, Moto -3.1% (Reuters)

source: Fitch Ratings, Reuters

Global market share (3Q07)

Nokia is now a tier-0 OEMThe only OEM left with cash-flow for heavy investments

.. with an unbeatable cost + supply chain mgmt (300 million components per day)

.. and who is strong at both the high-end and low-end of the market

13

Mobile is transforming to a FMCG business14

Making phones has tiny margins and no consumer value.

As in the fast moving consumer goods (FMCG) business, value is in:

a) defining the right niche segment & proposition,

b) last mile customisation, retailing and placement,

c) in-life experience; delivering compelling services across the user journey

marketresearch

brandlicensing

industrialdesign

hardwaredesign

assembly &manufact.

softwareintegration

last milecustomisation

certification& QA

channeldistribution

retailing &placement

customersupport

productdefinition

servicedelivery

sale

valueopps

Mobile is transforming to a FMCG business14

Channel ARPU: a new source of revenue15

Beyond voice and data ARPU, there is a new source of revenuerevenue from delivering 3rd party services/products through the last mile to the end user.

Channel ARPU comes from:

- UI inventory leasing through auctioning of handset UI inventory to advertisers and promoters

- Retail sub leasing leasing of shelf space to OEMs and service providers, e.g. visual service retailing

- Service delivery channels e.g. Vodafone, Telefonica, TIM revenue share with Nokia’s Ovi

- Bundling e.g. Amazon Kindle + newspaper subs or Nokia Download! bundling of service providers.

- Access to consumers e.g. iPhone subscription revenue share, Blyk ad-funded MVNO

- User analytics leasing e.g. info on user location, billing, call graphs, presence, service usage

Channel ARPU is about growing wallet share based on collaborationContrary to voice and data ARPU which are about growing wallet size based on customer ownership

Channel ARPU: a new source of revenue15

Contact:Andreas Constantinou, Research Director

[email protected]

Further reading:Mobile Operating Systems: The New Generation

Five Defining Traits of Mobile Open Source

www.visionmobile.com/whitepapers


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