Tuesday, February 9, 2016

What's wrong with the mobile value chain

I have been compiling quarterly reviews for the retainer clients of my mobile video and SDN/NFV practices and it is clear that there is big gap between consumers interests and the mobile industry revenue model.

Video apps T-Mobile customers can stream for free.Mobile data traffic continues to grow unabated, fueled by social media, and web service providers moving towards a mobile first and in some cases a mobile only strategy.
Did you know that close to half of Facebook users are exclusively mobile generating over 3/4 of the company's revenue? That half of YouTube views are on mobile devices? Nearly half of Netflix under 34 members watch from a mobile device?
Most of these services are free, or adverting or subscription-based. They do not rely on usage (time or Gigabytes or access) for monetization. As they transition to mobile networks, they do not change their business model and mobile network operators are left bereft trying to figure out how their traditional per byte/minute/message model fits in this new paradigm.

... well, here is a hint: it doesn't.

We have seen recently how T-Mobile in the US is now allowing zero rated video streaming in exchange for a quality cap at 480p in its Binge On service. Verizon has answered in kind just this week with its go90 service.

These might appear as popular and innovative moves, but their are just "tricks" to acquire and secure high ARPU postpaid LTE subscribers, akin to the unlimited voice / data packages we see flourish every time a challenger MNO with an empty network tries to aggressively churn its competition.

These tricks are shortsighted and won't help MNOs reconcile the fact that their costs keep increasing and their revenue from traditional services decrease. I am convinced that by 2020, we will see operators or MVNO with free, or close to it, voice, data and messaging services. What will they do then?

Most MNOs have identified that mobile video and Internet of Things are their largest revenue making opportunity in the medium term. 
Internet of Things can be a lot of different things but seems too uncertain and immature to build a solid strategy for a while. There are too many conflicting standards and initiatives from too many established vendors and start ups to make sense of it and create a mass market business in the short term.
Mobile video, by contrast is close to a mature market and technology. It is appalling that most network operators have such a poor grasp of it. Take mobile advertising, for instance.
We have just established that nearly half of all digital content is consumed on a mobile device.
2015 was the first year digital advertising spend exceeded broadcast with 42 billion $ vs 40. Mobile barely registered with only 7 billion$. Although growing, mobile advertising is only 21% of the global advertising spend in the US. Announcers have identified that mobile video is their largest medium opportunity to reach their most important target demographics (high net worth + youth).
How is it that you have 50% of eyeballs on a service that draw only 21% of ad spend?
Well, there several reasons for that, but first and foremost, it is because mobile video is such a poor service. With many vendors and observers reporting slow start time, between 3 to 5 seconds on cellular and WiFi, with an abandonment rate ranging from 15 to 25%. Network operators' poor understanding of video as a technology and advertising as a model, leads to poor video service quality, which yields poor video advertising returns. There are potential strategies that could help there, but there isn't much movement on the MNO's front. Most initiatives in this space are from OTTs and vendors. 

In any case, if mobile video advertising is supposed to reach its potential (80% of mobile advertising, which should be at least equal to digital) and create 33 billion $ of spend, MNOs better start treating it seriously. Measuring, managing video QoE becomes key and while you are at it, if your network transports video for 75% of its traffic, might as well build a video network that happens to do voice, messaging browsing, rather than the other way around... Just saying. 

In the future, consumers, service providers, OTT will value much more a network that can deliver and guarantee the best video quality than anything else.

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