Still looking for a 3G payback
Global governments must have thought their birthdays, Christmases and annual bonuses were all rolled into one when some wiseguy realized that they could auction off their remaining 3G spectrum rather than sell it off at a discount. On the back of lucrative floatations, many operators were cash rich and needed to sell their “growth story” to investors to prove that their was a payback beyond the SMS horizon.
It seems a distant past and here we are today in 2008 with operators still scratching their heads over how they make back their collective $100bn spent on 3G licenses.
The telecoms industry is still of the belief that content should form the cornerstone of a mobile data strategy. We know because like yourselves we have read through countless press releases that base their figures on the assumption that “if 5% of young users [sic] pay $5 a month for this ringtone/MMS/content etc, we will net top line revenues of $x million a month”.
The rising tide that floated an industry on the back of minimal costs of sale and distribution finally has become victim of its own success. Young consumers are flooded with offers of “$5 a month” propositions – all of which are “good” in their own right.
If young consumers were to spend an extra $20 each a month on Web2.0 “killer apps”, we could generate enough revenues to break even on the license investments alone in 7 years. Unlikely, very unlikely.
With little in the way of alternative and a belief that somehow Web2.0 will “come good”, we continue to seek the “killer app” by stone turning yet at the same time fail to realize that, as Seth Godin says in “The Big Moo”, consumers don’t want “good” they want “remarkable”. Everyone now has an amazing content widget to demonstrate at the next mobile conference you visit and on that basis there is every probability that we as an industry will fail to generate that $20 because that $20 is unlikely to be found on the phone bill but from cross-selling other services.
Think less “3G and more “Free G”.
The challenge then is – if everyone has an amazing widget, how are young consumers going to make their minds up?
The answer is simple – just as the human brain processes only 5% of the stimuli it receives, so young consumers will gate (to use the neurological term) the remaining 95% of our offerings. The travesty will be that this decision won’t be made on how good the technologies are but simply on the basis of who they were paying attention to.
The most significant cost in marketing to youth today is simply that -> attention.
So, could it also make economic sense that traditional business models that seek to charge for the more whimsical content actually are underexploited? If it costs us as a business $20 per person in subscriber acquisition costs and our content costs $2 a piece, could we give the content away and monetize the premium content?
The “freemium” concept – that content serves as a loss leader is worth investigating. It’s not just MVNOs such as Blyk making headway in this sector but also recording artists such as Nine Inch Nails and Radiohead by placing the pricing decision on the consumer.
In their recent article, “Free Love“, Trendwatching points out that innovators such as Skype represent the vanguard in the Freemium business model. But it’s not just in the world of content that “Free” works. Trendwatching points to Ryanair’s strategy to monetize “free flights”:
Forget low cost carriers: keep an eye on Ultra-Low Cost Carriers (ULCCs) handing out free seats by the bucketload. Between May 16th and 21st last year, European ULCC Ryanair held a ‘sale’ of 1 million seats for free (100% free: no taxes or extra charges). It received more than four million hits within five hours, and the rush of passengers caused technical difficulties on the site for a while. In fact, Ryanair now give free fares to a quarter of its customers. And on a regular basis, Ryanair’s CEO Michael O’Leary promises that eventually “more than half of our passengers will fly free.” Ad revenues bring in (part of the) cash: from tray-table and seatback ads, to the opportunity to repaint the exteriors of Ryanair’s planes, effectively turning them into giant billboards for the likes of Hertz, Jaguar and Vodafone.
Wired magazine also leads with a feature on Free this month interestingly drawing an analogy between the efforts of modern day “Free” pioneers and the innovative marketing strategies of King Gillette who, in 1895, discovered that if he could “give away” his razors he could monetize razorblades over the lifetime of the consumer.
In its first year, 1903, Gillette sold a total of 51 razors and 168 blades. Over the next two decades, he tried every marketing gimmick he could think of. He put his own face on the package, making him both legendary and, some people believed, fictional. He sold millions of razors to the Army at a steep discount, hoping the habits soldiers developed at war would carry over to peacetime. He sold razors in bulk to banks so they could give them away with new deposits (“shave and save” campaigns).
Not bad for an empire which now ranks as the number 2 brand in the world.
“Free” is perhaps not a word that mobile operators want to hear right now. More interested in making the money back of their 3G licenses (the “3G payback”) the logic seems counter-intuitive. That said, we have seen ARPU rise despite operators offering flat rate data plans.
How so? Because mobile is about establishing a relationship platform with young consumers, not a sales channel. When ISPs relinquished their pay-per-minute business model, consumers began shopping online. Similarly, when content providers relinquish their grasp on content, consumers will begin to buy the more valuable goods and services – concert tickets, merchandise, FMCG products etc.
Here are some Free G Ideas I have noted down for young consumers:
- Free realtone downloads of albums that you can share without restriction with friends. Each “share” is as good as airplay rotation on MTV or radio. Allow downloaders to also browse merchandise such as T-shirts and concert tickets
- Free mobile games for high street lines such as Splinter Cell, GTA etc. Players will become familiar with the gaming world and base their interactions around the titles further reinforcing cross-selling opportunities for playstation, PC and WII titles
- Free phones. Yes, entirely free phones offered by banks providing student accounts. When high street names are subsidizing student banking to the tune of $300 per account holder, why not simply give them a free phone?
The economics of how mobile companies can monetize “free” are discussed with supporting case studies in the upcoming 2008 mobileYouth report
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