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Next Mobile Opportunities

August 24th, 2008 · 114 Comments

I wrote a 5-part series earlier in the week. I have put all five articles together in a single post for easier reading.

The Shift from Internet 1 (Portals) to Internet 2 (Search)

The early days of the Internet were all eyeballs and monetisation via banner (graphical) advertising. The business was about creating portals and destination sites like Yahoo and AOL were doing. There was also some eCommerce going via the likes of eBay and Amazon. These were significant opportunities but they paled into what was created by Google with the simplicity of paid search. Of course, Google did not create the base model – that was done by Overture (GoTo.com) which was later acquired by Yahoo. But Google refined it to perfection. Search captures intent – to find or buy. Google first fixed the search content, by using the link structure of the Web with its PageRank algorithm. This made finding easy and brought Search back in vogue. It then used the keywords that users were searching for as the thing to sell ads on. On the ad front, it did three things: it used auctions to let the market set the pricing, it only charged base on the click (performance), and it created a self-service system for advertisers wanting to buy. All of this created an infinitely scalable, global solution. And an ecosystem of companies around it (the likes of SEO, SEM, etc.). Google did not need to worry about the demographics of its users – the pay-per-click model (as opposed to the impression-based graphical display model) automatically took care of appropriately matching the two parties. This basic system today will account for $30 billion in revenue, of which Google will take three-quarters – all of this has happened in the past 5-6 years. The graphical display advertising, which has been around for a decade, will account for $20 billion in revenue strewn across the rest of the hundred million Internet sites. So, the second version of monetisation on the Internet (paid search) overtook the first set of monetisation ideas (graphical display ads).

[We are now seeing the emergence of the next Internet – built around Social interactions and Media. The standard bearers for this next-generation are sites like YouTube, Facebook, Skype and PayPal. Widgets are also a powerful emerging force, as is Mobile. We will now shift focus to the mobile, because this is an area where India is one of the world leaders in its consumer base.]

So, the questions that come to mind are: What will be the dominant model on the mobile? What will create the $30 billion global market opportunity in the next five years?

For the purpose of this discussion, we will leave aside the existing VAS industry which is many billions of dollars in size – and covers ringtones, wallpapers, games, CRBT and music. This has been the biggest success outside of voice and P2P SMS. We want to look at those models where the user does not pay (much) – these models are likely to be equally big if not bigger than the VAS industry today. They will fall largely into three buckets – subscriptions, advertising and transactions (as do all possible revenue streams). User Pays is what the mobile industry has capitalised on very well with its inherent microbilling characteristics. The question for discussion is what else can be created beyond this VAS 1.0 business?

The mobile has many interaction channels – voice, SMS, MMS, mobile web, downloaded apps, and later, video/mobile TV. Of these, there are only two which work on every device – voice and SMS. We will focus on just these two. (In the future, it is possible for the mobile web to become the dominant interaction point – but even in Europe with its advanced networks, less than 20% of the mobile user base uses the mobile web.) So, the first point is that for ubiquity on the mobile, one needs to use voice and SMS.

The next point is: Pull or Push? Or put another way, Search or Something else? Search has succeeded big time on the PC, and so there is every reason to believe it should do well on the mobile also. My belief is that Search needs the mobile web – on SMS, the limitations are too many to make it work. Two chief ones: the cost of sending a premium SMS each time a search needs to be done, and the inability to always get an Answer that one is looking for. In countries like India, Search on mobile is probably better done via Voice where one can interactively fine-tune the requirement to get what is needed. (This is space where companies like JustDial in India are doing very well.) Pull-based Voice or SMS services will be limited due to their premium pricing, even though they can have mass appeal. This is where free incoming SMS will shine – and have the potential to be the next big thing.

In a way, we are already seeing free Push SMS – in the form of Spam. Users do not have the ability to opt-out, which creates frustration and leads users to start ignoring incoming SMSes from non-trusted sources. This brings us to the third point – on the mobile, it will have to be about Permission. As Seth Godin put it, “Mobile marketing demands Permission.”

So, taking the first three points together, we get the idea for the service: Permission-based SMS Subscription Services. This does not mean IVR (Voice), Search and P2A are not big. But there are inherent limitations which prevent the ideas from scaling. Free is a critical requirement for something to achieve mass numbers and scale. This is where SMS Subscriptions come in. The killer combination which gets over the limitations of SMS is SMS integrated with WAP and Voice (IVR / call centre).

Put another way, on the mobile, VAS 1.0 was all about generating revenues from consumers. In India, this is a billion dollar business. VAS 2.0 will be using Free SMS Subscriptions as the anchor for monetising the right of way to consumers in multiple different ways. What will be valuable in this case is the Subscriptions Engine. What Search did on the Internet Subscriptions will do on the Mobile – generate an audience and create revenue streams.

The World of Subscriptions: Creating Right of Way, and Combining Invertising and Advertising

Now, the next question is how big can this be? Or put another way, what can users Subscribe to? And what’s the business model?

Free Subscriptions can be of two types: Content subsidised by Ads, or Content as Ads. In the first scenario, content is what subscribers want, and advertisers pay to reach these users. This is Advertising. Content can be professionally created or user-generated. Professional content can be regular content (”dailies”) or event-driven (”alerts”). In the second case, there is only promotional information sent primarily by brands – and that is what subscribers want. Think of it as Invertising.

SMS Subscriptions don’t necessarily have to have all of the content in them – given the limitations of 160 chars, they cannot. Instead, for some of the messages, we need to think of them as Signals, or Triggers – which can get the subscriber to act. The action can be a click, response back via SMS, a phone call. And the response on the SMS can also be followed by a voice call. So, essentially, the SMS becomes the starting point for generating engagement (when it is required).

How big can SMS subscriptions be? My belief is that each of us can receive upto 10 SMS daily without feeling overwhelmed. 3-4 of them would be content, but the rest can be either community-related (UGC) or Invertising. Assuming there are 2-3 of each, there is potential to receive 60-90 Invertising SMSes each month. Assuming a single company sends about 3-4 SMS each month, a consumer can have relationships with about 20 brands, with each brand paying about 50 paise per user per month for the relationship, creating a market opportunity of Rs 10 per subscriber per month in India. Assuming that this can reach about 50 million subscribers (top 20% of the mobile user base as of now), this is a market opportunity of Rs 500 crore ($120 million) per annum – about the same size as the current Internet advertising market in India.

In the US, brands could pay about 25c for the same relationship, creating a $5 per subscriber per month opportunity. So, if we take these two extremes, between subscribers in developed markets (500 million) and emerging markets (1.5 billion), and assume a 20% penetration, the market opportunity is 100 million x $5 + 300 million x 25c = $500+75 = $575 million per month, or about $7 billion over a year. This is where Paid Search would have been about 3 years ago (2005 Paid Search: $9 billion).

Next question: will this happen? Mobiles are great for brands to build hotlines and relationships with consumers. Paid Search on the Net hasn’t worked as well for Brands, given the text-based ads and performance-based payouts. But, Invertising on mobiles could be just the solution that brands need (along with targeted Display Advertising on the Internet). For anyone with customers, the Invertising channel is a great way to stay connected – at a cost of no more than Rs 5 per year.

In addition, there is a significant advertising opportunity on the SMS content services. Assuming 3 subscriptions a person means an inventory of 100 SMS per month or about 1000 SMS a year. With a Rs 50 CPM and a 20% fill rate in India, the monthly opportunity for advertising is about Re 1. Besides advertising, there are other services which can be targeted to the consumer base (pull, email2sms, WAP, transactions, targeted ads, paid services, etc.). It should be possible to generate Rs 5 per consumer per month. This opportunity is thus half as big as the Invertising opportunity.

Thus, together, the Right of Way model can generate global revenues (in 2 years) equivalent to that of Paid Search in 2005. Put another way, the mobile monetisation (version 2: Subscriptions Right of Way) lags Internet monetisation (version 2: Paid Search) by 5 years.

Tags: Uncategorized

114 responses so far ↓

  • 1 Roz McCarthy // Dec 26, 2008 at 1:18 pm

    Your article was interesting and very thought provoking… I am still a little overwhelmed with all of the information you shared. However, let me try to keep my comments as simple as possible…. I like to think of it as the KISS approach. SMS came into existence and wildly popular because it gave cell phone users an alternative to quickly, quietly, and effeciently communicating with others. Chatting in real time is a fast, easy and affordable way to stay connected which has been adopted by the global community. Thus, I believe consumes would be interested in content most likely subscription based which will fine tune this application and make it even more effective for the user and recepient.

  • 2 Ashish Kite // Jul 2, 2009 at 2:52 pm

    Great Thought sir..

    But need some fine tuning to be commercial viable and profitable.

    ps: some players such as ” smsgupshup” , “My today” are already reaping benefits

    Thanks,
    Ashish Kite

  • 3 Blog Past: Next Mobile Opportunities // Aug 23, 2009 at 5:00 am

    […] to Mobile Computing Operator (Sep 08) – Enterprise IT Operator (Sep 08) – Invertising (Sep 08) – Next Mobile Opportunities (Aug 08) – Digital India [1 2] (Aug 08) – India’s Mobile VAS Industry (Aug 08) – News and Content […]

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