As I have taken up new challenges, working as editor-in-chief of Mobilbusiness and chief analyst at Mobile Institute, I have sent Close to Market on leave. See you at Mobilbusiness.
As I have taken up new challenges, working as editor-in-chief of Mobilbusiness and chief analyst at Mobile Institute, I have sent Close to Market on leave. See you at Mobilbusiness.
If it ain’t broke, don’t fix it
No LTE for Swedish users – at least not from start – and no support for Near Field Communication, NFC: These were the main new features we had been hoping – but not counting on – Apple would be presenting as it released the iPhone 5 yesterday. Lacking Apple’s support for Swedish LTE could mean operators may choose to roll out LTE in the 1,800 MHz band, a band that is indeed supported by Apple. New licensing rules coming into effect in January 2013 make this possible, as Swedish trade newsletter Telekom Online underlined today. As for Apple’s not supporting NFC, it may well impact the take-up of NFC itself, rather than damage Apple, at least in the short run.
No local language support for Siri in additional markets and hence no new local language content and search is another area in which we were hoping – not expecting – Apple would make an effort. Sweden is a small country but this did not prevent Google from deploying Voice Search in Swedish a few weeks ago after all, putting some hard work taking into account 51 regional dialects.
An additional set of features Apple presented had a catch-up, not to say me-too, feel: chrome-like improvements to web browsing, a wider screen – aren’t large screens Samsung’s trademark by the way? – And if we choose to be mean, new colourful iPods looking pretty much like Nokia’s Lumia line, and Spotify-like iTunes features.
This is the third time in a row that Apple fails to live up to the – somehow unrealistic –expectations of delivering something really ground-breaking, as revolutionary as the first iPhone or the first iPad. But two major paradigm-changing products in six years and a total of 400 million iOS devices sold is not a bad performance after all.
To sum it up: major ground-breaking innovation, not so much. But technical and design improvements sufficient for Apple to repeat its earlier commercial successes? Most probably yes. Here are some of the features that could do the trick: a slightly different-looking phone, thinner and lighter with a larger and nicer screen, better noise cancellation, a better camera with interesting features such as panorama view and picture taking during video recording, LTE support in additional countries, Facetime over wireless (will operators let this happen?) and faster wifi.
Then there is the eco-system lock-in of course. Although iPhone owners typically spend more money on app purchase than Android users, the lock-in mechanism is similar; a user that spends time and money pimping its phone with applications is de facto making an investment and therefore less likely to move to another operative system where it will have to not only start afresh, but will face problems with porting some of their content. On that point, placing iCloud at the heart of iOS devices, is yet another powerful way for Apple to keep device owners in a closed Apple loop. Some would argue lock-in is a bad thing, but to manufacturers, telcos, app developers and not least consumers, it provides some pertinent benefits in the shape of device and application upgrades, loyalty, mobile plan renewals, and a sense of safety – Maslow’s hierarchy of needs is still relevant after all.
Then there is the most overlooked yet central “feature” Apple did deliver yesterday, in line with expectations: a definite release date and a price. This is were Apple – and for that matter Samsung too – is superior to its competitors, in particular Nokia and RIM. They present products that are ready to be mass produced and sold when the customer’s attention is at its highest. Nevermind how great other handsets are and there are plenty of great handsets on the market – Nokia’s Windows Phone 7 devices fitting into that category – if they fail to hit the shelves, at the right time and at the right price, with support from distribution channels, it will not matter.
In the long run, Samsung – and possibly Nokia if the vendor gets distribution right for its WP8 Lumia line – may benefit from Apple’s coming short of market expectations. But in the short run, it will most probably not hamper the iPhone 5’s chances of becoming a top selling handset. Apple’s next device will however have to bring more innovation and possibly a new design to the table to ensure the vendor stays relevant. Meeting sky-high expectations is getting tougher and tougher though, as competitors are now done with catching up with Apple and instead pack their handsets with consumer-appealing innovation and design. Surfing highest on the Android wave, Samsung also got the marketing and distribution right. The expectations it must meet may also be easier to manage: keep doing what you are doing because it is working.
Global digital, mobile and OTT news impacting the Nordic market
– And vice versa
Nordic tv market set to heat up as Netflix confirms regional plans
Competition for content delivery to the Nordic home screens is set to heat up as video streaming company Netflix enters Sweden, Norway, Denmark and Finland before the end of 2012. The announcement came only two months after Sweden’s market-leading cable tv operator Com Hem entered an exclusive agreement with yet another major US TV content player, Tivo, on delivering video-on-demand, pay-per-view and over-the-top content to its Swedish subscribers.
Specifically in Sweden, beyond P2P services and challenger local or regional content streaming platforms such as ViaPlay or Headweb, one of the major hurdles Netflix may be facing is the existing telecom and TV operators’ strong position. In particular, cable and telecom operators have succeeded in locking in many subscribers in single bill triple-play subscriptions bundling broadband, telephony and TV, adding paid-for DVR functions and film rentals to the mix. Getting subscribers to pay for that extra content service, the service price itself, and the content mix will be important factors for Netflix’s success. Without being more specific, Netflix promises Nordic subscribers a low monthly fee and “a wide array of Hollywood, local and global TV shows and movies”. Indicatively, Netflix is currently charging streaming subscribers around 8 USD in international markets. Despite these challenges, the Nordic region is an ideal place to launch a service like Netflix: fixed and mobile broadband penetration is high, there is a widespread acceptance for streaming, and multi-screen viewing is on the rise. Another important actor for a global company to succeed in the region is its ability to communicate and be reached by its customers, in their local language. The fact that Netflix has already set up a Nordic blog and a local language company web page, local Facebook pages in all four Nordic markets, as well as local customer service accounts on Twitter, is a positive move, if not a sign that the launch could be closer than anticipated.
At the end of 2011, Netflix stated it would not expand into additional markets – other than its stated plans for the UK and Ireland – until it reached its goal of global profitability. The international expansion seems to be accelerating instead. So are subscriber uptake and revenue. In the quarter ended 30 June 2012, Netflix had 3 million paid streaming subscribers in its international business, up from 1.4 million subscribers as of 31 December 2011. This can be compared with 22.6 million domestic paid streaming subscribers at the end of June, up from 20.1 million at the end of 2011.
But Netflix’s international streaming business has not only been contributing with new subscribers and revenue, it has also had a negative impact on the company’s profitability. To be fair, any expansion comes at a price. For the quarter ended 30 June 2012, the international business generated a loss of USD89.4 million, while domestic streaming customers generated a net income of USD83.1 million. To put numbers in perspective, the total loss generated by the international business under full-year 2011 was USD103.1 million, while Netflix’s domestic business turned a profit of USD226.1 million. During the quarter ended June 2012, international revenue was USD64.9 million and domestic revenue USD532.7 million.
Netflix generated USD3.2 billion in total revenue under full-year 2011. Its streaming service is available in the US, Canada, a number of countries in Latin America and the Caribbean, the UK and Ireland.
Nordic data protection agencies looking into the legality of Facebook’s face recognition
The Nordic data protection agencies, under the lead of Norwegian agency Datatilsynet, have decided to look into the legality of some of Facebook’s newest functions. The agencies and Facebook are to meet this fall to discuss the matter; a misunderstanding according to Facebook’s spokesperson in the region. The storage of chat conversations, tracking of search words, as well as Facebook’s new face recognition and picture tagging are three such functions, which could be in reach of regional data protection and personal data regulation. The Norwegian data protection agency published a case study last summer based on questions about privacy, which the agency had sent to Facebook. Here you can download the Datatilsynet’s questions and Facebook’s answers, in english.
Last week, Datatilsynet ordered Google to pay NOK250,000 for not complying with a request by the agency in April to delete all payload data gathered in connection with Google Street View project.
“Google does not have any legal basis according to the Personal Data Act to collect such data, consent has not been granted by the registered parties, the information has been stored beyond what was necessary and the information has been not deleted in accordance with the request from the Data Protection Authority”, states the agency, pointing out it had taken into account the fact that it was Google itself that reported the gathering of data in the first place.
App.net: When did charging for a service become a questionable business model?
App.net, which ambition is to bring to the market an ad-free, user and developer-driven alternative to established social streams such as Twitter, succeeded in its first market test, exceeding its targeted USD500,000 in fundraising by over USD300,000, and getting backing from over 12,000 people – among which many developers. As of yesterday, App.Net’s alpha had 4,000 users, with over 7,000 access requests waiting to be processed. The number of apps being developed has also increased rapidly in the past two weeks. Interestingly, web apps dominate that activity, with 22 apps in development against 12 mobile native apps. At this point in time, the alpha looks pretty much like a scaled down version of Twitter and the founders are asking users to give it time to develop into a complete service. “Just a reminder that alpha.app.net is just that: an early prototype. It was launched as a test and to provide a proof of concept for our fundraising campaign. It is not yet an operational service, and we ask that you please be mindful of that and be respectful of one another”, writes App.net in a letter to alpha users.
In our view, the price tag of USD50 may be a bit high to appeal to the masses, unless the service differentiates itself further from existing platforms. It may however be a reasonable level for existing Twitter users wanting to enjoy an ad-free stream. It is however much too early to tell weather App.Net can fly. It has in any case already demonstrated it can walk, by hitting its funding target.
What interested us most about App.net is actually the negative reviews its proposed business model managed to get. In the Swedish media and Twitterverse, App.net has received little attention if any, and much of it has been critical to the very idea of launching a fee-based web-based service. The same goes for US and international media coverage. Truth be told, coverage got slightly more positive as the likelihood of App.Net’s reaching its fundraising target increased. Looking only a few years back, the very idea of a free ad-based service was perceived as doomed. So was the idea of offering global services to a differentiated user-base instead of differentiated services locally. Point one: the idea of charging for a web-based service has become a big business no-no. The second interesting point in the discussions surrounding the creation of App.Net was how its founders’ ambition to create an alternative to established social networks, in particular Twitter and Facebook, got questionned. Not challenging established players means the end of innovation as a driving force. When did not trying become an option? Facebook and Twitter themselves would never have become that big if they had not explored their idea and brought about a high degree of disruption.
Have a great weekend!
Myths and reality
By Marlène Sellebråten
At Close to Market Analytics, the year starts in August because it is in this glorious summer month the company was founded a year ago, almost to the day. August is also that time of the year when entries to the World Communications Awards, WCA, are ready to be analysed. As a WCA judge, my lips are naturally sealed on entry content. But sit tight: the winners will be announced on 13 November. Let us instead take a look at two projects we recently carried out, the non-NDA work we indeed can talk about.
The Swedish sms market: myths and reality
Our in-house research on the Swedish messaging market shows that the growth rate of the Swedish sms market has continued to slow down over the past year, as end-users increasingly turned to over-the-top instant messaging services. Saying sms is dead is however premature and we anticipate a continued slow decline of sms volumes – and prices – over the next two years, as the ubiquity, interoperability and reliability of the service keep it going as the default messaging tool. Telekomyheterna, one of Sweden’s leading trade newsletters, published a detailed preview version of this research in July. You can download it free of charge here. The research is based on interviews with key players, an analysis of sms data for the past 10 years as well as instant messaging app download data for the past year (analysing download estimates from Xyo Mobile App Search).
Android users are the largest consumers of IM apps – that is downloads, not usage – with an estimated share of 64 percent of all IM app downloads, our research shows. Furthermore, the dominating IM players in Sweden – Facebook, Skype, Viber, WhatsApp, Fring – have been consolidating their lead over challenger IM apps, growing at a faster rate than their competitors, and that from an already larger user-base. Our analysis of IM app download estimates shows that the top ten IM apps accounted for over 83 percent of all IM app downloads as of end of April, to be compared with about 71 percent for the global top 10 IM apps. Should this trend continue and the IM market hence become less fragmented, we can expect European regulators to start looking into these services in much the same way as traditional telecom operator services, possibly even reviewing their current position on net neutrality.
The slow decline of sms, a traditional telecom operator’s cash cow, and the rapid rise of over-the-top IM services, presents traditional players and challengers alike with a large set of threats and opportunities. Our research highlights a number of tactical short-term and strategic long-term options in order to align business models to this new competitive landscape, including pricing and partnering options. We also argue that there is a case for mobile broadband offerings at a guaranteed quality and with differentiated prices – that bit pipe business model telecom operators are not at all keen on. The research also looks at the pros and cons with rolling out RCS, yet another alternative that some major European telecom operators, including Telefonica, Vodafone, Orange, Deutsche Telekom, have heralded as the solution to halt the decline of sms and win back end-users from IM services. In Sweden, only the incumbent Telia appears to want to push it right now – although we are still waiting with a launch date after plans were announced earlier on this year. As RCS’ success is heavily dependent on a ubiquitous deployment in all networks, making it as universal a service as sms, the lack of interest by other Swedish players makes the future of RCS in Sweden look rather bleak at this point in time.
Beyond Siri: the next frontier in user interfaces
This contract research, published by market analysis and strategy firm Vision Mobile in June (available as a free download here), dives into the fast-paced voice-activated mobile virtual assistant market. As lead researcher and author of the report, we looked into the potential disruption brought about by speech-based user interfaces as they spread to all types of connected devices. The research analyses the various business models for virtual assistants, and the impact of VA on ad-based business models and, not least, on search. Developers, speech recognition and artificial intelligence vendors, telecom operators and handset manufacturers are all working on it. Recent announcements by Apple on improvements to Siri, how AT&T has been pushing its speech API within its developer program or Nuance’s launch of Nina, a VA app for mobile customer service apps, are further proof of the high activity level in the VA space.
Welcome back to work!
Personalisation of services could mean more than data protection
Consumers will choose a more privacy-friendly provider given that:
…the price for a service is the same.
But lower the price of the service and consumers will most likely switch to a less privacy-friendly provider. This is one of the major results of “Monetising Privacy”, a report recently published by Enisa, the European Network and Information Security Agency.
In an extensive lab, field and hybrid experiment, participants were given the choice between two providers with a comparable service. Giving more data to the provider also meant getting a more personalised service in the case of a repeat purchase. And the results are rather telling.
People do care about privacy. But within limits.
As many as 93 percent of participants in the survey’s laboratory experiment said they were either “interested” or “very interested” in whether a firm protected their information. Knowing that 47 percent of service providers treat personal data as a commercial asset and 48 percent share it with third-parties, according to Enisa’s research, makes it all the more relevant a question.
But being interested in personal data protection does not equate to an unwillingness to share such data. Indeed, according to Special EuroBarometer 2011:40, 90 percent of online shoppers state they have disclosed their name and 89 percent have disclosed their address.
Given an equal price and equal amounts of collected data, 60 percent of respondents chose the more data-friendly provider, in Enisa’s research. That firm’s share soared to 83 percent when data gathering differences were made visible.
Yet, once a lower price comes into the equation, the more privacy-friendly firm loses much of its competitive advantage.
About a third of respondents were prepared to pay a mark-up price for privacy when buying something online, but the majority chose to switch to a less privacy-friendly provider, given the price for its services was lower. The numbers are telling again: If the data-friendly provider offered a higher price, then its market share decreased to 31 percent.
In other words, a majority of respondents were unwilling to pay a mark-up price for privacy.
The competitive implications pertaining to the protection of personal data are far-reaching. Personalisation – made possible by a bigger amount of collected data – can make it harder for a consumer to switch provider, because of the time spent giving their personal data, and the tangible return in the shape of a personalised product. The less privacy-friendly provider got indeed a higher share of repeat buyers, compared to the privacy-friendly provider, according to Enisa’s study,
Is it then worth it for a provider to differentiate on data privacy?
Enisa’s recommendation is that users should be given a choice about how much personal data they will disclose. Where we traditionally have compared prices between providers, we might want to compare service providers’ collection and use of personal data in the future, concludes Enisa.
In our eyes, the survey shows that price still is the most discriminatory choice factor for consumers. A perceived cost-saving, and a personalised service outweigh privacy as a choice criteria.
We should bear in mind that the survey only looks at transactions intermediated by money, thereby excluding social networks and free online services. It is also worth noting that respondents were based in the EU, that is, in democracies, where arbitrage between privacy-friendly and less privacy-friendly providers is possible.
Nevertheless, we dare to do some extrapolation:
Less privacy friendly providers had a higher share of repeat buyers, because gathering more data enabled them to personalise their service offering. We can draw two conclusions here:
* There is a good market for companies offering lower prices while collecting more data, and hence offering personalisation.
Enisa’s report is available here.
DIW Berlin (The German Institute for economic Research) and Kinorix contributed to the report.
Here are some sites of interest if you want to read some more on data protection in the EU.
Next generation workplace requires next generation mindset
Picture this: a workplace in 2016. The median age of employees is 40 years old, a much lower global median age due to emerging market populations (for example, 50 percent of India’s population is under 25 years old today) and employees are more multi-cultural and networked than ever before. Workforce competition from emerging markets is much stronger. People live and work more prominently in green buildings that have quadrupled in number. Virtually hanging out in social networks, consuming books and magazines in e-book form and streaming music take an ever growing share of our personal time…ooops. Did I just say personal time? Personal time and professional time are so intertwined going forward that working 9 to 5 is more theory than practice. Boundaries between physical and virtual lives too have blurred even further. Devices are commodities (though Apple and Android still lead in the OS space).
This makes for interesting challenges ahead for enterprises and end-users. It might be literally a virtual workspace, wherever you are – for example on a bench outdoors – but it will be far from a walk in the park.
For starters, I hope device manufacturers are able to keep up with the demand on mobile device batteries as media consumption spreads from mainly laptops today to laptops, tablets and smartphones. This sets high expectations and demands on guarantees and quality of service for network operators.
The biggest demands on both operators and device/OS players will probably be about privacy and security. End-users need to understand the risks and proactive measures that must be taken to protect their privacy and guarantee security, while enterprises must enforce security and privacy policies. Simultaneously the industry will need to drive common standards. Though it is hard to say what or who “The Industry” will be in 2016, given the many different kinds of players and the rapidly changing market dynamics.
As the physical and virtual world and private and professional spheres converge, the EUs Data Protection Directive (related to the processing and management of an individual’s personal data) may well turn out to be even more vital than today. And much trickier to follow.
Enterprises and individuals must start gearing up for a future that is right around the corner, one that will set demands on a different kind of infrastructure, business processes and legal frameworks.
The emerging instantaneous lifestyle combined with social media demands a shift in human capabilities too, whereby people in our Google and Twitter and Facebook society become more demanding, increasingly impatient and have a shorter attention span. This sets increasing demands on customer service, crispness in communications, performance and speedy execution. The days of the long drawn out meeting and discussions and internal politics are coming to an end. Those dinosaurs that do not proactively accept this new speedy and transparent networked world will – well – probably have the same fate as that of the dinosaurs. Only the process of extinction will be much much faster this time round.
By Marlène Sellebråten
This year’s Mobile World Congress – with record attendance – was a very good indicator of the changes the mobile industry has been going through in the past few years. Not least those originally brought about by Apple. That network infrastructure, including cellular networks, has gone all IP is the true disruptor of traditional telcos’ business models, bringing data hungry applications in the palm of everyone’s hand. And the mobile web was unsurprisingly very central to services and devices presented at Mobile World Congress in Barcelona this year, even more so than in previous years.
But where was Apple, when over 67,000 mobile industry people gathered in Barcelona last week then? Ironically, nowhere to be seen. Just as last year.
Well, Apple did not create the mobile web after all, and they were a no show in Barcelona, so why talk about them here then? Simply because Apple succeeded in placing this disruptive technology in a disrupting business model, which empowered end-users, enabled other disruptors to come to the front and ultimately gave the mobile web its original mass market appeal.
25 billion app downloads and over 500,000 direct and indirect job creations later (This is Apple alone!), and parts of the “traditional” mobile industry are still struggling to figure out how to deal with this disruption. Be it OEMs trying to take (back) the lead or operators painfully acknowledging that their business model must adapt to the mobile web. We will see tomorrow, as Apple runs an event of its own, if the company succeeds in keeping the momentum at last year’s high. For sure, Apple’s absence from Mobile World Congress – and its timely announcement of its own event during Eric Schmidt’s keynote – made the company all the more present in Barcelona.
In the meantime, web players such as Facebook and Google where the ones taking centre stage at Mobile World Congress. Not only physically, they were also top of mind when it came to a vast number of topics: Mobile data explosion, video traffic, mobile operating systems, the social web, Big Data and analytics, location-based services, not to forget user data and targeted advertising. Two companies, which only a few years back, were nowhere near the mobile industry, are now at its very heart. And we bet that within five years, keynotes will be delivered by yet another round of new disruptors taking the mobile and social web to the next level. Some of which we may even have met at MWC this year!
Here are the key topics, which kept Close to Market busy in Barcelona. Stay tuned for more detailed posts on each and one of these!
Mobile OS: It ain’t over till the fat lady sings
Boasting 850,000 device activations per day at the end of February, Android seems unstoppable. But other players have not said their last word. Nokia, also en force in Barcelona, announced it had lowered the price point for producing Windows Phone devices, giving it a better shot at targeting migration from feature phone and going head-on against Android phones at lower price levels. Let us not forget this is where the mass market is! Nokia’s Windows Phone strategy has also started to bear fruits: In February, Nokia was for example back in Swedish Telia’s top 10 selling smartphone list, after eight months of absence. In Finland, Nokia’s Lumia topped Elisa’s smartphone sales in February. We also take a closer look at efforts by Facebook, Mozilla/Telefonica and WAC focusing on HTML5 application development and distribution. Much talk about HTML5, not so much traction yet, but given support and distribution, this may be about to change.
Mobile data: OTT broke our business model
The “Google/Apple/Facebook broke my business model” talk is not new, but it was still going strong in Barcelona as a few prominent telco CEOs once again stated that OTT players – in particular in the video and tv space – must not only share the opportunities, but also the risks. Read: chip in and participate in network investments. Answering a question from his keynote audience about this very topic, Google’s chairman Eric Schmidt made it very clear that what a player like Google brings to the table is web services that stimulate mobile data growth. Mobile data traffic is where telcos need to look at in order to grow their revenue and recoup their costs.
We look at how mobile operators positioned themselves towards OTT in Barcelona, from blocking of and charging for OTT services to embracing an OTT friendly approach. We also look into more ”operator friendly” OTT players, which terminate call and messaging traffic in operators’ infrastructure. And then there is RCS of course: Is it viable and if so how, or is it too little too late?
Offload and migration to faster cellular technology a necessity
One topic buzzing all over Mobile World Congress was the need for offloading data from cellular networks onto other types of infrastructure, in particular wifi, and the increasingly pressing need to migrate to more advanced, faster technology, in particular 4G/LTE, but also IMS. Regarding offload, operators often have no visibility over what end-users offload, where they offload, and whether it is secure. But no matter whether telcos are supportive of offloading, end-users will find a way to do it, be it to gain higher access speeds, reduce data costs, and not least reduce roaming charges. We look at how telcos’ wants and end-users’ needs can be reconciled.
Mobile money: Battle of the ecosystems – which place for the end-user?
Having been a judge for the World Communications Awards in the past four years, I have had the privilege to look into many innovative mobile money services in developing countries. Services we could only dream of in our developed markets. To put it simply: in countries where the payment infrastructure is lacking, operators, merchants, employers and people must find a way to move money between one another. And they do find a way to do it. In developed markets, the question of mobile money has more to do with established players not loosing out because of new technology, as much as about what we can replace the existing payment system with. Nothing gets done, at least not quickly, because telcos, banks, card issuers and merchants all have different views about how to do it, who should own the system and who should profit from it. We look at the various value propositions presented at MWC. Few of them had the end-user at heart, which in our view is the most important success factor.
Get in touch with us for more information about how these topics affect your business. Use the comment box or send us a mail: firstname.lastname@example.org
As Facebook is gearing up for its USD 5 billion Initial Public Offering, IPO, the release of its prospectus at the end of last week made for an interesting read. While the social network’s revenue and income growth path since its launch in 2004 is commendable (check it out here), here are three major challenges – and just as many opportunities – which Facebook has yet to address:
Challenges are opportunities: For Facebook, just as much as for its competitors, telcos and new entrants. Opportunities to grow, to compete and to collaborate.
Challenge 1: Diversify and grow payment revenue
Almost all revenue within the Facebook’s payment business comes from Zynga
Payment revenue grew 425% in 2011, ad revenue 69%
Just as the US generates much more revenue than other regions – with 56 percent of total revenue of USD 3.7 billion – one customer, also based in the US, weighs a lot heavier than any others within Facebook’s payment segment: Zynga. The social gaming company actually brings Facebook close to all of its revenue within the fast-growing segment, and as much as 12 percent of the social network’s total revenue, with about USD 445 million, in 2011.
Putting things in perspective, payment revenue accounted only for 2 percent of Facebook’s total revenue at the end of December 2009, against 98 percent for advertising. At the end of December 2011, payments generated 15 percent of Facebook’s total revenue, having increased by 425 percent in 2011! In comparison, advertising revenue grew 69 percent.
This is partly how Facebook did it. Since May 2010, Facebook has been taking 30 percent of the value of every purchase in Zynga’s games on Facebook. This fee agreement will expire in May 2015 though. Besides this deal, Facebook made the use of Facebook Payments mandatory in July 2011. The payment platform had by then already gained adoption and started to generate significant revenue.
The growth pace of Zynga’s revenue on Facebook has been slowing down over the past two years however, but its importance to Facebook has on the contrary been increasing, from less than 10 percent in both 2009 and 2010 to 12 percent in 2011. Bear in mind Zynga also spends ad money on Facebook.
A challenge for Facebook is to demonstrate that it can continue to grow within that segment beyond Zynga. Adding new payment methods, as the company is planning to do, may be one of the ways to do just that.
Challenge 2: Monetize mobile products
Facebook generates close to no revenue from mobile products
Monthly active users, MAUs, and revenue, 31 Dec 2011
Facebook said it before and states it again: Mobile products are a strategic priority. Yet, the social network must prove it can make money out of that channel. The situation with mobile is similar to that of Pages; both products are user and engagement magnets, but when used as substitutes rather than complements to Facebook’s ad bearing channels, they are a no money game.
Not only has Facebook usage via mobile products increased, accessing the social network that way has been a major contributor to higher user engagement. At the end of 2011, 425 million users were using Facebook’s mobile products, that is over half of the total user base. But again, as Facebook does not display ads in that channel, it makes close to no money there.
Facebook plans to address this gap and monetize its mobile products for instance by including sponsored stories in users’ mobile news feeds. It is said to be launching such a solution in March. In its IPO prospectus, Facebook also makes it clear it wants to ”be the fastest and most reliable way for users to communicate through” e-mail, chat and text messaging.
Facebook was able to increase its price per ad thanks to its efforts in terms of increasing relevance. There is no reason why Facebook should fail in monetizing mobile products. It could be a tough nut to crack though, as competition within mobile advertising is popping up everywhere, in all shapes and forms.
Challenge 3: Increase revenue per user outside the US
US revenue per user over five times higher than in other markets
Besides mobile, Facebook has done a remarkable job with growing revenue, revenue per user and engagement. The pace of user and revenue growth rate has of course been gradually slowing down over the years, as the social network has reached a critical mass in many markets.
Average revenue per user, Dec. 2011
But there are more markets to be addressed, in particular in Asia, South America, India and less penetrated European markets such as Germany. Taking a closer look at Facebook’s business across various regions makes yet another challenge obvious: Facebook users outside of the US generate less money than US users.
Indeed, 56 percent of Facebook’s total revenue of USD 3.7 billion for financial year 2011 was generated within the US alone, while the region only accounts for 19 percent of Facebook’s total user base. This means that revenue per user in the US is more than five times higher than revenue per user outside the US, or 12.8 USD against 2.4 USD. The average revenue per user for Facebook’s total user base increased by 35 percent to 4.39 USD between 2010 and 2011. Other major revenue driving regions are Western Europe, Canada and Australia.
What does this all mean?
It means that, although Facebook has grown at an incredible path and has had a huge impact on the social web, it also face challenges. Challenges which are just as many opportunities, not only for Facebook itself, but for all other players wanting to get a piece of the pie.
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Facebook filed its Initial Public Offering (IPO) prospectus with the Securities and Exchange Commission on February 1, 2012. The prospectus provided for some number crunching food, for all of us who had felt data starved before. We present here some of the top level figures (you will find a detailed analysis here). What these graphs show is that both revenue and users have been growing steadily since Facebook first launched in 2004. It also shows that the growth pace for both revenue and users has been gradually slowing down over the years. Looking at Facebook’s geographical reach, we can discover an almost equally sliced pie chart, between US & Canada, Western Europe, Asia and Rest of the World. Problem is that revenue is predominantly generated in the US, Western Europe and Canada (more on this here).
Facebook’s revenue and revenue growth rate over time
User growth and user growth rate development
Facebook’s geographical reach
Monthly active users (MAUs) per region, Dec. 2011
by Priya Sawhney
Apple, Facebook and 21 December 2012. These are the three things that will get special attention from me this year. What do they have in common? They are all about transformation.
There is no arguing that the iPhone has raised mobile phones to an entirely new level of personal interaction. Simultaneously, speedier access through 3G and 4G networks has made spending time with your smartphone a fun thing to do. Then came the iPad… Add virtual communities and instant collaboration enabled by Twitter, Facebook and Google and you get a networked, layered culture where information is delivered through multiple channels, quickly disseminated… and quickly redundant.
800 million worldwide had Facebook at the end of December 2011
The select “connected” individuals’ behaviours are fundamentally changing: they are individuals who think differently, process information differently and interact and communicate with others in new ways. Their resources increase through tapping into the social and collaborative nature of man.
Regardless of which job they have, those who master these new behaviours will have an immense advantage over all others. Here are some of the changes they will bring about:
To us in the communications business, it means that we should gear up for continued transformation in people, business and our industry. These connected people are blazing the path for a changed information society, with:
And these are some of the things it entails for our industry:
What about 21.12.2012 then?
The Mayans predicted a major reorientation of life around this date. There are those who treat this to mean doomsday, those who predict environmental or planetary disasters, those who see this as societal transformation and those who do not believe in this prophecy in any way. If it turns out that 21.12.2012 is about transformation and change for the better, then I am willing to wager that always connected smartphones and social media will help make this happen.
But let us remember that this transformation is far from uniform. Facebook’s rapidly increasing global penetration (See graph 1 on Facebook) shows the growth of a digital planet, a parallel world that is just a few clicks away. Yet a digital planet only accessible – and accessed – by some segments in human society. And the speed of spread of this change is incredible. A new kind of survival of the fittest.