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The breach of the walled garden

Turning the off-portal mobile content


phenomenon to mutual advantage

White Paper
Written by Pinal Gandhi & Andrew Ferguson

The growth of off-portal browsing

A new set of dynamics is gaining ground in the mobile


content market, stimulated by a combination of
advancing technology and a growing maturity in digital
material. The driver behind this dramatic change is the
rise of off-portal mobile content — that is third-party
content and services sold via sites not controlled by the
network operator.

Contents In this paper we explore how and why the acceleration in user demand for
off-portal browsing through mobile devices is creating a whole new order in
the mobile communications arena.

Dynamics of the new order 1 We examine the issues and challenges, the opportunities and the threats for
Pressures on the network operator 1 each of the key player elements within the digital content market, and
outline the strategies and mechanisms we believe each needs to adopt in
Multi-channel strategy 1 order to sustain a profitable position in this fast-changing environment.
Solution infrastructure 2
The advance of technology 2
The battle for market share 3
Mobile operators 4
Content owners 6
Content aggregators 8
New entrants 9
Conclusion 10
Independent research by JupiterResearch reveals that off-portal sales in Europe
already account for between 40 and 70 per cent of mobile content revenues.

CONTENT

CONTENT CONTENT MOBILE


CUSTOMER
PROVIDER AGGREGATOR OPERATOR

REVENUE
Dynamics of the new order Pressures on the network operator

Public appetite for mobile access to ever more inventive So where does this leave the mobile network operator?
services and content has led to the growth of a new Once at the very heart of the value chain, operators are
phenomenon: the provision of off-portal content and now finding themselves sidelined by service providers
services by third parties from sites that are not under and content owners who are seeking innovative ways to
the control of the mobile network operator. develop their own share of the burgeoning mobile
content market.
Independent research by JupiterResearch reveals that
off-portal sales in Europe already account for between Users discover these off-portal sites via a wide
40 and 70 per cent of mobile content revenues, spectrum of distribution channels beyond the carrier
depending on operator and territory, with the US also portal – television commercials, search engines,
rapidly gaining traction. magazines, contextual links on websites, media reports,
word of mouth and even in short codes under bottle
Other research reports confirm the burgeoning growth in caps or on cereal boxes.
off-portal activity. For example, Berg Insight estimates that
by 2012 the mobile entertainment market could be worth With their control and influence over service offerings to
$32 billion, with games being the leading content category. the customer thus compromised, operators now have
Strategy Analytics estimates that global revenues from little choice but to review their conventional walled-
mobile data will grow from around $61 billion in 2006 to garden approach and find new routes to market.
just over $189 billion in 2009, and Qpass Inc reports that
about a third of global digital content sales – nearly
$1.4 billion – went off-portal in 2005. Multi-channel strategy

Meanwhile, ingenuity and technology continue to Media companies and content rights owners, as well as
stimulate the growth of off-portal commerce further. fixed-line ISPs, want to make their mark in the mobile
Greater bandwidth, more powerful handsets and arena. As a result they are branching out into new
increasingly sophisticated protocols and payment media platforms. For example, big players like MTV are
software make it ever easier for consumers and content shifting to a multi-channel strategy, putting viewers in
owners to reach one other – regardless of operators’ control as they transform themselves from conventional
garden walls. broadcasting businesses into multi-platform digital
media companies.
The operator may have a business relationship with
off-portal content providers, such as payments Broadband users are increasingly interested in receiving
processing arrangements, but the key factor here is that triple and quadruple play services from a single provider
off-portal providers can also sell to consumers without and expect digital content and services as a core part
any direct operator involvement. of the bundle.


The emergence of triple and quadruple play service offerings is leading to the
creation of a broadening digital content marketplace, with previously diverse
players extending their reach into new channels.

The advance of technology

Off-portal will represent the majority of content delivery, One of the key forces of change is the emergence of
increasing in domination if Java applications become a more sophisticated mobile internet-optimised handsets
new way to bypass mobile operators. The BBC’s and improved network capabilities, giving customers an
Headlines Tracker mobile application, which grabs the increasing breadth of choice as to where they source
headlines for you either on demand or automatically, is and purchase content.
a good example. There are also now Java-based SMS
services trying to wrest service from operators. A key future technology enabler for off-portal content
services will be the growth in content management and
distribution systems based on the IP Multimedia
Solution infrastructure Subsystem (IMS), a network architecture and framework
that enables the convergence of data, speed and
With increasingly sophisticated content delivery mobile technology over an IP-based infrastructure.
platforms at content providers’ disposal, consumers are
likely to enjoy a better quality of user experience. This As such, it helps to eliminate the cost and difficulty of
will stimulate more usage, in turn encouraging more creating separate silos for each new service and will in
content providers to deliver direct-to-consumer sites. many ways be an enabler for wider content access
from mobile devices. IMS is emerging rapidly from the
Investment is required to provide an end-to-end standardisation work undertaken by the Third
infrastructure that can keep pace with these Generation Partnership Project (3GPP) for 3G mobile
developments. The mobile operators and service phone systems in UMTS networks and is becoming the
aggregators are well positioned to play a part in de facto standard for real-time multimedia
developing the technology needed; they have the communication services.
existing infrastructure and market experience. Due to
the high level of investment required to provide end-to- At the same time, advancing technology also enables
end infrastructure, the smaller content providers will service providers to extend their offerings across
need to consider a range of options in finding their previously diverse channels: fixed, mobile, PC and
optimum route to market, such as partnering with digital TV. The emergence of triple and quadruple play
system integrators, billing vendors and managed service offerings is leading to the creation of a
service providers. broadening digital content marketplace, with previously
diverse players extending their reach into new channels
Atos Consulting believes that in considering strategy – and thus increasing competition.
and positioning, the business needs to look closely at
the long-term investment case for IT, taking in issues
such as digital rights management (DRM), streaming
and content management. Changes to market
conditions – for example, legislation, taxation on content
and development in standards – will also have an
impact on IT and hence the return on investment.

However, technology remains a vital factor. The


Atos Consulting view is that integration of the various
infrastructural components needs careful consideration
in developing an end-to-end solution, in order to
standardise platforms such as charging and commercial
offering management. Only through this level of
cooperation will mobile operators, aggregators and
content owners be enabled to work together,
seamlessly and securely.


Players in the mobile communications market are now having to recognise the
natural symbiosis that exists between the various market contributors and to
collaborate in ways not previously explored.

The battle for market share

Established players in the mobile content marketplace For all these reasons, players in the mobile
include network operators and device manufacturers, as communications market are now having to recognise
well as film studios, broadcasters, record labels and the natural symbiosis that exists between the various
game publishers. Determined to preserve a significant market contributors and to collaborate in ways not
stake in the success of their mobile content operations, previously explored. Mergers, new strategic agreements,
each is now vying for a central position in the new market. alliances and partnerships, as well as both vertical and
horizontal consolidation, are inevitable. Indeed these are
The outcome of the battle for market share will ultimately already happening.
be decided by the end-user. In this respect, the new
mobile value chain is similar to the fixed line internet, Atos Consulting believes that the mobile content
where control is driven increasingly by customer choice, experience will converge with today’s online internet
and where brand recognition and customer acquisition experience. While, in the early days of the internet, ISPs
strategy count above almost everything. such as AOL had great success with their walled-
garden strategy, there is growing recognition that a new
way of thinking is required. The challenge now is to
attract and retain customers through appropriate
marketing and the sourcing and bundling of compelling
content in line with market demand.


A major question for mobile operators is how to incorporate off-portal content
successfully as part of their next-generation mobile data strategy.

Issues and opportunities for


mobile operators
The conventional channel to market for digital content providers has been via a mobile operator, who decides
how it is offered, presented and priced. But this is changing rapidly. Content providers now have direct ways of
engaging with their target audience.

It follows that a major question for mobile operators is how to incorporate off-portal content successfully as
part of their next-generation mobile data strategy, built around personalisation, rich content and a more
converged user experience.

The need to cooperate Winners all round


Operators have, until now, been reluctant to support the If mobile operators extend their portals to
off-portal proposition, since it threatened to dilute their accommodate a hands-off relationship with content
own premium content revenues. But more recently they providers, there can be winners all round. Consumers
have started to recognise that locking customers into have a wider service range, providers sell more content,
their own portals – the old walled-garden model – can and operators gain additional network usage revenue.
be counter-productive, now that consumers expect
access to the widest range of content and services Rather than compromising service quality by engaging
available, both on- and off-portal. in direct management of too much content for too many
handsets, operators should exploit their strengths.
However, while it’s certainly true that the emergence of By extending their infrastructure and enabling
off-portal activity reduces the power of mobile operators, consumers to charge off-portal content to their existing
it also presents them with opportunities to capture a mobile phone bill, operators can reduce churn, increase
slice of the burgeoning content market by facilitating average revenue per user and accelerate subscriber
transactions and payments through their existing billing acquisition rates.
and payments systems.
Another strength of the mobile operators is the influence
Whether consumers access content services via an they have over standards adoption and interoperability
extension of the mobile operator portal, known as the in handset design, owing to their strong relationships
‘friendly off-portal’ space, or by going straight to third with the manufacturers.
party content, the result is more data packets being
sent over the network. Either way, there is an Cost is one of the biggest barriers to customers using
opportunity for mobile operators to generate increased data services today and the operators should also focus
data revenues by charging for airtime and packets on providing optimised data pricing plans to stimulate
consumed, rather than the content itself. off-portal usage. Being able to charge for content in a
reliable manner remains key to all parties.


To enable the industry to grow, mobile operators need to work with new
entrants, content owners and service providers rather than attempting to
grow the market themselves.

Focus on core business Turning strengths to advantage


To enable the industry to grow, mobile operators need The mobile operators have powerful tools through which
to work with new entrants, content owners and service to extend their propositions across channels and to
providers rather than attempting to grow the market partner with content specialists and providers.
themselves. There are significant opportunities to be Specifically:
realised by operators concentrating on managing their
core businesses – educating the market, simplifying > skills and experience in providing content through the
data tariffs and improving the user interface. At the mobile channel
same time, content owners and media companies need > control and influence over the handset design and
to partner more closely with operators to benefit from technology
their marketing services and audience insights. > leadership in the provision of voice related services
and market share
In the short term, mobile operator portals will continue > the experience of charging and managing the end
to play an important role in the delivery and charging of customer.
mobile content. They will remain key distributors
through the continuing control of handsets via subsidies, Atos Consulting believes that the way forward for the
control billing systems and default home pages. network operators is to:

> focus on strengths in the value chain and ensure


network coverage
> decide on and pursue strategies into providing new
customer channels
> maintain focus on bundling, pricing and end customer
propositions.


There is now the opportunity for content owners to work with operators to
design handsets jointly and to interact closely on development and rollout of
new models.

Issues and opportunities for


content owners
Of course content owners prefer to package and present their own content, because deferring to operators or
content aggregators impacts on revenue. In some cases operators will take as much as half the revenue per
transaction.

However, most content owners lack the infrastructure for delivery and charging, as well as experience of
managing customer relationships. While operator portals continue to be fundamental to the business and
marketing models for a brand, content providers need to determine what method of delivery works best for
their target consumers.

To date, network operators have had the biggest influence on handset technology. But there is now the
opportunity for content owners to work with operators to design handsets jointly and to interact closely on
development and rollout of new models. For content owners this encourages consumers to access their
content through intelligent hardware design — and for the operators such collaboration can help strengthen
customer relationships.

Powerful competition Media businesses have also learned how to leverage


The evolution from walled gardens to open portals is the mobile channels, often through limited on-portal
exciting many big brands and lesser-known content activities, and no longer want to rely solely on mobile
companies that see the potential for selling directly to operators. And then there are initiatives like eBay’s
the consumer. PayPal-Mobile, already attracting big numbers of
registered customers.
Big-brand content companies such as MTV and
Electronic Arts are investing in a multi-channel operating The enormous success of social networking sites like
model. Other leading brands like Disney are also MySpace and Bebo is also influencing how mobile
entering the market, leveraging global customer loyalty content companies obtain their material. Increasingly,
to challenge the dominance of mobile operators. content owners are encouraging user generated and
Exploiting experience gained from its internet presence, derivative content, a big pull for the youth segment that
Disney is developing a branded portal and establishing dominates the music market.
its own customer billing relationships.

In the UK, Channel 4 is one of a growing number of


brands delivering comprehensive direct-to-consumer
mobile sites. These sites are 100 per cent branded,
device-optimised to ensure that each user receives the
best available presentation and rich media assets. They
also incorporate the latest billing techniques that
emulate the browse-and-buy experience normally only
available on mobile operator portals.


Voice and SMS services are essential competitive offerings in this market –
but the real driver is the ability to unleash the revenue potential that the content
market has to offer.

Spend and revenue The way forward for content owners


End-to-end ownership of content and delivery Previously squeezed on revenue shares, content
infrastructure enables these players to control and owners need to look to new channels through which to
manage the customer relationship and to gain greater sell content to wider customer bases. The key value is
insight into customer demand. While this can obviously the content itself, and content owners will be seeking
lead to enhanced revenues, it also requires greater ways to grow revenue return from premium content.
investment of initial capital and operational expenditure.
The plan of action for content owners will surely be to:
However, the mega-brands are taking more than just a
slice of the revenue from their content; they are also > develop competitive market strategies and assess
providing voice services, reducing operator revenues their value propositions
further and threatening mobile operators’ original > consider routes to market and the financial case for
business areas. Voice and SMS services are essential investment
competitive offerings in this market – but the real driver > review alliances and partnering strategies
is the ability to unleash the revenue potential that the > ensure robust financial evaluation for different
content market has to offer. distribution channels.


While operators tend to prefer dealing with a small number of content partners,
they need to provide a huge choice of content that reflects customer demand.

Issues and opportunities for


content aggregators
Content aggregators are rapidly becoming the off-portal intermediaries, with an increasingly direct relationship
with the consumer.

While operators tend to prefer dealing with a small number of content partners, they need to provide a huge
choice of content that reflects customer demand. They can do this by working with a small number of content
aggregators who bring large catalogues of content to the table.

To remain successful, aggregators need to deliver the widest variety of high quality content, while ensuring fast,
accurate transaction routing and payments settlement among multiple operators and content providers.

Appropriate charging Strategy for aggregators


In the past, mobile content has been sold through Aggregators have the advantage of being already
premium SMS, with either a price-per-event or through established and experienced as diverse content
a recurring subscription with unlimited downloads. providers, with the infrastructure to facilitate sale and
Content aggregators need to ensure that they enhance delivery.
these charging models in line with customer
expectations and that they apply appropriate charging Critical points of future strategy for aggregators will
according to the service being accessed. include:

Aggregators may well feel the pinch as content owners > expansion of charging mechanisms to ensure growth
seek to maximise revenue through stronger direct and increase of customer loyalty
relationships with the operators. However, Atos > readiness to extend infrastructure to support
Consulting believes that operators, as well as large more content providers and take over customer
media brands and niche media/technology players, will relationships from the mobile operators
be looking for managed service solutions to reduce the > exploitation of experience and infrastructure to
cost of content delivery – presenting aggregators with provide managed services to content providers
an opportunity to leverage their existing systems, > provision of commercial models for content
customer base and channels to provide managed appropriate to the specific service, allow for
solutions. differentiation of service such as Digital Rights
Management (DRM), content delivery assurance and
quality of service
> strong focus on branding and advertising.


Exploring the market to see what works best for each player before committing
further investment, both in revenue share and customer base, is becoming
increasingly common.

Issues and opportunities for


new entrants
Mobile operators’ relationship with the customer may position them at the centre of the mobile content value
chain for the time being — but major players such as Yahoo! and MSN are already taking steps to interact
directly with customers through their own mobile content portals.

Also among these new entrants is AOL, anxious to expand beyond its mature dial-up internet access market.
By leveraging current fixed content, AOL has introduced new and enhanced mobile services, including new
mobile browsing that adapts web pages to mobile screens.

BT also plans to launch a mobile content portal and potentially integrate this with its broadband and wireless
services including BT Fusion, the world’s first seamless fixed and mobile phone service. Services, including a
mobile media portal and customised handset client, will be accessed by the new generation of wi-fi enabled
handsets, featuring a wide variety of new content such as branded Java games, video downloads and
ringtones.

Exploration in the market However, portal appetite goes well beyond fixed and
The mobile content industry offers different business mobile services, and the internet giants could well prove
opportunities for different markets. Exploring the market a direct threat to operators’ longstanding access-
to see what works best for each player before centric business model. In fact, recent developments
committing further investment, both in revenue share are enabling them to launch full-frontal attacks on the
and customer base, is becoming increasingly common. internet access markets: virtual operators, voice, TV,
wi-fi and mobile access.
For example, Google is taking the ‘try it all’ approach,
having invested intensively in mobile search, text The off-portal content market may also offer smaller
advertisements, location-based services and localised developers big opportunities, though they face
software on mobiles. It has gone some way in challenges in marketing, quality control and billing.
establishing itself in the mobile search space, most Generating traffic and winning off-portal content sales
recently with deals signed with T-Mobile (Web’n’Walk) and will not be easy for these smaller companies, without
Vodafone. However, if Google and other competing firms the brand recognition and marketing resources to tempt
are to be successful, they need to get returns on their consumers with their content. As a result they will have
experiments and establish an identity in a specific area. no option but to partner with an independent
aggregator to drive business forward.
Thanks to a handful of extremely popular key services,
leading internet companies have enjoyed an impressive New players entering the market need to build a
rise in traffic and revenues, and have established passionate user-base that will stay loyal, while they build
themselves as powerful brands. Recent partnerships frequency of interaction across multiple platforms and
with mobile operators offer real opportunities for deliver engaging opportunities for advertisers. Atos
collaborating parties, albeit depending on the nature of Consulting’s view is that, as new content emerges, so will
the service. an advertising infrastructure to support this content which
is not currently being sustained by carrier agreements.


Now is the time for the different players to prepare their strategies and
implement positioning tactics in preparation for the wider adoption of the
technology, with alliances, mergers and joint ventures to give offerings across
previously diverse channels.

Conclusion

Strategy for new entrants At Atos Consulting, we believe that developments in the
Coming into the marketplace from an ISP or search digital content marketplace, enabled chiefly by advances
engine background, new entrants tend to show an in off-portal browsing, can provide significant
aggressive approach to positioning themselves at the opportunities to enhance revenue potential for all parties.
centre of technology developments, as well as courting
strategic alliances with key market players. The opportunities will come through the increased value
added to customer propositions and the facilitation of
These entrants need to follow through their market their experience through better access methods.
experimentation with establishment of a positive identity
and product set with which customers can clearly Now is the time for the different players to prepare their
identify. Specifically: strategies and implement positioning tactics in
preparation for the wider adoption of the technology,
> Assess the case for expansion into new areas such with alliances, mergers and joint ventures to give
as voice offerings across previously diverse channels.
> Establish an identity and areas of key focus or
competitive advantage As well as this continuing positioning activity, we will see
> Strike a balance between product placement and more definition around service propositions and
ongoing profitable business models. offerings to the consumer fuelling the wider adoption, in
line with the introduction of better handset technology
to improve access and user experience.

Each of the players needs to consider their role within


this developing market place and ensure that they focus
on key strengths rather than diluting returns through
stretching their position across areas of the value chain
where they do not have competitive advantage.

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About Atos Origin
Atos Origin in the Telecom Sector
Atos Origin is an international information
Atos Origin’s turnover in the telecoms industry is close to €1 billion. It
technology services company. Its business is
delivers consulting, systems integration and outsourcing expertise to 350 turning client vision into results through the
customers around the world, including Tier 1 telecom operators in Europe. application of consulting, systems integration
Atos Origin has been active in the telecoms market for more than 20 years. and managed operations. The company’s
annual revenues are more than EUR 5 billion
Atos Origin is the European market leader in prepaid billing solutions, and it employs over 46,000 people in 40
managing 25 million users and two billion transactions a year in payment countries. Atos Origin is the Worldwide
systems. It was the first company to design and manage customer loyalty Information Technology Partner for the Olympic
programmes for the telecoms industry, serving some 13 million members. Games and has a client base of international
blue-chip companies across all sectors. Atos
For further information, including a series of detailed fact sheets, regarding Origin is quoted on the Paris Eurolist Market
off-portal mobile content and preparing for the future please contact: and trades as Atos Origin, AtosEuronext,
Atos Worldline and Atos Consulting. For more
Atos Consulting, Technical Consulting Group information, please visit the company’s web site
technicalconsulting@atosorigin.com at www.atosorigin.com

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