Research Notes

Distribution – The Path to Success for Mobile Platform Suppliers

The future business models for Service Platform Environments will be based on revenue sharing – licence sales is history…
The market for Service Platform Environments is still in its infancy, but due to increasing competition this business area will quickly mature. Any transition from infancy to adulthood is something that traditionally requires a change of thought and actions and the service platform environments transition to adulthood will also without a doubt lead to the need for significant changes in business strategies and business processes among the mobile value chain players. The platform suppliers’ strategies will mostly be affected by the mobile operators’ strategies in the mobile services area. The suppliers’ strategy will over the coming years change radically due to pressure from the mobile operators.

The market for service platform environments is currently very competitive, a consequence of the market being characterised by many different ambitious suppliers. But as the service platform environment market matures, there will be a consolidation in the form of both mergers and partnerships.

This consolidation has already started; one good example of this is Qualcomm’s purchase of Trigenix. Qualcomm have also entered into a partnership with Elata to market Qualcomm’s offerings on the European market, so customers can choose Elata’s solution for distributing content to customers, using Qualcomm’s clients for the content delivery platform.

This consolidation will increase over the coming years because not all suppliers have the financial resources needed to do business on the service platform environment market and those suppliers will be forced to either enter into partnerships or mergers.

The market development for service platform environments will however be characterised by the mobile operators strategies for the mobile services area. In a time where the mobile operators are seriously focusing on decreasing their CAPEX and OPEX, operators will be very conscious of how suppliers have designed their business models for the purchase or rent of service platform environments.

The licensing models that are being used for service platform environments today are very varied, but they all have two major elements; sales of service platform environments (one-time-fee) and revenue sharing. The fundamental differences between these two business models are of great importance for the future mobile market and for many mobile operators choice of platforms.

The business models based on a one-time-fee are very simple; the mobile operator pays a one-off amount for the purchase/use of the platform. This business model increases CAPEX and OPEX for the operator, but on the other hand the operator does not have to share the generated revenue with the service platform environment supplier. With the one-time fee model the operator takes the whole risk as it is the operator that has all the costs for marketing, distribution and sales and the platform supplier has thereby no responsibility or liability regarding the operators’ success with their platform.

The implementation of revenue sharing will have a number of consequences for both the platform supplier and the mobile operators. By using revenue sharing, the mobile operators and the platform suppliers share the revenue generated via the platform. For the mobile operator this model means that they decrease their financial risk significantly, as costs for the platform are shared with the platform supplier. This model does give less revenue for the mobile operator, but the model also gives far less risks. For the supplier, the revenue sharing model has far more risks than a business model based on the one-time fee, as the supplier becomes much more dependent on their business partners and these partners business strategies – in this case the mobile operators business strategy. On the other hand they are taking on a larger responsibility and therefore getting a larger reward if their platform becomes a success.

The mobile operators’ current focus on decreasing their CAPEX and OPEX will mean that most operators will primarily choose to do business with the service platform providers that offer their service platform environments on pure revenue sharing business models. This is because the mobile operators will thereby only have small costs in connection with implementing revenue sharing based service platform environments.

A number of establish players like e.g. Nokia and Ericsson etc have already chosen to offer their service platform environments based on revenue sharing deals. This has partly been because they have recognised that the mobile operators, as mentioned above, are focusing a great deal on decreasing their CAPEX and OPEX, but it is also to enable them to acquire a share of the revenue generated from sales of mobile services to the end-users via the platforms.

The future licensing models for service platform environments will in other words be models based on revenue sharing. By using revenue sharing, players that cannot create traffic and sales on their platforms will slowly but surely disappear from the mobile scene. In other words the success of a service platform environment supplier will not only be decided on the quality of their platform, but also will depend on the sales figures that the operators can achieve when using the different service platforms for sales of mobile services.

In Strand Consults report – ”How to get success in the 3. Generation VAS market” – we have analysed 12 different service platform environments in depth. The report contains an analysis and description of the licensing models that are currently being used by the suppliers. The service platform environments that have been analysed and described in the report are: BREW from Qualcomm, Mobile2Market from Microsoft, Handango, Brand-n-Go from Action Engine, Service Layer from Ericsson, Preminet from Nokia, Opera, FlashCast from Macromedia, Surfkitchen, OpenWave, Vodafone live! and i-mode from NTT DoCoMo. 

the 3. Generation Value Added Service Market

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