Research Notes

Technology suppliers need to rethink their business models

The mobile phase that focuses on segmented mobile providers will result in many changes for the players on the mobile market – and especially for the technology providers. For the technology providers, the transition towards the mobile market characterised by an increasing number of mobile providers without their own network will result in changes that both influences sales and marketing and also product offerings. The technology providers want to be able to influence the market in a positive direction, but also need a basic knowledge of the mechanics of a mobile market characterised by segmented mobile providers without their own network, to be able to adapt to that the market both now and in the future.

There is no doubt that on a market characterised by segmented mobile providers, many technology providers will still choose to sell platforms and other infrastructure using the classic business model, where a mobile provider purchases the platform and thereafter can freely use it. Using this strategy, the mobile provider takes on the full risk when purchasing the platform, but can then use the platform as much as they want and have the platform at their full disposal. When using a revenue sharing model, the mobile provider is often bound by the contract with the technology provider, thereby having a smaller level of freedom, but instead gaining a number of other advantages.

A business model based on the generated traffic, or on the number of (active) end-users will be attractive for many mobile providers. With this business model, the platform payment does not need to depend on the generated revenue. Some mobile providers will typically be interested in stimulating certain types of services/mobile traffic and may therefore give the platform provider a larger payment than the platform is actually generating, if it can help improve their overall mobile business by for example decreasing churn etc. This scenario could for example be used for a location-based service, that a mobile provider believes can create a greater level of customer satisfaction and therefore wants customers to use the service is much as possible.

When payment for a platform is based on mobile traffic, the platform provider will be interested in developing a platform that many mobile customers will want to use, but not necessarily pay for. This could for example be interesting in connection with educating mobile customers in getting used to new technology. One example of a company that offers contracts where payment is based on traffic, is Ericsson. Ericsson delivers mobile network equipment to mobile operators and in a number of cases, payment is based on how many erlang (a unit of network traffic intensity) are sent through the system. For example, the mobile operator Barthi in India has this type of contract with Ericsson.

Many technology providers will however in the future increasingly choose to offer business models based on revenue sharing. This ensures that the costs of acquiring a platform are low for a mobile provider, while simultaneously giving the technology provider a place in the services value chain. Thereby the technology provider gets a direct interest in creating revenue on the platform, both ensuring that the mobile provider can generate revenue and at the end of the day, helping create a healthy mobile services market. A number of platforms are currently being sold using this business model, especially solutions from smaller technology providers.

There is no doubt that many mobile providers will be interested in business models that diminish the start-up costs of purchasing and implementing new technology/platforms and that thereafter allow the financial risks to be divided between the technology provider and the mobile provider.

However, the new revenue sharing or traffic based business models also pose a number of challenges to the technology providers. Technology providers ought to try to target the successful and/or larger mobile providers, as their platform payments will depend on the success of the mobile providers on the market. A successful mobile provider can over time be very good business, while a less successful mobile provider can end up a total loss, without having generating any profit at all. But usually, a revenue sharing business model will result in technology providers receiving an ongoing cash flow and over a longer period of time, generating more revenue than they would have received from a traditional one-time payment sale.

In our new report How to get success in the second Generation MVNO Market, these issues and many other challenges are examined and analysed, making the report an excellent and effective tool to help technology providers choose and create optimal business models. The report contains an in-depth analysis of the changes currently happening on the mobile market, technology companies have for long time been selling their products using a classic business model based on a fixed-price per unit/platform. But by using other types of business models, the technology companies and their customers can gain a number of significant advantages.

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