Research Notes

The mobile industry is moving towards Open Garden

The mobile industry is very focused on the sales of mobile services because there is an expectation that revenue from sales of mobile services will compensate for the decreasing prices on voice and SMS. 

In order that mobile operators can achieve success in the services area, many will have to adjust their current strategy in a number of areas – areas where the mobile operator will be able to positively influence the services market and a successful strategy for the services area will be the Open Garden strategy. The Open Garden strategy is the complete opposite of many mobile operators’ opinions and strategies up to now regarding the sales of mobile services, as many have so far used a walled garden approach. In the walled garden strategy, the mobile operator, service provider or MVNO controls all levels of the value chain and decides and approves the various players in the value chain and thereby controls which mobile services their customers will have the possibility to purchase and use on their mobile telephone. Once players have been authorised, they gain access to the mobile operators systems like for example the billing system etc. The walled garden strategy can be compared to a monopoly, as the mobile operator chooses which providers customers will be able to use and customers have thereby no say in the matter.

It is therefore interesting to take a closer look at why the Open Garden strategy has already been and will be a success in the mobile services area.

The openness of the Open Garden strategy becomes apparent by all content providers being able to distribute their mobile services to all the mobile operators on the market and that all the mobile operators must accept to distribute legal mobile services.

The free market forces of the Open Garden strategy can be seen by e.g. content providers being able to decide themselves what price their service will be marketed and sold for to end-user customers (the price must however be within the predetermined price categories). This method means that the mobile operator does not become a judge of taste, deciding which Premium mobile services customers are to be offered, which is the case with the walled garden strategy. When using the Open Garden strategy, it is much more the market itself that regulates which services are most popular and therefore in most demand.

The transition from a walled garden to an open garden strategy resulted in the mobile services market experiencing an explosive growth with improved earnings for both the content providers and mobile operators as a result. The strategy has already proved its worth on the Premium SMS/MMS market that has had an enormous growth thanks to this strategy. Premium SMS was launched for the first time in the year 2000 by the Norwegian mobile operator Telenor and has since been copied by almost all GSM operators worldwide.

The basic idea is that all content providers have easy access to the value chain when they have developed a new mobile service. The model also gives both the content provider and the mobile operator each a share (revenue share) of the turnover generated from sales of the mobile services to the end-users. The revenue sharing model also aims at content providers being able to sell their mobile services to all mobile customers on the market regardless of which mobile operator an individual mobile customer is using. Content providers can thereby advertise their Premium SMS services using one single SMS short-code that can be used by all the markets mobile customers to order the mobile service in question.

For content providers this is much more advantageous compared to the terms they are offered in a walled garden strategy, where content provider may have to create numerous different marketing campaigns for an individual mobile service. This is because customers have to order the service in different ways depending on which mobile operator the customer is using.

One of the fundamental principles of the Open Garden strategy is that the mobile operator understands that they should not try to play the role of a media company, as they do not have the necessary competencies and knowledge to create and design mobile services. If the mobile operator tries to play the role of a media company, it inhibits the growth of mobile services which results in reduced turnover for the different market players.

The mobile operator has a number of tools that can influence both the selection and demand of mobile services and one of those tools is the revenue sharing model. If the mobile operator wants to create a growth market for mobile services, it is necessary to design revenue sharing models that give content providers an incentive to develop new and innovative services.

By using revenue sharing models, mobile operators avoid having to develop, produce and market mobile services themselves, as the revenue sharing models give the content providers and media companies a financial interest in handling these tasks themselves. But many of the mobile operators current revenue sharing models are not sufficiently differentiated to take into account the content providers different types of content, nor do the models take into account the value that content providers and their services are adding to the operator. Furthermore the models do not take into account whether the content providers are contributing in influencing the expansion of the services market for example with their marketing.

To maintain the growth of these services market, mobile operators need to change their current revenue sharing models with the content providers so the models increasingly take into account the value that the content providers services add and the contributions the content providers are making to promote the sales of services like brand, marketing, advanced services, services for narrow segments and stimulating ARPU.

You can find much more information about the Open Garden strategy in Strand Consults new report – Successful Strategies for the future Mobile VAS Market – where the Open Garden  strategy and five other possible mobile operator VAS strategies are analysed. Each of the six strategies has been thoroughly described and analysed to identify the different advantages and risks that the strategies impose on mobile operators. The mobile operator strategies have been analysed based on a number of parameters to give mobile operators a tool that shows how these strategies will influence the mobile operators business. The different strategies can however be combined – resulting in many different types of possible future mobile operator VAS strategies.

Successful strategies on the future VAS market

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