Research Notes

Will A New More Complex Mobile Value-chain + New More Complex VAS=Complex Revenue Sharing?

You Do The Math!
You can count on it – the members of the mobile value-chain will need to get out the advanced calculators to figure out how to divide the generated value in the mobile industry. And it is not going to be easy.
The need to get out the calculators is simply due to the fact that the value-chain is getting longer and quite complex in reference to the sharing of revenues in the mobile value-chain.

This complexity is caused by the addition of a long list of new players to the value-chain. Players who all are willing to compete to gain part of the mobile revenue.

Some of these players are traditional members of the value-chain, but others are newcomers who contribute with new competencies that place them as players in the value-chain. To put it in other words, the expansion of the value-chain is both horizontal and vertical.

The calculation does not get easier by the fact that all the players in the value-chain naturally wants to reap the largest revenue share possible of the significant value created by mobile telephony and services.

The mobile value-chain has for quite a long time been relatively simple and easy to grasp, as it normally consisted of infrastructure/terminal manufacturers, mobile operators and distributors/retailers. The offering of differentiated and still more advanced mobile terminals are increasing, which means a number of new players will penetrate the value-chain to add their contribution to a still more attractive advanced mobile solution to the end-user.

Amongst the players who are becoming a more integrated part of the value-chain, are the Mobile Network Enablers (MNE), Mobile Virtual Network Enablers (MVNE), platform developers, content providers, Wireless Application Service Providers (WASP), Gateway companies and media companies who function as mobile providers etc.

At the time where the mobile value-chain was simple, a large part of the revenue from contracts customers spending went to the mobile operators, who on the other hand spend much time, effort and money on investing in infrastructure, platforms, terminal distribution, developing and marketing of mobile services etc. As the heart which pumps blood through the body, the Mobile operators functions as the same in the mobile value-chain, pumping money on to the terminal manufacturers and mobile retailers.

Today the mobile operators still function like the heart, as the end-users purchase of mobile terminals and services still mostly are being paid to the mobile operator. But compared to earlier, more and more mobile operators choose to outsource these tasks, which earlier were seen ad core-competencies. This is done with both the wish of minimizing a significantly financial risk as well as in the acknowledgement that they, as mobile operators, no longer have the ability to centralize still more complicated skills within their own organization.

De-centralization and diminishing the significant financial risk are hence done by the operators by making revenue share agreements with a number of different partners in the value-chain. It is at this point the calculators need to come out!

The operators are used to sharing only with a few others revenue from the end-users. This revenue must now be shared with a number of players in the new complex value-chain. The challenge lays not the least in developing a new set of attractive revenue share models for a market that continues to add new players to the revenue-chain.

The complexity can be exemplified by this likely example. The revenue from sale of some mobile services must be shared by terminal manufacturers, platform manufacturers, WASP, content providers, media companies, mobile operator, MNO/Service Provider, and the retailer/distributor. When it is a challenge to easily overview the value-chain, it is no surprise that it will be a challenge to create intelligent revenue share models for the players in the value-chain. The tendency to complexity in the value-chain is not the only significant change in the mobile market of the future.

Strand Consult has identified 10 Mega Trends, which are analyzed in debt in our new report “Mega trends in the mobile industry – a question of life and death” (300+ pages). The market for mobile services is because of these Mega trends in the midst of a big change of the entire value-chain. This will lead to new business processes and revenue sharing models. The report analyzes the effect these 10 Mega Trends will have on terminal manufacturers, content providers, mobile operators and mobile retailers. The report also puts out suggestions on how each of these players can prepare themselves for the effect of the 10 Mega Trends.
Mega trends in the mobile industry

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