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It is more possible to become a stable, low-growth market. Therefore, it's no use being hasty.

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[+] Will the advent of 3G lead to a reshuffle of WAP market?

 

Despite continuous setbacks since 2000, telecom operators have never stopped efforts in the mobile Internet market. Theoretically, Moternet, the WAP portal of the largest mobile operator in the world, China Mobile should have the heaviest traffic volume in the world. After all, it has such a huge subscriber base. This, however, is not the reality.

 

From an iResearch report, Handset-enabled Internet Activities in China in 2008, we can see that Sina, Baidu and Tencent are among the most visited WAP sites in China. There are even a few independent 3G WAP portals. Thanks to their huge PC-based user bases, traditional Internet players seem to have a chance to challenge telecom operators.

 

Will the advent of 3G lead to a reshuffle of the market? Despite the fierce battle for subscribers, New China Mobile, New China Telecom and New China Unicom have not changed their visions of transforming from "communication service providers" into "information service providers". Key to this effort will be WAP. Will other WAP sites score another goal along with the promotion of 3G?

 

What we might not have understood correctly is the fact that, with the advent of 3G, the WAP market might have a stable and slow growth, instead of a sweeping revolution. Therefore, it's no use being hasty. It seems that, at the present time, the conditions for a sweeping revolution are not yet in place.

 

[+] The development of the WAP user base is a long-term process

 

First, if the 3 new operators do not offer substantially lower WAP rates, there would be no momentum for WAP users to upgrade to 3G, as no major change is expected to the contents offered by WAP sites. There might be more video and mobile TV services, but the key to the acceptance of users is still the fee rate.

 

The problem is that only telecom operators could decide the fee rates. Other Internet players have no say in it. In view of the current competition picture, the operators are expected to cut 3G WAP fee rates to some extent. But as I said, only substantial cut in voice fee rates could significantly increase the 3G user base, which is essential for a sharp increase in 3G WAP user base.

 

Secondly, does a substantial increase of 3G user base mean the same for WAP user base? Experience of telecom operators indicates that a large portion of the first 3G mobile phone subscribers would be WAP users of the 2G time. In other words, as a 2G WAP user becomes 3G WAP user, there would be no increase in the total WAP user number in the market.

 

In the long term, with intensive 3G promotion efforts of operators, all users will eventually give up 2G (whether voluntarily or forced to do so). The process, however, might not be as fast as you and I have thought. Considering the WAP service, which might be offered as an accessory service, the development of the WAP market could be even slower. The key to the speed of growth is the fee rate, not the number of Gs.

 

[+] The pain in business models

 

Why have telecom operators not been able to make good WAP sites? Based on my 5 years of experience in an operator, I could see that the root of the problem is their business models. For telecom operators, there's no free service. Every service should generate revenue, which ideally should be collected from end-users with phone bills. One dollar from each user would add up to an amazingly large amount for the hundreds of millions of income.

 

WAP services are duplicates of those of the Internet, whose basic business model is to offer free service and gain revenue from advertising. Sharp conflicts are expected for the business model transformation, not to mention the difficulty of changing the mindset of staff in a short time. Telecom operators need to regard themselves as media players before establishing ad departments to gain ad revenue. For them, that's too much.

 

This business model would have nothing to do with the number of Gs. For WAP, if the business model were transformed to that of media in the 2G time, Monternet could have done it very well even without 3G. Now we are back to the basic question: which is scored "better", higher ARPU or advertising income? If the former, there will not be any change.

 

It does not mean that telecom operators have to give up fee-based music or image download services, which are, in fact, the revenue sources of the traditional Internet companies, too. Yet, if operators cannot think of anything else, their business growth would be limited. For example, Nokia is seeking cooperation with telecom operators even as it has its own advertising network.

 

Why didn't operators make the proposal first? Because they are still using the old mindsets. Any business you don't do, somebody else in the business chain would do. Nokia Advertising Network is a manifestation of the company's resolution to transit from the manufacturing industry to the service (particularly the Internet service) industry. Do New China Mobile, New China Unicom and New China Telecom have the same resolution? ( 2008/08/10 - By Digitalwall.com - Way to China Internet/Telecom )

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- Read More

Prev : New Landscape in China's Telecom Market (7) The Pricing of 3G Value-added Services

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- Today in History

New Landscape in China's Telecom Market (8) WAP Sector Is Slowing Down - 2008/08/10

PDA in Siege (1) The Attack of Notebooks - 2004/08/15

3G value-added services will be cheap, but not so cheap as you have expected.

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[+] The pricing of video phone service

 

As a result of the fierce battle for subscribers between operators, 3G value-added services eventually become a secondary role. In the long-term, however, mobile subscribers will gradually accept the services and use them more than they did in the 2G time. In fact, subscribers first switch to 3G because of attractive voice fee rates. Then they begin to use more value-added services because of faster Internet access speed.

 

Generally speaking, the most talked-about 3G services include video phone and streaming media. With video phone, you will be able to see the one you are calling. Of course, you can also dial a number to watch a live broadcasting program. Streaming media, on the other hand, enables users to watch audio/video programs via the Internet, mostly by logging onto portals of operators with handsets.

 

Voice service, video phone and streaming media, how should the three services be appropriately priced? First, as video phone consumes 4 times of bandwidth than general voice calls do, should it be 4 times as expensive? The answer is no, because 4 times is pretty scaring. Most operators offer rates ranging between 1.2 to 1.5 times.

 

Due to privacy and courtesy concerns, video phone is rarely used. Some people argue that operators should offer lower rates to increase use of video phone services. The fact is, however, low price is probably not sufficient to eliminate the privacy concern. Operators even believe there are reasons you have to use video phone (e.g., your wife requires you to). Is there any other chance of earning such easy money?

 

[+] The pricing for streaming media

 

Streaming media service, which enables mobile TV and movies, has been in a dilemma of whether to charge by traffic volume (e.g., RMB X for watching Y mega bytes per month) or by service time (e.g., RMB X for Y hours per month). Eventually, all operators chose service time-based fee rate models.

 

As most users are still not accustomed to traffic based models, while charging by service time also seems weird (nobody pays TV bills by minutes), the best solution would be monthly packages without time or traffic volume limit. Fearing that users might turn on their handsets 24 hours a day, which would result in considerable waste of wireless network resources, most operators dare not choose the solution.

 

If they choose to charge by service time, how much per minute would be appropriate? Streaming media service usually consumes twice bandwidth as much as video call does. Nevertheless, I suggest its fee rate be set similar to, or even lower than that of general voice calls. As streaming media service is delivered through IP-based packet-switched network, it could use network resources more effectively than video phone, allowing larger bandwidth for users.

 

That billing model encourages the use of streaming media to improve the efficiency of the network resources of operators. A challenge for operators is that they have to collect payments for content providers, which would increase the total cost of users. However, that seems to be a problem without solution, because content providers need to be paid, too.

 

[+] WAP monthly package and the pricing for mobile Internet access

 

In my view, WAP, the service that has been available since the 2G time is more profitable than mobile TV, which is wildly betted on because of the Olympic Games. Some operators have already offered WAP monthly packages without traffic volume limit. With the advent of 3G, they now face a problem: whether to raise or lower the package rates?

 

As the costs of operators are based on traffic volumes and 3G, with higher speed, will generate far larger WAP volumes than 2G, maintaining the monthly packages does not seem to be a good deal. However, in order to encourage 3G subscribers to use WAP services, it makes no sense to raise the price. But operators do not want to cut price. Eventually, the fee rates are usually kept at the same level of the 2G services.

 

As to the monthly mobile Internet access packages (via computers) for current China Unicom's CDMA network, no substantial change is expected because the speed of 3G service remains low (384k for WCDMA). However, as 3G has just been launched in mainland China, it would be well equivalent to the level of 3.5G (HSDPA) right from the beginning. As a result, the fee charging model would change.

 

For example, there might be packages of RMB X/month for the speed of 128k and RMB Y/month for 256k. Such a pricing model is similar to that of ADSL. Theoretically, the peak rate of HSDPA could be up to 14.4M (it is reported that 3.6M Internet access services would be available soon in Taiwan). Therefore, it is possible to introduce different fee rates for different speed.

 

[+] The fee rate of value-added services is not the key to attract subscribers

 

Why operators are so reluctant to cut fee rates of 3G value-added services? Because in the fight for subscribers, they have already cut prices of general voice calls. How do they compensate the loss? Through the above value-added services, of course. Will the value-added service fee rate level affect their subscriber base? Basically not. Then why not setting the fee rates a little bit higher?

 

Many consumers would consider switching to operators who offer lower voice rates, not the one who offer lower value-added service fee rates. The pricing of value-added service is not the key for operators to attract subscribers. With this user experience and such a mindset of operators, 3G value-added services will be cheap, but not so cheap as you have expected. ( 2008/07/27 - By Digitalwall.com - Way to China Internet/Telecom )

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- Read More

Prev : New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan
Next : New Landscape in China's Telecom Market (8) WAP Sector Is Slowing Down

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- Today in History

New Landscape in China's Telecom Market (7) The Pricing of 3G Value-added Services - 2008/07/27

New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan - 2008/07/20

From Idea to Business (2) How to Estimate Your Income and Cost? - 2007/07/22

New Era of Online Advertising (2) from Exposure to Deal - 2006/07/23

Ultimate Mobile Device (5) Universal User Experience - 2005/07/24

Viral marketing will be the key word for marketing in the Web 2.0 time.

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[+]The history of SNS

 

Last month, AOL's purchasd Bebo, the largest social networking site in Britain, for USD 850 million in cash. That once again highlighted the value of SNS (Social Networking Service). In the United States, Bebo is the No.3 social networking site, behind MySpace and Facebook, with more than 40 million users around the world.

 

Further back, News Corp acquired MySpace with USD 580 million in 2005; Microsoft paid USD 240 million for merely 1.6% stakes in Facebook. The first deal seems to be too hasty for MySpace and too juicy for News Corp. What, indeed, is the most attractive aspect about SNS to investors?

 

SNS is really a confusing concept when mentioned together with dating sites, community sites or Blog. Even SNS operators do not view themselves as dating sites, community sites or Blog sites. While those sites have been in place since the Web 1.0 time, or at least the end of that time, SNS focuses on inter-personal relations, and therefore is a mixture of all above.

 

Finally, it seems that only ambiguous terms such as "personal space" could differentiate SNS from those traditional concepts. In terms of functionality, SNS enables blog, photo album, friends, community (or group) as basic functions. With the intentional guide of the operators, users could visit the blogs and photo albums of others, eventually activating the social networking function.

 

In terms of social networking behavior, SNS depends on the migration of offline personal relations to online platforms to combine with those of others to build a larger relation network. While using the service primarily to interact with acquaintances, users might meet strangers for deeper communication intentionally or unintentionally, resulting in larger social communities. Hence, interpersonal relations could be maintained by paying attention to the activities of each other.

 

[+]How to convert page views into revenue

 

With more than 40 million users around the world, Bebo is worth USD 850 million. In China, the largest social networking sites, e.g., Tecent Q Zone and 51.com, have more than 100 million users, yet none is deemed to be worth that much. What, indeed, is the commercial value of the social networking sites? At the present time, it seems, the value lies primarily in being purchased.

 

Thanks to the high interactivity among its users, social networking sites have far more page views than conventional portals. What's more, each user would keep an eye on the presence of his/her friends, resulting in a much longer average online time. Many SNS users log onto the site as soon as they get off work/class, and remain connected until they go to sleep. How to convert the addiction into revenue?

 

There are 3 possible ways: 1) through Internet advertising; 2) by providing users with fee-based value-added services; 3) by offering e-commerce services in the communities and collecting commissions from transactions. In the foreseeable future, any social networking site is expected to reap revenue through all of these 3 approaches. The only difference lies in the revenue proportion because of different primary users of each SNS site

 

One of the most distinct features of SNS is its distribution by word-of-mouth. An article by a common person on MySpace or Facebook would get widely spread through his friends, or friends of friends. Such effect is what advertisers have been dreaming for, as distribution by word-of-mouth is the most cost-effective approach.

 

In the Web 1.0 time, however, this kind of viral marketing was only a result of sheer luck, rather than deliberate planning. Without a platform to operate on, most advertisers had to pay for the views of their ads, allowing their budgets to be washed away by the visit traffic of the portals. While the focus of Internet advertising in Web 1.0 time was target advertising, it would be viral advertising enabled by SNS in the Web 2.0 time.

 

At the 2008 Annual Conference for the New Economy hosted by iResearch, I gave a speech titled "The Key Word for Marketing in Web 2.0: Viral marketing". You can find and watch the video at: http://v.iresearch.cn/data/20080425/79812.shtml

 

[+]Impacting the traditional Internet advertising model

 

However, the business model has trouble facing advertisers, who generally accept it as a cost-effective approach. For example, one million clicks at a portal or one million users' interaction at a social networking platform, which one do you prefer? For online advertisers, the answer is the latter. The question is, however, how do you charge them for the one million users' interaction?

 

Currently, SNS is still not able to compete with portals by means of CPM or CPC. With surprisingly good results but no billing method available for SNS, there has appeared a weird phenomenon of "free interaction for ad exposure or clicks purchased". Unable to generate income from its most valuable part, SNS is not yet ready to compete with portals for users by means of CPC.

 

For advertisers, word-of-mouth-based distribution is the most cost-effective marketing method, as well as one of the reasons for them to move their budgets from portals to SNS. In addition, there's not yet a unified standard in the industry for billing by results. An event might have one million participants, however the extent of involvement varies substantially. There is not a simple and intuitive measurement like CPM or CPC.

 

Currently, advertisers are still testing SNS marketing, while SNS operators are exploring new billing methods. Therefore, there's a huge potential. Eventually, it becomes a process of negotiation between sales reps and advertisers, and the final result depends on who is going to convince whom. The criteria for advertising effect in the Web 1.0 time is no longer able to keep up with the market changes, but the Web 2.0 criteria are yet to be developed.

 

Viral marketing will be the key word for marketing in the Web 2.0 time, as SNS will become a platform enabling word-of-mouth-based distribution among advertisers. Share and recommendation by friends would enable higher market awareness and better marketing effect. What we don't have yet is a set of criteria to measure the marketing result, as CPM and CPC, which derived from traditional media, are obviously out-of-date. ( 2008/05/11 - By Digitalwall.com - Way to China Internet/Telecom )

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Prev : Initial Experience of Widget's Profit Model
Next : New Landscape in China's Telecom Market (1) Winner Takes All

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- Today in History

Glimpse into Profit Model of SNS-based Advertising - 2008/05/11

3G Time Comes (8) Who Are First Users of 3G? - 2003/05/18