Business Models in the Wireless Industry

wireless-cartoonContinuing with my previous article on the “Marginalization of Carriers”, in this post, I would discuss the current and emerging business models in the wireless industry.

The key activities in the value chain of the business model are Service Creation, Identity Management, Service Provisioning and Billing. The key players in the ecosystem are the carriers, handset vendors, platform owners (e.g. Symbian, Android), application providers and the content partners. In different business models, different ecosystem players try to control most of the activities. There are broadly 4 business models that exist today in some form or the other.

  1. Carrier Dominance Model: In this model, the users visit the portal screen of the carrier and download/use services from the portal (also called the walled garden). The walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material. Traditionally, the carriers have followed the walled garden business model and controlled all the entities of the value chain of the business model. This model got prominence when the wireless industry was in infancy. The carriers took upon themselves to offer end to end solutions to the users. In this model, the content providers need to tie-up with the carriers for their presence on the carrier portal. The carrier is responsible for marketing of the service to the users and also for billing and collection. In return, the carriers charge a huge revenue share (as high as over 50-60%) plus the user access charge. Common examples of this model have been Vodafone Live, NTT Docomo’s i-mode, Airtel Live. AOL followed the most successful walled garden on the web and at one point of time, as per Economist magazine, 40% of the time Americans spent on web was within the confines of the AOL walled garden
  2. Device Dominance Model: In this model, the device vendor is controls the device, platform and the content & application partners. Service provider tie-up with the device vendor who puts the service either on its application store or on its own portal. In this case, the device vendor controls the key activities of service creation, identity management, service provisioning and billing. Carriers get the access revenues and have a shared responsibility for identity management. This results in the highest differentiation for device vendors but the least for the carriers. In this situation, the data adoption and usage is normally high and the revenue share is better for the content partners. However, the content partners are expected to take some load of marketing, billing and care in return for higher revenue share. Also, the development cost of services is likely to be high as separate development is required for each device vendor. Common examples of this approach are Apple and RIM. Both Apple and RIM have complete control over the value chain and they decide on which services to offer
  3. Platform Dominance Model: In this model, the mobile OS platform takes the dominant position. The platform is available across many device vendors and hence the development effort on part of the content and application partners is lower. There are limited service differentiation opportunities for the carriers or the device vendors. The content players need to partner with the platform owner. The carrier gets the user access revenue and the service revenue is shared between the platform owner and content partner. In this model, the platform replaces the device vendor in the device dominance model. The content partners get better revenue share (up to 70%) in return for billing, care and marketing. Symbian and Android are examples of this kind of approach
  4. Application Dominance Model: This model is very much similar to the web model. The application is accessed using the carrier as pipe. The carrier gets the user access charges but entire service revenue goes to the content and application owner. The activities of service creation, identity management, service provisioning and billing are all done by the application owner. The marketing and care responsibilities also lie with the application owner. The role of the device and platform owner does not change in this case. Due to multiplicity of the devices and platforms, the service/application development cost is very high. Facebook, Linkedin, Google gmail client could be examples of this approach. However there are not many examples of paid applications in this model

There are many changes taking place simultaneously in the wireless space. The platforms are changing from proprietary in-house operating system (OS) to proprietary industry OS to collaborative open industry OS. Carriers are lowering the walls of the walled garden due to demands of the users as well as pressures from the content and application vendors. New opportunities are evolving which enable the content providers to completely by-pass of the carrier. All these changes require a change in the business model in the wireless industry

The emergence of the optimal business model needs to ensure that the consumer interests are taken care of and the consumer interests are the weakest if the entire or most of the value chain is controlled by one single large player. In that respect, the platform dominance model probably is best suited to the consumer needs. Due to higher base, the development costs are likely to be lower and all the ecosystem players are likely to have an equal say in the platform dominance model. However, the outcome of the success of any business model would depend on the outcome of the power play between the different entities of the ecosystem

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17 Comments on "Business Models in the Wireless Industry"

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Jacques Monchamp
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Jacques Monchamp
7 years 4 months ago

In my view the part of the world you are in might adopt a different model.

I would see the handset manufacturers be given a preference, if they deploy applications rich devices with ease of use and with most of all hi-res screens then they will dictate the way.

R. Paul Singh
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R. Paul Singh
7 years 4 months ago

You have created a great overview article. However, every geography will have different models that will win. I addressed this issue in my blog at http://mobilepov.wordpress.com/

R. Paul Singh

Tom Foale
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7 years 4 months ago

You seem to have left out the DoCoMo paradigm, where the network operator provides an open services-based platform for application providers. In that model the operator is paid a reasonable percentage for the billing, advertising and other services with the application provider also making a reasonable income. Not really carrier dominance, more shared benefits.

This model could be operated as a walled garden, but the other mobile operators want to pocket an unreasonable share of the income, making the business unattractive for the application providers – hence few applications.

Shoaib Yahya
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7 years 4 months ago

Really nice article on future trends. From my perspective any model that would mimic the current user experinece on the web from an office or home environment would ultimately be the winner. Customers are looking for an untethered device/application that would allow them web access with the same flexibility and options as their laptops/desktops would. So, from that viewpoint, Application Dominance model may be the long term winner. Perhaps a combination of Application dominnace + some carrier revenue sharing may be an option that would allow for its success.

Alan
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7 years 4 months ago

Of the four models, I’m not sure any of them will be the ultimate answer. A better answer may be a hybrid of two or more which addresses the common needs of all players in a more cooperative, rather than competitive or contentious approach.

I think as Shoaib was saying, the user will dictate the success of any business model, so as long as the focus remains first on the user and second on monetization thinking which is inclusive of all parties involved, everything else will naturally fall out from there.

Liz Blake
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Liz Blake
7 years 4 months ago

Mohit
I also found your synopsis of the models interesting. I also agree with Alan that we will see a hybrid, similar to what has appeared in the wireless industry today. I also think that the market segment may drive different variations. The adoption of the IPhone or Instinct by the Consumer to meet the social networking demands versus the Blackberry, Treo or to a lesser extent Motorola by Business for Corporate work productivity/work flow management tools are a couple of examples.

Chandan Seernani
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Chandan Seernani
7 years 4 months ago
There are primarily 3 components here i.e. the bandwidth, the devices and the application/platform/content. The good news for the carriers is that they have a lock on the bandwidth because of high cost of entry and other factors. Ironically its the very thing that pigeon holes the carriers as “pipe providers” (borrowing from an old adage). The carriers are however taking advantage of this position to boost their ARPU by providing a variety of pricing plans for Mobile Data. Lets now talk about devices. This field is highly competitive and device providers such as Nokia, Apple, RIM etc are always… Read more »
Pandith JP
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Pandith JP
7 years 4 months ago

Any model that is flexible enough to meet the needs of the mobile user will win! If a carrier is able to offer every conceivable service or information that a user needs, at a reasonable price, it will be a winning model. If a device vendor can provide location based services to a mobile user for free, based on advertising revenue, the model is a winner. Mobile users will continue to demand value, services at a reasonable price (price tending to zero ;))

Constantin
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Constantin
7 years 4 months ago
Public notifications in the last couple of years seem to hint toward a device dominance model for the next decade. However the device I am picturing is a very morphed smart phone ( and “phone”, too, is a legacy word I am using for a lack of better word). RIM (off-spring from service) introduced their device in 1999 (see http://press.rim.com/release.jsp?id=687 ) for mobile e-mail and it morphed in a smart phone. Almost 7 year later the others cought the lead: Nokia (off-spring from handsets) announced the computer-mobile-smart-phone see http://www.nokia.com/A4136002?newsid=1077775 . Later on Apple (off-spring from computer mfg house) introduces their… Read more »
Huba Rostonics
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7 years 4 months ago
Good article Mohit! Glad to see that Nokia is still looking with clarity! The Application Dominance Model is definitely what users will be looking for. This model reached popularity in the web space as this psace is totally market (or user) controlled. The web has been particularly fast in becoming device (PC-Mac), platform (Firefox/Explorer/Safari) and operator (Compuserve/AOL) agnostic. And when that happened first those that have not adopted this model where weeded out and then the best applications survived. This is what the public wants and proof of it are those applications that work accros these patches (first voice, SMS… Read more »
Praveen Shetty
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Praveen Shetty
7 years 4 months ago

The ttle of the article could be stakeholder analysis in wireless industry, but of course business models sounds more interesting 🙂
nevertheless, great article, with the convergence of Web and Mobile, it will be interesting to see how the application providers are able to disrupt the dominance of device/platform providers. I am assuming the carriers will be the least significant in the whole value chain in times to come.

vijay
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vijay
7 years 4 months ago

Hi Mohit,

Kudos for an informative article.

Carrier & device dominant models are yet to staurate the market and are still in a growth swing (both China & India are shining examples). Once done ie. after reaching out to the farthest customer, content/application model will rise to meet the consumer needs both for the large global cross section of population and for the small village needs with carriers and devices taking up roles of enablers in the background as rightly pointed out by Tom exemplifying DoCoMo. But this stage looks afar as yet but approaching fast – eh!

regards

vijay

Ron Victor
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Ron Victor
7 years 4 months ago
There will be a hybrid co-existance of the application and carrier dominance models. Yes, Huba is right – the masses do want the application dominance model, however the carrier won’t cave in so easily and neither is it in the best interest of the app developer to want the entire pie alone – example – when a user subscribes to verizon dsl – they have a choice of Yahoo or MSN as the portal of choice – guess what both Yahoo and MSN get a piece of the action per sub per month. Similarly, while I understand apps such as… Read more »
Jalal Aslam
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Jalal Aslam
7 years 4 months ago
Mr Agrawal, you have brought the issue to the forefront. Very nice article. I think,Mr Yahya is very near to the correct answer. But I would also define it based on another vital factor: demographics & especially by numbers. One such factor is also the future of our transport systems in metropolices: Like I have travelled in over-crowded buses/railways in Karachi and China;In case of traffic jams or as we have seen worst holiday-driven chaos in china in 2008, the time and the mode of our transport is also important. As sugested there r also QoS issues associated with mobility.… Read more »
Niall Halpenny
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7 years 4 months ago
Hi Mohit, From what I’m seeing on the ground, the value added real convergence model isn’t described. Here the telco partners with players wishing to utilise the underlying network resources, such as identity, presence and even high-street shops as part of their retail delivery and device management. Some of the embryonic examples I would point to would be the sale of “netbooks” with inbuilt HSPA connections. It is easy to see how this model could easily evolve to where the operator partners with services providers and applicaiton developers in a partner/revenue share model. This model utilises a more symbiotic than… Read more »
Gerhard Fasol
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Gerhard Fasol
7 years 3 months ago
Mohit- Nice article – its one way to look at the telecom world. We worked intensively with investment funds on understanding the telecom sector from an investment perspective and developed some alternative views from the investor perspective which is a different angle than your angle a NOKIA.- Another important point is that your article does not correctly explain the business model which Japanese operators have developed. You mention DoCoMo, but the Japanese mobile landscape is not only DoCoMo, but a very ferociously competitive market player with a large number of players – DoCoMo is the largest player – but by… Read more »
Neeraj Gupta
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Neeraj Gupta
7 years 1 month ago

Nice article, Mohit.

Do you have similar one related to VAS industry? Also what are the top applications (Mobile VAS) to concentrate?

Cheers
Neeraj

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