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KPMG - time to rethink the business model for mobile converged servicesReport suggests time is right to switch revenue focus from consumers to third party advertisers.[March 20th 2006] Converged services now expected but customers unlikely to pay a premium. The rapid strides which cell phone service providers are making in offering converged multi-media services to their customers is likely to necessitate an urgent rethink of their basic business models, states a survey out today. The report from KPMG International claims that the time has come for service providers to switch from a customer-based business model to a model which focuses more on presenting a stable customer base to third party advertisers and sponsors. The survey of 3576 cellular phone owners worldwide revealed that consumers see absolutely no limits in terms of what services can be offered via their mobile handsets. However, almost 40 percent claimed that they would not be prepared to pay a premium over and above their current bill to receive these services. Therefore, KPMG International claims that attempting to exploit converged services purely to squeeze more cash out of consumers on a traditional subscription model will not work. Cell phone companies would find themselves offering upgraded content but without necessarily being able to secure the premium subscription rates which they would hope for. Sean Collins, Global Chair of KPMG’s Communications practice and partner in the U.K. firm, explained: “Mobile service providers will need to stop thinking of converged services purely as a revenue booster. Instead, they should consider them as a churn reduction tool, allowing them to present a much more stable, loyal subscriber base which should be attractive to advertisers and digital commerce partners. In its most basic terms, it’s a case of moving from a ‘wallet share’ model - aimed at extracting more cash from each customer – to a ‘wallet sharing’ model. The latter will use these enhanced, converged services to deepen their customer relationships in ways that allow other parties to reach them.” “A key driver behind this shift is the typical customer’s reluctance to pay a premium for converged services. This is a generation of consumers raised in the internet era, where content is perceived as being free. Therefore, service providers need to follow the internet example themselves. What this report advocates is no different to what the major internet search engines have been doing for years; providing a service offering so compelling that it attracts hundreds of thousands of eyeballs which – in turn – are attractive to third party advertisers. We tend to forget that this is a very young industry - just ten years old in fact. This shift will represent the next phase in its adolescence.” The KPMG International survey presents a picture of a global consumer who is very comfortable with existing converged services such as web surfing, instant messaging and interactive gaming. There is no apparent limit to the types of services which can interest and attract consumers, including movie previews, video dramas and sports updates. In fact, there is no multi-media capability, no matter how sophisticated, which strikes the surveyed people as being infeasible or inappropriate for mobile consumption. Sean Collins concluded: “These are interesting times for mobile service providers. Our survey respondents exhibited an overwhelming preference for a single service provider. However, as converged services become an increasing reality, there may only be room for a few players ‘owning’ the relationship with the customer. It is likely to become increasingly important to manage this change of business model correctly in order to earn the right to own those relationships.” “This will be a challenge for everyone involved. Marketing strategies will be needed to further educate consumers about the value of converged services. Service providers will need to be weaned off traditional subscription models in favour of a revenue model based on presenting a well-groomed subscriber base. Investors will also need to reassess their perceptions of service provider revenue models and start considering the likely return on investment brought about by the shift to ‘wallet sharing’. In such a competitive marketplace, any business which is slow to consider these possibilities is likely to quickly fall behind.” About the survey KPMG International commissioned Taylor Nelson Sofres to undertake a global consumer convergence survey. A total of 3576 interviews were conducted in Asia Pacific, Europe and North America with consumers who own and use cellular phones, in order to develop a detailed perspective on the experience base, attitudes, behaviours and preference associated with various electronic information and entertainment services, particularly as might be delivered via mobile handheld devices. |
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