U.S. Consumer Mobile Content Markets- Opportunities and Challenges in 2009

Vikrant Gandhi, Senior Industry Analyst

Mobile and Wireless Communications

March 31, 2009

2

Focus Points

• Current Financial Crisis – Impact on Mobile Content and Services

• Mobile Data Services Analysis

• Consumer Mobile Content Market – 2008 Review and Future Forecasts

• Mobile Messaging Trends –SMS and MMS

• Mobile Advertising and Mobile Search

• Mobile Financial Services - Banking and Payments

• Conclusion

3

Current Financial Crisis – Impact on Mobile Content and Services

4

Current Financial Crisis – Impact on Mobile Content and Services

• It is incorrect to assume that mobile content markets are not affected by the current economic downturn.

• A fair percentage of mobile content is purchased as part of ‘discretionary spending’ budgets and this affects the consumer/buy side.

• The lack of credit facilities impacts crucial innovative companies that drive innovation in mobile content markets.

• People need entertainment, information and communication abilities and the mobile phone is the only converged portable device that provides all three “on the go”.

• The next six months will be crucial for the overall wireless industry – unemployment rate is already more than 8 percent and people are waiting to see how things evolve.

5

Mobile Data Services Analysis

6

Mobile Data Services Revenues – The Growth Continues

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

120000.0

140000.0

160000.0

180000.0

2007 2008 2009 2010 2011 2012 2013

Year

Revenues($

Mill

ion)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Contrib

ution(%

)

Mobile Service Revenues($ Million)

Mobile Data Revenues($ Million)

Contribution(%)

Data revenues contribute around 25 % to the total mobile services revenue pie. In several cases, operators do not get any revenues (ex- Apple’s app

store) – much also depends on revenue sharing terms.

7

Three Important Pillars of Mobile Data Services

Mobile Data Services

Mobile Messaging

-Primarily SMSand MMS based services

-Done al-a-carte or as part of a data plan

Mobile

Content/Apps

-Consumer and Enterprise applications

- Generally offered on a premium basis

Mobile Data

Plans & Others

-Specific or Bundled data plans

- Deliver max ‘value’ to consumers

Mobile messaging and messaging-based services, premium mobile content and applications, and mobile data plans (messaging, mobile Internet,

unlimited-everything, etc.) are the three most important revenue generators.

8

Three Important Pillars of Mobile Data Services (contd.)

Majority of messaging is done as part of a data plan (messaging or bundled) and data plans continue to be the largest revenue generators.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014

Year

Contrib

ution (

%)

Mobile Data Plan Contribution (%)

Premium Mobile Content Contribution (%)

A-la-carte Messaging Contribution (%)

9

Consumer Mobile Content Market – 2008 Review and Future Forecasts

10

U.S. Consumer Mobile Content Market - Segmentation

Premium Mobile Downloadable Content and Applications

Mobile Music

•Ringtones

•Ringback Tones

•Full-track

•Downloads

•Mobile Music Streaming

•Others

Mobile Games

•Downloadable (BREW/Java/ others)

•WAP-based

•Messaging-based

Mobile Graphics

•Screensavers

•Wallpapers

Mobile Video Services

•Streaming

•Downloads

•Multicast

Informational Services

•Sports/News/ Financial

•POI/Navigational

•Weather

•Traffic

•Others

11

U.S. Consumer Mobile Content Market – Value Chain

12

Consumer Mobile Content Market – 2008 Review and Future Forecasts

• Total U.S. mobile data services market grew 38% in 2008.

• U.S. premium mobile content market grew approximately 30% in 2008.

• Revenue-wise, mobile games growth was the strongest though relatively higher price-points also make them most vulnerable to a slowdown.

Total OnTotal On--deck U.S. Premium Mobile Content deck U.S. Premium Mobile Content

and Applications Market and Applications Market

A $3.5 Billion market in 2008 Expected to approach $6.0 Billion in 6 years (2014)

13

0

1000

2000

3000

4000

5000

6000

Year

Reven

ues($

Mil

lio

n)

Mobile Music($ Million) Mobile Games($ Million)

Mobile Video Services($ Million) Mobile Graphics($ Million)

Mobile Informational Services($ Million)

Consumer Mobile Content Market – 2008 Review and Future Forecasts

2007 2014

14

Premium Mobile Content- Off-deck vs. On-deck

• On-deck is clearly the leader in the U.S. mobile content markets.

• Emergence of newer types of app stores has the potential to change this equation significantly.

• The distinction between these two ecosystems is going away.

• Mobile operators have embraced and accepted the potential of such marketplaces to drive data revenues and are willing to add value to the overall customer experience.

• Independent app stores have been around for a few years now (Handango, Pocketgear, Handmark, others).

• Entry/expected entry of heavyweights such as Apple, Google, Microsoft, Nokia, Palm and others has helped stimulate growth in content, stimulated mobile advertising, driven greater data traffic and benefited the entire ecosystem.

15

Premium Mobile Content- Off-deck vs. On-deck Forecasts

App stores have a significant potential of driving content sales – as evident by the success of the Apple store. Other major participants will leave no

stone unturned to offer innovative applications and services.

0

1000

2000

3000

4000

5000

6000

2007 2008 2009 2010 2011 2012 2013 2014

Year

Revenues ($ M

n)

Off-portal Revenues-Without App Stores

On-portal Revenues

Off-portal Revenues-With App Stores*

Potential Uplift of

approximately $1.7- $ 2.0

Billion per Year

* Apple, Google, Microsoft, RIM, Palm, Nokia, Others

16

Mobile Messaging Trends- SMS and MMS

17

Mobile Messaging Trends – Messaging Volumes

SMS continues to see exponential growth, while MMS grows steadily. Adoption of picture messaging in the U.S. is very high.

0.00

500.00

1000.00

1500.00

2000.00

2500.00

3000.00

3500.00

2007 2008 2009 2010 2011 2012 2013 2014

Year

Volu

me (B

illion)

MMS Volume (Billion)

SMS Volume (Billion)

SMS ~ 3200 billion

MMS ~ 100 billion

18

Mobile Messaging Trends –A2P/P2A vs. P2P Messaging

80.00%

85.00%

90.00%

95.00%

100.00%

105.00%

2007 2008 2009 2010 2011 2012 2013 2014

Year

Co

ntr

ibu

tio

n (%

)

A2P SMS Volumes

P2P SMS Volumes

Largely driven by short-code SMS based programs, A2P/P2A messaging contributes an estimated 1.5-2% to total messaging volumes. This is expected

to increase during the forecast period.

19

Mobile Advertising and Mobile Search

20

Mobile Advertising and Mobile Search

• There is no doubt that the future is bright for the U.S. mobile advertising markets.

• Some challenges have been a lack of global guidelines for mobileadvertising, inconsistent measurement of mobile advertising, to name a few. Expect resolution to the challenges soon.

• New types of inventory are continually generated. (Ex- third-party storefronts such as the new App Stores).

• Advertisers is becoming more demanding and performance-based advertising has a slight advantage under the present economic conditions.

• Messaging and mobile Internet, followed by In-application, mobile search and mobile video advertising are the main channels.

• New advertising channels such as iPod Touch, mobile email and P2P SMS will also be used.

21

Mobile Financial Services- Banking and Payments

22

Mobile Financial Services - Mobile Banking and Payments

• All leading financial institutions have a mobile ‘interaction’ strategy.

• Messaging , mobile Internet and Rich-client are the three main channels for m-banking.

• M-banking and m-payments are expected to converge and subscribers should be able to perform a wide-range of financial services from a single interface.

• M-commerce needs to move beyond premium SMS to ensure a secure and transparent payment mechanism.

• Business models continue to evolve and we will see newer monetization mechanisms.

23

Mobile Banking Evolution and Roadmap

S ta ge 1

- M obile

ba nking a cce ss

-Ale rts a nd

Notifica tions

- M obile Bill P a y

S ta ge II

- M obile

ba nking a cce ss

-Ale rts a nd

Notifica tions

- M obile Bill P a y

- P 2P P a ym e nts

-M -Com m e rce

a nd M obile

M a rke ting

- Inte rna tiona l

Re m itta nce s

-M obile W a lle t

a nd Conta ctle ss

P a ym e nts

2006 2007 2008 2009 2010 2011 2012

Ye a r

24

Mobile Financial Services – Forecasts

0

100

200

300

400

500

600

700

800

900

1000

2007 2008 2009 2010 2011 2012 2013 2014

Year

Revenues ($ M

illion)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Gro

wth

(%

)

M-commerce Revenues ($ Million)

Growth (%)

At 1% of the total U.S. retail spending, goods sold via m-commerce are substantial. Improving payment mechanisms, dedicated m-commerce sites and

a better end-user experience are some drivers.

25

Conclusion

26

Conclusion

• Data revenues will continue growing- perhaps even overtaking voice revenues within a decade.

• Leading mobile operators clearly have adopted an ‘open’ strategy tailored to drive data traffic on their networks.

• Messaging volumes will continue growing due to an increase in proliferation of data plans.

• Leading device vendors and OS providers launching their own App Stores help drive innovation and are a significant driver to watch out for.

• Mobile Advertising is still a new market – the inventory continues to increase rapidly.

• M-commerce will evolve beyond PSMS and alternate payment mechanisms will become more popular (even for mobile content purchases).

27

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