What if I told you a guaranteed way to sustain 25% organic user base growth each year up until 2020? That’s exactly the rate of new users coming online in India thanks to inexpensive smartphone availability over the next three years. 8 out of 10 smartphone users are already located in emerging markets and their significance will only continue to grow.
Expansion into emerging markets has proven to be a successful growth strategy. International subscribers of Netflix grew by 46% last year compared to 11% in the US home market. In almost any digital segment we look at, international companies are more successful than those who stick to their home market.
Hulu has 12M paying users compared to 93M of Netflix; Pandora has 5M compared to Spotify’s 50M; Facebook branched out and is now at 1.9B active users compared to 90M for VK, a competitor from Russia that has chosen to remain regional.
Expanding to foreign markets isn’t the sole strategy behind the success of digital companies, but getting the expansion going as early as possible has been crucial for most. When markets are left untapped, local competitors emerge: iflix and Joox are giving Netflix and Spotify a run for their money and even beating them in markets which the Western companies did not prioritize.
But let’s say you are responsible for the 25-percent-annual-organic-growth Indian market at Netflix. You immediately come across a big problem: one third of all users are mobile only and consumers on average use less than 500 megabytes of data per month. That would be sufficient for 1.5 hours of video streaming, a value proposition the consumer will not be paying for. Any other company in a data-heavy segment is going to run into the same challenge.
Getting users to start using the little mobile data they can afford have is complicated, let alone asking them to pay for services on top of that. APAC’s biggest countries have a GDP per capita several times lower than that of the United States of the US and credit card ownership is in the single digits.
So what do you do in a situation where the potential user base is growing 25% per year, but they simply can not pay for digital services? You partner up with someone who has the capability to get people online and enabling online payments for them. Ideally, you’re looking for someone who also has local, widespread marketing presence in the market.
These would be the mobile operators of the world, and as no surprise, all the companies mentioned before have teamed up with carriers for international expansion:
- “Spotify strikes its 25th telco deal” (same year it entered emerging markets)
- “Netflix Partners With Airtel, Videocon, and Vodafone in India” (1 year after going international)
- “Facebook partners 18 operators on low-cost data” (1 year after China overtook the US in smartphone ownership)
Using mobile operators as a growth channel still seems new to most Western marketers, especially as this approach was invented elsewhere. JOOX, iflix and other Asian digital services have since their inception relied on mobile operators for growth due to the challenges of getting users online and paying. Mobile operators are able to resolve these issues and there is a clear overlap of interest:
Carrier challenge - Get user to consume more mobile data
Merchant challenge - Get new users on board to sign up for the service
Mutual solution - Get users online via providing great digital experiences
Carrier challenge - Increase customer reload frequency and/or size
Merchant challenge - Convert free users to paying users
Mutual solution - Provide great digital experiences users are willing to pay for
Carrier challenge - Reduce amount of users leaving for a competing network
Merchant challenge - Reduce amount of users unsubscribing from the service
Mutual solution - Customer stickiness via bundling and upselling
Instead of building out their own digital services, lying outside their area of expertise, carriers market third party services to their subscribers instead. This helps position them as enablers of a digital lifestyle while giving digital merchants access to the bulky marketing resources that carriers have built out:
- Online channels: Direct access to consumers via the mobile operator’s own channels such as push SMS messaging reaching all its subscriber base directly, social media, homepage, customer self-service portals and call centers
- Offline channels: Telenor, India’s 8th largest mobile operator, has over 2000 retail locations while one the country’s leading retailers Big Bazaar operates some 200 hypermarkets
- Local expertise: information on user behaviour and demographics, such as which segments are more likely to use data-heavy services, how old they are and where are they located, and how to localize pricing to account for differences in user income
The usual model for carrier partnerships today is that of bundling, i.e. digital merchants giving out their service for free or at a discount in exchange for promotions. But thanks to telcos being involved in the marketing as well, additional hooks can be used to trigger action from consumers that is in the merchant’s interest.
For example, most mobile operators are interested in having their users buy more data. If the free trial has already run out, carriers could offer an additional month of access to the digital service provided the consumer buys 5GB of data. In such a scenario, telcos get to sell more of their service, while users who decided not to start paying for the service get an opportunity to reconsider. Pictured below (click on the image for a bigger version), Celcom Malaysia is using a free offer for iflix to get its subscribers to convert to a more expensive service package.
Leveraging carrier marketing channels is useful regardless of whether the merchant’s goal is to look for an exit (user growth rate) or reach profitability (retention of paying users), carriers have both the capability to conduct marketing to their subscribers, as well as monetize them thanks to the existing billing relationship they already have established.
So far mainly streaming services have chosen to look at carriers for future growth, as for them the challenge of mobile data access is the biggest. But as carriers also begin to warm up to the approach, any merchant with a strong value proposition in the real-time entertainment, communications, data storage and web browsing segments can tap into the opportunity.
Nobody thought of the Android freemium model when Apple’s paid app model was dominating the market. Online dating services were built on matching users by common interests, not swiping right based on faces, until Tinder came along. For most digital marketers, the success stories of streaming companies partnering with carriers should serve as a wake-up call to review what’s missing from their existing user growth, monetization and retention strategies.
If you're looking at mobile operators for user growth, revenue and retention, make sure to also check out Fortumo's Bundling Platform.