The focus of digital content providers has increasingly shifted towards emerging markets over the past few years. This is occurring in parallel with content consumption going digital: music streaming is replacing live concerts, Netflix cinemas etc. Smartphone ownership in Western markets has reached its peak while emerging markets continue to drive new smartphone sales.
This growth is also illustrated by an increase in mobile data consumption. As user income in these countries grows, an increasing amount of people can afford smartphones and mobile connectivity: Malaysia, Turkey and Russia are already quite close to established Western markets in terms of both income and mobile access.
The smartphone ownership “peak” in Western markets has also resulted in increased user acquisition costs and a higher competition between service providers, reducing the lifetime value of users. Smartphone owners are already used to consuming specific services, which means acquiring new users is expensive as they need to be lured over from competitors.
Digital content providers often hold the incorrect perception that because emerging markets are low-income, revenue potential there is also low. This mindset does not account for the fact that the user acquisition cost in these markets is also lower and there is a smaller availability of competing services.
- UK: CPI (cost per install): $2.49; monthly
- UK: monthly web ARPPU (average revenue per paying user): $11.8
- Germany: CPI: $2.37
- Germany: monthly web ARPPU: $11.6
- France: CPI: $1.95
- France: monthly web ARPPU: $10.9
- Thailand: CPI: $0.86
- Thailand: monthly web ARPPU: $9.4
- Philippines: CPI: $0.85
- Philippines: monthly web ARPPU: $16.5
- Turkey: CPI: $0.79
- Turkey: monthly web ARPPU: $12.6
The ratio of acquisition cost to revenue per paying user for these markets is as follows:
- UK: 1 to 4.7
- Germany: 1 to 4.9
- France: 1 to 5.6
- Thailand: 1 to 10.9
- Philippines: 1 to 19.4
- Turkey: 1 to 15.9
Even though user spending is similar, cheaper acquisition costs for emerging markets mean that every dollar spent there brings back 2x to 5x better results.
The problem most digital content providers have, even after realizing this opportunity, is to actually get the local users on board and spending. The three main challenges with this are:
Reluctance to spend: more of a myth than reality (as witnessed from the user spending examples brought out above), but lower income and access to free content means users are less inclined to pay for premium services compared
Access to payments: small proportion of bank accounts and credit card owners means that existing payment methods do not convert well
Acquisition, localization, retention: language barriers and local culture means every market needs to be approached “from scratch”, making expansion complicated and expensive
So who could help content providers out in solving these challenges? In markets where 30% to 40% of users are mobile-only, which partner would be best to involve for growth? Who has presence in both offline environments and online? Who has a direct relationship with the consumer? The title of the post already betrays the answer: mobile operators.
Mobile operators are able to counter all three of the challenges:
Reluctance to spend: the business of mobile operators is to sell telecommunication services to low-income prepaid subscribers, which they are doing successfully
Access to payments: every single mobile user already has a paying relationship with their network provider, either through airtime balance, monthly phone bills or broadband bills
Acquisition, localization, retention: carriers are local companies with vast retail presence and direct consumer communication channels (SMS); for carriers, subscriber churn is also a primary concern with which they have learned to dealt with
But why should carriers help digital content providers in helping build their business? Because it helps grow their business as well. Every carrier sells call, messaging and data services. The only way to distinguish from competing networks for these services is the price. And for carriers, focusing on pricing can have negative effects, resulting in a loss of revenue.
The new way for carriers distinguish themselves is through providing additional, high value digital services to their customers. There is a wide variety of activities through which this is achieved, ranging from simply enabling authentication based on MSISDNs, to providing payments via direct carrier billing, to helping with user retention through Push SMS messaging all the way to bundling.
We are happy to say Fortumo is also helping merchants strike these partnerships, with a strong focus on what happens after bundling deals run out: instead of letting users churn, merchants can retain them through an approach specifically tailored to monetizing the emerging markets audience.
As a result of offering these user acquisition, payment and retention solutions to content providers, carriers themselves add value to their subscribers, which in turn allows them to make more money. This is not only the case for emerging markets: for example Orange and Deezer are also working together in Western markets. There has never been a better time to start than now than to seek out carrier partnerships.
While currently the focus of these partnerships is on digital goods, the segments with which mobile operators is likely to expand even further. In 2011, 22 million Indians owned a credit card. In 2014, that number had grown to 52 million. Despite 133% growth of card ownership, 1.2 billion people in the country still do not have access to card-based online payments.
The lack of access to payments means online commerce companies (retailers, ridesharing, ticketing, mobile insurance etc.) will also have to look at mobile operators for growth. Digital content providers are already paving the way for this by forcing carriers to improve their commercial terms and technical infrastructure.
Once these conditions become feasible for online commerce as well, the opportunity for carriers from merchant partnerships will grow (literally!) 100x times: the music streaming industry today is worth $6.7 billion while mobile commerce accounts for $720 billion.
Whether you’re a digital or online commerce merchant exploring cooperation opportunities with carriers, it would be great to hear from you. Fortumo advises on provides carrier-related solutions to merchants for markets unfamiliar to them and we want to see if there’s a way we can work together. Drop us a line at firstname.lastname@example.org.