The breach of the walled garden

Turning the off-portal mobile content

phenomenon to mutual advantage

White Paper
Written by Pinal Gandhi & Andrew Ferguson

The growth of off-portal browsing

A new set of dynamics is gaining ground in the mobile

content market, stimulated by a combination of
advancing technology and a growing maturity in digital
material. The driver behind this dramatic change is the
rise of off-portal mobile content — that is third-party
content and services sold via sites not controlled by the
network operator.

Contents In this paper we explore how and why the acceleration in user demand for
off-portal browsing through mobile devices is creating a whole new order in
the mobile communications arena.

Dynamics of the new order 1 We examine the issues and challenges, the opportunities and the threats for
Pressures on the network operator 1 each of the key player elements within the digital content market, and
outline the strategies and mechanisms we believe each needs to adopt in
Multi-channel strategy 1 order to sustain a profitable position in this fast-changing environment.
Solution infrastructure 2
The advance of technology 2
The battle for market share 3
Mobile operators 4
Content owners 6
Content aggregators 8
New entrants 9
Conclusion 10
Independent research by JupiterResearch reveals that off-portal sales in Europe
already account for between 40 and 70 per cent of mobile content revenues.
CONTENT
CONTENT CONTENT
PROVIDER AGGREGATOR
Dynamics of the new order
Public appetite for mobile access to ever more inventive
services and content has led to the growth of a new
phenomenon: the provision of off-portal content and
services by third parties from sites that are not under
the control of the mobile network operator.
Independent research by JupiterResearch reveals that
off-portal sales in Europe already account for between
40 and 70 per cent of mobile content revenues,
depending on operator and territory, with the US also
rapidly gaining traction.
Other research reports confirm the burgeoning growth in
off-portal activity. For example, Berg Insight estimates that
by 2012 the mobile entertainment market could be worth
$32 billion, with games being the leading content category.
Strategy Analytics estimates that global revenues from
mobile data will grow from around $61 billion in 2006 to
just over $189 billion in 2009, and Qpass Inc reports that
about a third of global digital content sales – nearly
$1.4 billion – went off-portal in 2005.
Meanwhile, ingenuity and technology continue to
stimulate the growth of off-portal commerce further.
Greater bandwidth, more powerful handsets and
increasingly sophisticated protocols and payment
software make it ever easier for consumers and content
owners to reach one other – regardless of operators’
garden walls.
The operator may have a business relationship with
off-portal content providers, such as payments
processing arrangements, but the key factor here is that
off-portal providers can also sell to consumers without
any direct operator involvement.

MOBILE
CUSTOMER
OPERATOR
REVENUE
Pressures on the network operator
So where does this leave the mobile network operator?
Once at the very heart of the value chain, operators are
now finding themselves sidelined by service providers
and content owners who are seeking innovative ways to
develop their own share of the burgeoning mobile
content market.
Users discover these off-portal sites via a wide
spectrum of distribution channels beyond the carrier
portal – television commercials, search engines,
magazines, contextual links on websites, media reports,
word of mouth and even in short codes under bottle
caps or on cereal boxes.
With their control and influence over service offerings to
the customer thus compromised, operators now have
little choice but to review their conventional walled-
garden approach and find new routes to market.
Multi-channel strategy
Media companies and content rights owners, as well as
fixed-line ISPs, want to make their mark in the mobile
arena. As a result they are branching out into new
media platforms. For example, big players like MTV are
shifting to a multi-channel strategy, putting viewers in
control as they transform themselves from conventional
broadcasting businesses into multi-platform digital
media companies.
Broadband users are increasingly interested in receiving
triple and quadruple play services from a single provider
and expect digital content and services as a core part
of the bundle.
The emergence of triple and quadruple play service offerings is leading to the
creation of a broadening digital content marketplace, with previously diverse
players extending their reach into new channels.

The advance of technology

Off-portal will represent the majority of content delivery,
increasing in domination if Java applications become a
new way to bypass mobile operators. The BBC’s
Headlines Tracker mobile application, which grabs the
headlines for you either on demand or automatically, is
a good example. There are also now Java-based SMS
services trying to wrest service from operators.
Solution infrastructure
With increasingly sophisticated content delivery
platforms at content providers’ disposal, consumers are
likely to enjoy a better quality of user experience. This
will stimulate more usage, in turn encouraging more
content providers to deliver direct-to-consumer sites.
Investment is required to provide an end-to-end
infrastructure that can keep pace with these
developments. The mobile operators and service
aggregators are well positioned to play a part in
developing the technology needed; they have the
existing infrastructure and market experience. Due to
the high level of investment required to provide end-to-
end infrastructure, the smaller content providers will
need to consider a range of options in finding their
optimum route to market, such as partnering with
system integrators, billing vendors and managed
service providers.
Atos Consulting believes that in considering strategy
and positioning, the business needs to look closely at
the long-term investment case for IT, taking in issues
such as digital rights management (DRM), streaming
and content management. Changes to market
conditions – for example, legislation, taxation on content
and development in standards – will also have an
impact on IT and hence the return on investment.
One of the key forces of change is the emergence of
more sophisticated mobile internet-optimised handsets
and improved network capabilities, giving customers an
increasing breadth of choice as to where they source
and purchase content.
A key future technology enabler for off-portal content
services will be the growth in content management and
distribution systems based on the IP Multimedia
Subsystem (IMS), a network architecture and framework
that enables the convergence of data, speed and
mobile technology over an IP-based infrastructure.
As such, it helps to eliminate the cost and difficulty of
creating separate silos for each new service and will in
many ways be an enabler for wider content access
from mobile devices. IMS is emerging rapidly from the
standardisation work undertaken by the Third
Generation Partnership Project (3GPP) for 3G mobile
phone systems in UMTS networks and is becoming the
de facto standard for real-time multimedia
communication services.
At the same time, advancing technology also enables
service providers to extend their offerings across
previously diverse channels: fixed, mobile, PC and
digital TV. The emergence of triple and quadruple play
service offerings is leading to the creation of a
broadening digital content marketplace, with previously
diverse players extending their reach into new channels
– and thus increasing competition.

However, technology remains a vital factor. The

Atos Consulting view is that integration of the various
infrastructural components needs careful consideration
in developing an end-to-end solution, in order to
standardise platforms such as charging and commercial
offering management. Only through this level of
cooperation will mobile operators, aggregators and
content owners be enabled to work together,
seamlessly and securely.


Players in the mobile communications market are now having to recognise the
natural symbiosis that exists between the various market contributors and to
collaborate in ways not previously explored.
The battle for market share
Established players in the mobile content marketplace
include network operators and device manufacturers, as
well as film studios, broadcasters, record labels and
game publishers. Determined to preserve a significant
stake in the success of their mobile content operations,
each is now vying for a central position in the new market.
The outcome of the battle for market share will ultimately
be decided by the end-user. In this respect, the new
mobile value chain is similar to the fixed line internet,
where control is driven increasingly by customer choice,
and where brand recognition and customer acquisition
strategy count above almost everything.

For all these reasons, players in the mobile
communications market are now having to recognise
the natural symbiosis that exists between the various
market contributors and to collaborate in ways not
previously explored. Mergers, new strategic agreements,
alliances and partnerships, as well as both vertical and
horizontal consolidation, are inevitable. Indeed these are
already happening.
Atos Consulting believes that the mobile content
experience will converge with today’s online internet
experience. While, in the early days of the internet, ISPs
such as AOL had great success with their walled-
garden strategy, there is growing recognition that a new
way of thinking is required. The challenge now is to
attract and retain customers through appropriate
marketing and the sourcing and bundling of compelling
content in line with market demand.
A major question for mobile operators is how to incorporate off-portal content
successfully as part of their next-generation mobile data strategy.

Issues and opportunities for

mobile operators
The conventional channel to market for digital content providers has been via a mobile operator, who decides
how it is offered, presented and priced. But this is changing rapidly. Content providers now have direct ways of
engaging with their target audience.

It follows that a major question for mobile operators is how to incorporate off-portal content successfully as
part of their next-generation mobile data strategy, built around personalisation, rich content and a more
converged user experience.

The need to cooperate Winners all round

Operators have, until now, been reluctant to support the
off-portal proposition, since it threatened to dilute their
own premium content revenues. But more recently they
have started to recognise that locking customers into
their own portals – the old walled-garden model – can
be counter-productive, now that consumers expect
access to the widest range of content and services
available, both on- and off-portal.
However, while it’s certainly true that the emergence of
off-portal activity reduces the power of mobile operators,
it also presents them with opportunities to capture a
slice of the burgeoning content market by facilitating
transactions and payments through their existing billing
and payments systems.
Whether consumers access content services via an
extension of the mobile operator portal, known as the
‘friendly off-portal’ space, or by going straight to third
party content, the result is more data packets being
sent over the network. Either way, there is an
opportunity for mobile operators to generate increased
data revenues by charging for airtime and packets
consumed, rather than the content itself.
If mobile operators extend their portals to
accommodate a hands-off relationship with content
providers, there can be winners all round. Consumers
have a wider service range, providers sell more content,
and operators gain additional network usage revenue.
Rather than compromising service quality by engaging
in direct management of too much content for too many
handsets, operators should exploit their strengths.
By extending their infrastructure and enabling
consumers to charge off-portal content to their existing
mobile phone bill, operators can reduce churn, increase
average revenue per user and accelerate subscriber
acquisition rates.
Another strength of the mobile operators is the influence
they have over standards adoption and interoperability
in handset design, owing to their strong relationships
with the manufacturers.
Cost is one of the biggest barriers to customers using
data services today and the operators should also focus
on providing optimised data pricing plans to stimulate
off-portal usage. Being able to charge for content in a
reliable manner remains key to all parties.


To enable the industry to grow, mobile operators need to work with new
entrants, content owners and service providers rather than attempting to
grow the market themselves.
Focus on core business
To enable the industry to grow, mobile operators need
to work with new entrants, content owners and service
providers rather than attempting to grow the market
themselves. There are significant opportunities to be
realised by operators concentrating on managing their
core businesses – educating the market, simplifying
data tariffs and improving the user interface. At the
same time, content owners and media companies need
to partner more closely with operators to benefit from
their marketing services and audience insights.
In the short term, mobile operator portals will continue
to play an important role in the delivery and charging of
mobile content. They will remain key distributors
through the continuing control of handsets via subsidies,
control billing systems and default home pages.

Turning strengths to advantage
The mobile operators have powerful tools through which
to extend their propositions across channels and to
partner with content specialists and providers.
Specifically:
> skills and experience in providing content through the
mobile channel
> control and influence over the handset design and
technology
> leadership in the provision of voice related services
and market share
> the experience of charging and managing the end
customer.
Atos Consulting believes that the way forward for the
network operators is to:
> focus on strengths in the value chain and ensure
network coverage
> decide on and pursue strategies into providing new
customer channels
> maintain focus on bundling, pricing and end customer
propositions.
There is now the opportunity for content owners to work with operators to
design handsets jointly and to interact closely on development and rollout of
new models.

Issues and opportunities for

content owners
Of course content owners prefer to package and present their own content, because deferring to operators or
content aggregators impacts on revenue. In some cases operators will take as much as half the revenue per
transaction.

However, most content owners lack the infrastructure for delivery and charging, as well as experience of
managing customer relationships. While operator portals continue to be fundamental to the business and
marketing models for a brand, content providers need to determine what method of delivery works best for
their target consumers.

To date, network operators have had the biggest influence on handset technology. But there is now the
opportunity for content owners to work with operators to design handsets jointly and to interact closely on
development and rollout of new models. For content owners this encourages consumers to access their
content through intelligent hardware design — and for the operators such collaboration can help strengthen
customer relationships.

Powerful competition Media businesses have also learned how to leverage

The evolution from walled gardens to open portals is
exciting many big brands and lesser-known content
companies that see the potential for selling directly to
the consumer.
Big-brand content companies such as MTV and
Electronic Arts are investing in a multi-channel operating
model. Other leading brands like Disney are also
entering the market, leveraging global customer loyalty
to challenge the dominance of mobile operators.
Exploiting experience gained from its internet presence,
Disney is developing a branded portal and establishing
its own customer billing relationships.
the mobile channels, often through limited on-portal
activities, and no longer want to rely solely on mobile
operators. And then there are initiatives like eBay’s
PayPal-Mobile, already attracting big numbers of
registered customers.
The enormous success of social networking sites like
MySpace and Bebo is also influencing how mobile
content companies obtain their material. Increasingly,
content owners are encouraging user generated and
derivative content, a big pull for the youth segment that
dominates the music market.

In the UK, Channel 4 is one of a growing number of

brands delivering comprehensive direct-to-consumer
mobile sites. These sites are 100 per cent branded,
device-optimised to ensure that each user receives the
best available presentation and rich media assets. They
also incorporate the latest billing techniques that
emulate the browse-and-buy experience normally only
available on mobile operator portals.


Voice and SMS services are essential competitive offerings in this market –
but the real driver is the ability to unleash the revenue potential that the content
market has to offer.
Spend and revenue
End-to-end ownership of content and delivery
infrastructure enables these players to control and
manage the customer relationship and to gain greater
insight into customer demand. While this can obviously
lead to enhanced revenues, it also requires greater
investment of initial capital and operational expenditure.
However, the mega-brands are taking more than just a
slice of the revenue from their content; they are also
providing voice services, reducing operator revenues
further and threatening mobile operators’ original
business areas. Voice and SMS services are essential
competitive offerings in this market – but the real driver
is the ability to unleash the revenue potential that the
content market has to offer.

The way forward for content owners
Previously squeezed on revenue shares, content
owners need to look to new channels through which to
sell content to wider customer bases. The key value is
the content itself, and content owners will be seeking
ways to grow revenue return from premium content.
The plan of action for content owners will surely be to:
> develop competitive market strategies and assess
their value propositions
> consider routes to market and the financial case for
investment
> review alliances and partnering strategies
> ensure robust financial evaluation for different
distribution channels.
While operators tend to prefer dealing with a small number of content partners,
they need to provide a huge choice of content that reflects customer demand.

Issues and opportunities for

content aggregators
Content aggregators are rapidly becoming the off-portal intermediaries, with an increasingly direct relationship
with the consumer.

While operators tend to prefer dealing with a small number of content partners, they need to provide a huge
choice of content that reflects customer demand. They can do this by working with a small number of content
aggregators who bring large catalogues of content to the table.

To remain successful, aggregators need to deliver the widest variety of high quality content, while ensuring fast,
accurate transaction routing and payments settlement among multiple operators and content providers.

Appropriate charging Strategy for aggregators

In the past, mobile content has been sold through
premium SMS, with either a price-per-event or through
a recurring subscription with unlimited downloads.
Content aggregators need to ensure that they enhance
these charging models in line with customer
expectations and that they apply appropriate charging
according to the service being accessed.
Aggregators have the advantage of being already
established and experienced as diverse content
providers, with the infrastructure to facilitate sale and
delivery.
Critical points of future strategy for aggregators will
include:

Aggregators may well feel the pinch as content owners
seek to maximise revenue through stronger direct
relationships with the operators. However, Atos
Consulting believes that operators, as well as large
media brands and niche media/technology players, will
be looking for managed service solutions to reduce the
cost of content delivery – presenting aggregators with
an opportunity to leverage their existing systems,
customer base and channels to provide managed
solutions.
> expansion of charging mechanisms to ensure growth
and increase of customer loyalty
> readiness to extend infrastructure to support
more content providers and take over customer
relationships from the mobile operators
> exploitation of experience and infrastructure to
provide managed services to content providers
> provision of commercial models for content
appropriate to the specific service, allow for
differentiation of service such as Digital Rights
Management (DRM), content delivery assurance and
quality of service
> strong focus on branding and advertising.


Exploring the market to see what works best for each player before committing
further investment, both in revenue share and customer base, is becoming
increasingly common.

Issues and opportunities for

new entrants
Mobile operators’ relationship with the customer may position them at the centre of the mobile content value
chain for the time being — but major players such as Yahoo! and MSN are already taking steps to interact
directly with customers through their own mobile content portals.

Also among these new entrants is AOL, anxious to expand beyond its mature dial-up internet access market.
By leveraging current fixed content, AOL has introduced new and enhanced mobile services, including new
mobile browsing that adapts web pages to mobile screens.

BT also plans to launch a mobile content portal and potentially integrate this with its broadband and wireless
services including BT Fusion, the world’s first seamless fixed and mobile phone service. Services, including a
mobile media portal and customised handset client, will be accessed by the new generation of wi-fi enabled
handsets, featuring a wide variety of new content such as branded Java games, video downloads and
ringtones.

Exploration in the market
The mobile content industry offers different business
opportunities for different markets. Exploring the market
to see what works best for each player before
committing further investment, both in revenue share
and customer base, is becoming increasingly common.
For example, Google is taking the ‘try it all’ approach,
having invested intensively in mobile search, text
advertisements, location-based services and localised
software on mobiles. It has gone some way in
establishing itself in the mobile search space, most
recently with deals signed with T-Mobile (Web’n’Walk) and
Vodafone. However, if Google and other competing firms
are to be successful, they need to get returns on their
experiments and establish an identity in a specific area.
Thanks to a handful of extremely popular key services,
leading internet companies have enjoyed an impressive
rise in traffic and revenues, and have established
themselves as powerful brands. Recent partnerships
with mobile operators offer real opportunities for
collaborating parties, albeit depending on the nature of
the service.
However, portal appetite goes well beyond fixed and
mobile services, and the internet giants could well prove
a direct threat to operators’ longstanding access-
centric business model. In fact, recent developments
are enabling them to launch full-frontal attacks on the
internet access markets: virtual operators, voice, TV,
wi-fi and mobile access.
The off-portal content market may also offer smaller
developers big opportunities, though they face
challenges in marketing, quality control and billing.
Generating traffic and winning off-portal content sales
will not be easy for these smaller companies, without
the brand recognition and marketing resources to tempt
consumers with their content. As a result they will have
no option but to partner with an independent
aggregator to drive business forward.
New players entering the market need to build a
passionate user-base that will stay loyal, while they build
frequency of interaction across multiple platforms and
deliver engaging opportunities for advertisers. Atos
Consulting’s view is that, as new content emerges, so will
an advertising infrastructure to support this content which
is not currently being sustained by carrier agreements.


Now is the time for the different players to prepare their strategies and
implement positioning tactics in preparation for the wider adoption of the
technology, with alliances, mergers and joint ventures to give offerings across
previously diverse channels.
Strategy for new entrants
Coming into the marketplace from an ISP or search
engine background, new entrants tend to show an
aggressive approach to positioning themselves at the
centre of technology developments, as well as courting
strategic alliances with key market players.
These entrants need to follow through their market
experimentation with establishment of a positive identity
and product set with which customers can clearly
identify. Specifically:
> Assess the case for expansion into new areas such
as voice
> Establish an identity and areas of key focus or
competitive advantage
> Strike a balance between product placement and
ongoing profitable business models.
Conclusion
At Atos Consulting, we believe that developments in the
digital content marketplace, enabled chiefly by advances
in off-portal browsing, can provide significant
opportunities to enhance revenue potential for all parties.
The opportunities will come through the increased value
added to customer propositions and the facilitation of
their experience through better access methods.
Now is the time for the different players to prepare their
strategies and implement positioning tactics in
preparation for the wider adoption of the technology,
with alliances, mergers and joint ventures to give
offerings across previously diverse channels.
As well as this continuing positioning activity, we will see
more definition around service propositions and
offerings to the consumer fuelling the wider adoption, in
line with the introduction of better handset technology
to improve access and user experience.
Each of the players needs to consider their role within
this developing market place and ensure that they focus
on key strengths rather than diluting returns through
stretching their position across areas of the value chain
where they do not have competitive advantage.
10
 About Atos Origin
Atos Origin in the Telecom Sector
Atos Origin is an international information
Atos Origin’s turnover in the telecoms industry is close to €1 billion. It
technology services company. Its business is
delivers consulting, systems integration and outsourcing expertise to 350 turning client vision into results through the
customers around the world, including Tier 1 telecom operators in Europe. application of consulting, systems integration
Atos Origin has been active in the telecoms market for more than 20 years. and managed operations. The company’s
annual revenues are more than EUR 5 billion
Atos Origin is the European market leader in prepaid billing solutions, and it employs over 46,000 people in 40
managing 25 million users and two billion transactions a year in payment countries. Atos Origin is the Worldwide
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blue-chip companies across all sectors. Atos
For further information, including a series of detailed fact sheets, regarding Origin is quoted on the Paris Eurolist Market
off-portal mobile content and preparing for the future please contact: and trades as Atos Origin, AtosEuronext,
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