YOU ARE AT:OpinionReader Forum: The OTT overture – industry trends, challenges and opportunities in...

Reader Forum: The OTT overture – industry trends, challenges and opportunities in 2014

Editor’s Note: Welcome to our weekly Reader Forum section. In an attempt to broaden our interaction with our readers we have created this forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but we maintain some editorial control to keep it free of commercials or attacks. Please send along submissions for this section to our editors at: [email protected]

Ovum recently published an interesting survey on mobile messaging further revealing how social messaging players are rapidly evolving, expanding and challenging the status quo of mobile social networking. According to Ovum, over-the-top mobile messaging apps are changing the way consumers interact with social media; and thus, we should expect to see a new wave of OTT players hit the market in 2014, and anticipate a fundamental shift in social network services as these apps evolve beyond text messaging and begin to generate substantial revenue from among hundreds of millions of users.

So what is fueling this mass-market phenomenon that is disrupting the status quo within the classical symphony of mobile network services? As the musicians of our industry, we should understand the causes and effects to be able to formulate our response.

The present

There are a variety of powerful factors that are accelerating the growth of the OTT mobile messaging industry, changing consumer behavior in a big way, and driving one of the world’s most dramatic shifts in industrial wealth. Like the four main sections of an orchestra, there are four main segments that have proven to be critical and will continue to be the foundation for the continued growth of the OTT app industry in the coming year and beyond:

The brass – technological advancements: The universal accessibility of smart devices, app stores and broadband connectivity is enabling the rapid proliferation of OTT apps across the entire social economic fabric of humanity on a global basis.

The ability to easily download an app from the Internet into a smartphone, tablet or laptop to communicate freely across a Wi-Fi or a mobile broadband connection most anywhere at any time is a mighty equalizing force. Markets with the highest smartphone and tablet penetration have the highest percentage of social messaging users spending less for traditional mobile communication services. This unanticipated “Trojan Horse” effect laid the groundwork for a massive redistribution of revenue from mobile network operators to social network and messaging service providers.

The woodwind – an agile ecosystem: The swift advancement and adoption of open IP-based interconnectivity and communication standards coupled with the ease with which developers can innovate, change and constantly enhance the apps is enabling OTT communication apps to be more compelling and in concert with consumer behavior.

Let’s face it, OTT apps are more desirable because they are cool, compelling, and convenient. The developers that create them typically use the agile development process to capture user stories, scrum, sprint, adapt, pivot, update and frequently release software features that are more likely to satisfy the desires and needs of their customers. Combine this with metrics-driven marketing, it’s easy to see how hundreds of millions of customers are acquired and retained.

The strings – consumer behavior: The power of disruptive business models, such as the freemium business model, together with the strong desire by consumers to switch to alternative calling and messaging solutions – to circumvent exorbitant roaming costs, international long distance calling costs, taxes, surcharges, fees, etc. – is causing a dramatic shift in consumer behavior.

The power of “free” is a formidable force in a weak economy. Consumers, especially youth and those with limited purchasing power in emerging countries, are becoming comfortably accustomed to chatting, telephoning, sharing media and video calling at no cost. They even turn off their cellular data connection to conserve money in their prepaid accounts. They are also willing to switch to other free and more captivating apps, if they perceive that they offer more value.

The percussion – economies of scale: The enormous economies of scale that are created due to the viral effect, net neutrality and network effect – is accelerating the proliferation of OTT apps that are not constrained to network geographic boundaries.

The most powerful form of marketing is word of mouth, or viral marketing. The more people use a service, the more valuable it becomes, which is the network effect. The ability to deliver services non-discriminatively across any cellular data network is enabled by net neutrality. These three principles combined create the most efficacious way to reaching enormous economies of scale.

The future

With the above factors creating a ripe environment for OTT apps to “rock and roll” the industry, mobile network operators will face further challenges in 2014. Three specific predictions come to mind:

–More OTT players will enter the marketplace, further “disintermediating” their customer base and revenue streams.

–Disruptive open-source technologies, such as WebRTC, will further level the playing field as another equalizing force that will enable new players to deliver communication services.

–The “innovators dilemma” will persist and postpone their adoption of new technologies and business models, further propagating their continued loss of revenue and customer loyalty.

Yet, mobile operators have several choices to “face the music” against the increasingly crowded OTT messaging space. Among these choices are:

–Do nothing: May result in losing more revenue, customer loyalty and strategic advantage.

–Offer Joyn: A common denominator in the marketplace, which may lead to no service differentiation, no monetization and the continued loss of revenue to the more competitive OTT threat.

–Build In-house: An attempt by operators to deliver disruptive apps ahead of the more nimble OTT players is likely to result in drawn-out research and development investments and a challenging return on investment.

–OTT partnership or acquisition: The deployment of a ready-made OTT solution with the intent to grow a user base and revenue stream virally across the globe, with minimal capital expenditures and risk.

Considering all these factors, challenges and opportunities, three “encore” predictions follow for 2014:

–OTT players that are able to monetize their services will become more competitive. Those that can’t will be consolidated or disappear.

–Several forward-looking operators will partner with (or acquire) OTT players to differentiate themselves and begin clawing back lost revenue.

–At least one large operator will take the bold move to offer their own disruptive OTT service across their competitors’ networks and ignite the “cacophony” of a land grab.

Joe Lawrence is an acknowledged wireless industry expert with an entrepreneurial spirit. As a 30-year veteran, he is proficient in assessing the challenges of today’s mobile communications industry and in the intricacies of starting new businesses. At Voxox, Lawrence leads global business development and mobile network operator product development.

ABOUT AUTHOR

Editorial Reports

White Papers

Webinars

Featured Content