War and Peace: The Cell Phone Version
By Sergei Skripnikov
Recently Russians, like their
Japanese, Western European, and American counterparts, have acquired a taste for
mobile content. They are buying new ring tones, paying for silly jokes to be
sent to their phones as text messages, and are even attempting to watch porn on
their tiny cell phone screens for the price of a live stripper. And the content
business, despite its ridiculous appearance, has started to make money.
According to estimates from iKS-consulting, in 2003 the wireless content market
in Russia was around $100 million, and analysts expect it to expand to $230-270
million by the end of this year. The demand for content is growing and the
number of companies offering new information and entertainment services is
multiplying. These content providers are adapting familiar tunes to cell phones,
coming up with new games that fit on tiny screens, helping students cheat on
their exams, and organizing many a battle of wits via SMS. An advertising
campaign a few years back called cell phones the new toys for grown-ups,
referring to trends in the West. This prediction has become reality in Russia,
and there’s good money to be made from the fun.
In developed countries, wireless communications have seen better days. The boom
is over and use has stabilized. Cell phone companies are constantly searching
for ways to attract clients and make them spend their money. First they added
text messaging (SMS). Then, it was possible to surf the Web via cell phone. Then
came the era of multimedia messages (MMS), and customers could add photos,
songs, or even short videos to their messages. But this was just the tip of the
iceberg. “In one report on cell phone usage in developed Western and Asian
markets, researchers discovered that customers had their cell phone in hand for
an average of six hours a day but only talked for an hour and a half. One can’t
help but ask what they were doing the rest of the time. Content is the key to
answering this question,” believes Leonid Arbatman, General Director of Solvo, a
company involved in various content projects. Today, the mysterious phrase
“mobile content” can mean anything from weather forecasts for fans of extreme
sports, personalized birthday wishes from Madonna, and condensed literary
classics to wedding ceremonies, porn from Penthouse and Hustler, and
long-distance sermons from the Vatican’s most esteemed cardinals.
This year, internet content’s world turnover is estimated to growth to $8
billion according to Strategy Analytics. The lion’s share of money is earned
from ring tones, screen images, and games. British research firm Arc Group
reports that content providers will earn more than $3 billion thanks to ring
tones alone, or more than 10% of the world recording industry’s total turnover
Simple ring tones, in fact, laid the cornerstone for the future content market.
According to expert estimates, images and tunes, which are in truth not
full-fledged services, will be driven from the market by more complicated and
interactive services. MP3s, mobile video, and 3D games are gaining ground, but
content providers have high hopes for another new and promising idea, so-called
mobile cocktails. “These cocktails are a mix of services that change and follow
the events affecting our lives. They are local, frequently updated and adjusted
distribution channels,” explained Kirill Shramko, General Director of Agregator.
One version of this idea already in existence is mobile clubs by subscription.
Customers subscribe to a bundle of services related to a particular subject such
as a favorite performer and then for a small monthly fee get the latest news,
photos, games, contests, and exclusive invitations.
These cocktails are supported by the current second-generation cellular
networks, in particular GSM networks. To make a qualitative leap in content, the
newest generation of 3G networks is being set up. Curiously, long before the new
networks came into use, some joked that 3G stands for “girls, gambling, and
games,” the very areas where mobile content promises to develop fastest.
The complex made simple
Russian cellular companies, as opposed to their Western colleagues, have yet to
come up with any concrete content-oriented strategies, though content is playing
an increasingly large role in their long-term plans. The strategies at the
cellular “big three” (MTS, Vypelkom, and Megafon which together control 90% of
the Russian market) reflect their current market positions.
MTS, with the largest number of customers, wants to keep its influence the
market in content as well as other areas. For this reason, the company is
putting pressure on providers to gain more favorable terms for working together.
Yet MTS does not have any model for interaction with providers that makes sense
to the market. It is attempting to solve this problem by creating a platform
analogous to Vympelkom’s CPA and making business processes more transparent and
clear-cut. “At present, transparency is one of our highest priorities,” stated
Ruslan Gorelov of MTS.
Vympelkom is taking a different approach and has its own content project,
Beeonline. The company is predominately interested in improving quality and
simplifying services and its business strategy stipulates a hands-off approach
to wireless content. “We don’t plan to evaluate or rate providers. We really
don’t want to mess around with the market and shake it up by regulating it.
Consumers and the open market, capable to putting everything in its place,
should decide what’s good. We only regulate the market in terms of providers’
service conditions,” says Mikhail Kukharenko of Vympelkom.
Perhaps the most liberal approach can be found at Sonic Duo. According to the
company, Sonic Duo is the pilot platform for the entire Megafon network in
Russia. The company sees itself merely as a professional intermediary between
content developers and the actual market. “The biggest question now when
promoting new services is communication, the ability to make the complex simple.
You have to teach customers how to use new services and show people what they
actually stand to gain from using these services in their everyday lives. We
have a real chance today to win additional competitive advantages by forging a
link between developers and consumers. Because developers are able to come up
with amazing things but don’t know how to sell them, while consumers are able to
pay for mobile miracles but still don’t quite grasp their practical
applications,” believes Sergei Beshev, Commercial Director at Sonic Duo. For
this reason, companies feel that simplicity, active marketing, and focus on the
final consumer are the secrets to content success.
Yet they don’t see eye to eye when it comes to which existing business
development model will work in Russia. The market leaders’ strategies suggest
that the model will combine European and American approaches. On one hand, the
big three are developing and plan to keep developing content. On the other, they
are willing to hand the job over to providers on the condition that providers
will push their services actively and open up new opportunities for growth. This
is especially important as the saturation of the market for voice communications
is right around the corner. In the near future, more and more complex services
will appear on the market, and Megafon’s mobile TV is an excellent example of
this trend. Russian customers already have access to services based on a user’s
location, such as reviews of the closest night clubs, show times for the cinema
next door, and help recalling where they parked their car.
On developed markets, companies have already discovered a whole new group of
potential consumers. The president of Japan’s legendary NTT Docomo noted in a
recent talk that “We estimate our market potential at half a billion users.”
Someone asked where he got half a billion when there are only 150 million people
in Japan. The reply: “But what about all the dogs, cats, television sets, and