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.

Mobile cocktails

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 ($32.2 billion).

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 refrigerators?”