Welcome to the the mobile youth trends and behavior coverage. Today, Nick Wright, a Research Associate at the Wireless World Forum, who is a co-author of the mobileYouth 2006 report will be visiting here. Also, recently Nick has started blogging, and you should pay a visit and read his insightful Virtual Marketing and Media blog!
For those of you who missed the previous parts of the mobile youth trends, coverage here are the links: Nick Wright talked about mobile youth trends, Jan Kuczynski talked about mobile music, and youth and Savka Andic talked about mobile marketing and youth and talk about push messaging technology.
Well, let's give Nick a warm welcome!
N: It’s great to be back again on Xellular Identity, Xen. As you know, last week we were frantically preparing for the mobileYouth summit, so I didn’t have time to visit here. As it turns out, waiting turned out to be the best move, as the summit itself provides a great talking point about mobile services.
X: How was the event? Did it go well?
N: It was great, and the stimulating panel discussions provided plenty of healthy round-table discussion about the youth sector and the problems facing the industry in general. One of the highlights of the event is covered nicely by Bena Roberts on GoMo News, involving the final panel discussion of the afternoon between Jonathan Jowitt (formerly with Orange but now independent) and Raimond Scholze, VP of Customer Insights at T-mobile. The topic of this spirited debate surrounded the issue of youth churn amongst operators and the inability of the mobile industry to drive their young consumers towards adopting mobile services outside of voice and text. Raimond was arguing that with 40% market share, T-Mobile could not be concerned with micro-segmentation without alienating large parts of its audience. They were rolling out music services because that’s what their customers wanted, but it was clear that T-Mobile did not consider music an essential revenue-generating service for operators. The music industry is worth US$30 million, Raimond pointed out, but the mobile industry is worth US$40 billion: the implication is that music is a “nice-to-have” rather than a “need-to-have” service. However, at this stage, the problem is not so much in generating revenue from youth customers (though that is something mobile services are trying to achieve) as with actually keeping them on your service.
At 33%, the UK mobile operators not only have the highest churn rate of any country but this is also the highest churn rate of any service industry in the UK. That’s one-third of youth in the UK changing operator at least once a year and that alone represents an estimated US$1.8 billion in lost revenue. There is also the cost of acquisition which amounts to at least $250 for each new subscriber including advertising costs, handset subsidies and customer service costs (a dissatisfied or confused customer costs far more to maintain than one who is well-informed and satisfied). A study of American companies in the 90s shows that even a 5% increase in customer loyalty can amount to a 25-80% increase in profitability. Music’s value, or the value of any mobile service, should not be measured just regarding its ability to increase youth ARPU but in its ability to keep the young consumer satisfied and therefore loyal - that in itself is likely to create more profit than a high-cost service that is rarely used.
X: So why have mobile operators failed to get youth to engage with mobile services?
N: It’s mostly due to a very thoughtful approach that operators continue to adopt. This is still manifested in the language with which operators still address their consumers and the very channeled, inflexible “value chain” that exists. One of the most amusing but shocking revelations from a podcast I heard recently was that there is only one other industry that views its consumers as “end users” - the drug industry! The youth consumer needs a mobile service to improve his existing communications or provide significant entertainment within his peer group, and if that is not achieved, then they will not care about it. Part of the problem is the “if we make it someone will use it” mentality, which still needs to shift towards “if you want it, we will make it happen.” The issue can be most naturally explained by looking at the example of MMS.
MMS was subject to colossal industry hype but once it was released consumers gave it the cold shoulder, failing to find any real use for it. In 2001, industry analysts predicted that MMS would overtake SMS as the preferred means of data communication by 2008. 83% of consumers still use SMS, whereas only 25% use MMS. SMS is still responsible for 90% of data revenue, despite predictions that MMS would generate 66.3% of mobile messaging revenues by 2006. Here it is essential to distinguish between industry “hype” and consumer “buzz.” The industry was excited, but consumers couldn’t find any use for it, mainly because they hadn’t asked for it and it didn’t improve any existing behavior.
Mobile TV is currently undergoing similar industry hype and is also generating a fair amount of consumer buzz but whether consumers will be satisfied by mobile TV services is still unclear. Extensive consumer surveys seem to show considerable interest, but it seems that the idea is appealing than the potential reality. BT Movio’s survey found that 59% of consumers would pay £8 a month for mobile TV service on their current network, while an O2 survey showed that 85% were satisfied with the service and that 57% would take up the service within the next 6 months. However, BT Movio’s is purely a broadcast service and, as such, its appeal will be limited unless the youth consumer is watching live events (which may have an additional pay-per-view cost). Why watch a snippet of your favorite TV show half-way through when you can use TiVo or Sky+ to record the show in full and watch it at home?
Operators need to think through the reasons why consumers want mobile TV and provide a service that fulfills that unanswered need. Do youth have £8 a month to spend on a service that adds nothing except mobility into the equation and which they get for free at home? Can Mobile TV not more usefully replace youth spending on video rental services, for example via a video-on-demand service with a fixed-fee monthly subscription? There are plenty of unanswered questions about this service.