Schmalenbach Business Review◆Vol.54◆ October2002◆pp.351-371 Valerie Feldman COMPETITIVE STRATEGY FOR MEDIA COMPANIES IN THE MOBILE INTERNET R ABSTRACT The provision of mass media content over next-generation 3G mobile networks sioned as an exciting new application of new media. This paper focuses on the mobile Internet as strategic challenge for media and entertainment companies. It provides an overview of distinctive features of the mobile Internet related to personalization, time and location sensitivity, uncertainties between technology push and market pull, and motiva- tions for engagement in mobile interactivity. The analysis of competitive strategy in the mobile Internet suggests that the changing market structures in the converging media and entertainment and mobile wireless telecommunications industries lead to shifts of bargain- ing power. The emerging co-opetition challenges media and entertainment companies to re-evaluate their activities in the mobile value chain that provide potential for the creation of sustainable competitive advantage in the mobile Internet. These changes are reflected in the emerging business models for media and entertainment companies in the mobile Internet. The paper presents three strategic options for media companies: a syndication strategy, a portal strategy, and a mobile virtual network operator strategy JEL-Classification: D8 L8. M3 1 INTRODUCTION The provision of mass media content over next-generation 3G mobile wireless networks! is envisioned as an exciting new application of new media. But its key success drivers remain uncertain. It is yet to be seen, if serving mobile content will be highly profitable or a money-losing business. The media uses various buzz words such as m-trading, mobile multiplayer games, and mobile movies and thus creates high expectations. Yet, the demand for mobile content tends to be assumed rather than demonstrated, and reality may disappoint Dipl. -Kffr. Valerie Feldmann, M.A., Affiliated Researcher, Columbia Institute for Tele-Information, Columbia Business School, New York, Visiting Scholar, Economics and Mass Communications, Freie Universitat Berlin, Malteserstr. 74-100, D-12249 Berlin, Phone:+49-177-73 694 72, e-mail: feld- nav@zedat. fu-berlin. de Acknowledgements: I thank the seminar participants at the CITI Ph. D research seminar, Columbia usiness School, New York, March 2001, for many helpful suggestions. The paper has also bene- ted from its discussion at the 19th Annual International Communications Forecasting Conference, Washington D. C. June 2001. Any errors that remain are only my 1 The international standards are specified by the International Telecommunication Union in its IMT-2000 report sbr54(42002)
Valerie Feldmann* COMPETITIVE STRATEGY FOR MEDIA COMPANIES IN THE MOBILE INTERNET** ABSTRACT The provision of mass media content over next-generation 3G mobile networks is envisioned as an exciting new application of new media. This paper focuses on the mobile Internet as strategic challenge for media and entertainment companies. It provides an overview of distinctive features of the mobile Internet related to personalization, time and location sensitivity, uncertainties between technology push and market pull, and motivations for engagement in mobile interactivity. The analysis of competitive strategy in the mobile Internet suggests that the changing market structures in the converging media and entertainment and mobile wireless telecommunications industries lead to shifts of bargaining power. The emerging co-opetition challenges media and entertainment companies to re-evaluate their activities in the mobile value chain that provide potential for the creation of sustainable competitive advantage in the mobile Internet. These changes are reflected in the emerging business models for media and entertainment companies in the mobile Internet. The paper presents three strategic options for media companies: a syndication strategy, a portal strategy, and a mobile virtual network operator strategy. JEL-Classification: D8, L8, M3. 1 INTRODUCTION The provision of mass media content over next-generation 3G mobile wireless networks 1 is envisioned as an exciting new application of new media. But its key success drivers remain uncertain. It is yet to be seen, if serving mobile content will be highly profitable or a money-losing business. The media uses various buzzwords such as m-trading, mobile multiplayer games, and mobile movies and thus creates high expectations. Yet, the demand for mobile content tends to be assumed rather than demonstrated, and reality may disappoint. Schmalenbach Business Review ◆ Vol. 54 ◆ October 2002 ◆ pp. 351 – 371 sbr 54 (4/2002) 351 * Dipl.-Kffr. Valerie Feldmann, M.A., Affiliated Researcher, Columbia Institute for Tele-Information, Columbia Business School, New York, Visiting Scholar, Economics and Mass Communications, Freie Universität Berlin, Malteserstr. 74-100, D-12249 Berlin, Phone: +49-177-73 694 72, e-mail: feldmav@zedat.fu-berlin.de. ** Acknowledgements: I thank the seminar participants at the CITI Ph.D. research seminar, Columbia Business School, New York, March 2001, for many helpful suggestions. The paper has also benefited from its discussion at the 19th Annual International Communications Forecasting Conference, Washington D.C., June 2001. Any errors that remain are only my responsibility. 1 The international standards are specified by the International Telecommunication Union in its IMT-2000 report
V Feldmann ber fixed-line phones. The diffusion of wireless communications technology fixed wireless, but in particular mobile wireless, has taken place rapidly, exceed ng even that of the Internet. Forecasts predict that by 2010 there will be more wireless phones than PCs or even TVs3. Against this background, the mobile Internet will gain in significance and rele vance in media companies' strategies to distribute their content via multiple digital platforms. Mobile communication's use and its applications are moving beyond simple point-to-point voice to data applications such as text, pictures, graphs audio, and video. Creating the appropriate and relevant content may be a key dri ver for the development of a next-generation mobile infrastructure. Therefore media content providers are developing strategies for the distribution of mobile wireless content+. This development is particularly challenging, since the wireless telecommunications market is characterized by rapid technological change and great uncertainty about the significance and duration of technological standards as well as consumer demand. Thus, the evolvement of profitability becomes an important challenge in these markets. Convergence processes in media and enter- tainment and mobile wireless telecommunications industries are leading to changes in industry structure and hence will challenge strategic management of media companies to build and sustain competitive advantages. However, opera tional effectiveness through better technology will probably not determine how the players sustain a competitive advantage. Delivering a unique type of value to omers has more potential to become source of competitive advantage Therefore, the direct channel to contact mobile Internet customers is an important asset and suggests growing importance of customer relationship management as ell as brand strategy for media companies in the mobile Internet In section 2, the analysis focuses on the mobile Internet as strategic challenge for media and entertainment companies. The section provides an overview of distinc tive features of the mobile Internet. and examines uncertainties between technol ogy push and market pull and motivations for engagement in mobile Section 3 concentrates on competitive strategy in the mobile Internet. This section discusses changing market structures in the converging media and entertainment and mobile wireless telecommunications industries. media and entertainment com- panies in the mobile value chain, and the creation of sustainable competitive advantage. Section 4 presents emerging business models for media and entertain- ment companies in the mobile Internet and suggests three strategic options for media companies: a syndication strategy, a portal strategy, and a mobile virtual network operator strategy. Section 5 conclude ion Union(2002) (2001); Boston Consulting Group(2000). 4 For a critical ion of mass media content for mobile wireless communications see Groebel/Noam/ 352 sbr54(4/2002)
However, mobile communications have become an integral part of both business and private life. In 2002, for the first time mobile phones worldwide will outnumber fixed-line phones 2. The diffusion of wireless communications technology, fixed wireless, but in particular mobile wireless, has taken place rapidly, exceeding even that of the Internet. Forecasts predict that by 2010 there will be more wireless phones than PCs or even TVs3. Against this background, the mobile Internet will gain in significance and relevance in media companies’ strategies to distribute their content via multiple digital platforms. Mobile communication’s use and its applications are moving beyond simple point-to-point voice to data applications such as text, pictures, graphs, audio, and video. Creating the appropriate and relevant content may be a key driver for the development of a next-generation mobile infrastructure. Therefore, media content providers are developing strategies for the distribution of mobile wireless content4. This development is particularly challenging, since the wireless telecommunications market is characterized by rapid technological change and great uncertainty about the significance and duration of technological standards, as well as consumer demand. Thus, the evolvement of profitability becomes an important challenge in these markets. Convergence processes in media and entertainment and mobile wireless telecommunications industries are leading to changes in industry structure and hence will challenge strategic management of media companies to build and sustain competitive advantages. However, operational effectiveness through better technology will probably not determine how the players sustain a competitive advantage. Delivering a unique type of value to the customers has more potential to become source of competitive advantage. Therefore, the direct channel to contact mobile Internet customers is an important asset and suggests growing importance of customer relationship management as well as brand strategy for media companies in the mobile Internet. In section 2, the analysis focuses on the mobile Internet as strategic challenge for media and entertainment companies. The section provides an overview of distinctive features of the mobile Internet, and examines uncertainties between technology push and market pull and motivations for engagement in mobile interactivity. Section 3 concentrates on competitive strategy in the mobile Internet. This section discusses changing market structures in the converging media and entertainment and mobile wireless telecommunications industries, media and entertainment companies in the mobile value chain, and the creation of sustainable competitive advantage. Section 4 presents emerging business models for media and entertainment companies in the mobile Internet and suggests three strategic options for media companies: a syndication strategy, a portal strategy, and a mobile virtual network operator strategy. Section 5 concludes. V. Feldmann 352 sbr 54 (4/2002) 2 See International Telecommunication Union (2002). 3 See Durlacher Research (2001); Boston Consulting Group (2000). 4 For a critical discussion of mass media content for mobile wireless communications see Groebel/Noam/Feldmann (forthcoming)
Mobile internet 2 THE MOBILE INTERNET AS STRATEGIC CHALLENGE FOR MEDIA AND ENTERTAINMENT COMPANIES According to Rogers(1995) perceived attributes of innovation, the adoption of nobile communications services will be influenced by the relative advantage compatibility, complexity, trialability, and observability. Parameters of the mobile Internet that may contribute to the first attribute, the perception of a relative dvantage, could be the spatial and temporal needs of communication, functional needs of users, an individual cost optimum of communication, and content Among these parameters, media content on mobile wireless distribution platforms could become a dominant driver of data traffic. therefore. content will be an important element in both media and telecommunications companies'business models. The success of mobile wireless media could be largely dependent on the context in which it functions. Ubiquity of content does not necessarily create rel- evance, and pure availability does not create demand. It is context that creates rel- evance that can be translated in a further step into transactions "Wearable"computing is an example of trying to avoid disruptive experiences with mobile devices. Projects at the MIT Media Lab such as Nomadic Audio?or MIThrills experiment with how to smoothly integrate communications technology nto clothes and into the context of the individuals' life. IBM introduced pervasive computing in intelligent jewelry, e. g, in watches, rings, necklaces, and earrings The use of media content is affected through ubiquitous computing as well. Time increased by these measures%. However, ubiquitous technology can easily bin, &%nP sensitive information is being pushed at the consumer; location-based services car be pulled by consumers. Both have the potential to become an integral part individual and business life. Customer loyalty to certain media offers car consumers and turn the vision of a continuous information flow into a permanent intrusion through distractions and sales pitches 10. 2.1 DISTINCTIVE FEATURES OF THE MOBILE INTERNET The mobile Internet enhances the use of services in the dimensions time and space. It does so by adding ubiquity of Internet access and immediacy of commu- nication and (inter)activity 5 For a derivation and discussion of these attributes see Rogers (1995) 6 See Feldmann(2001) 8Seehttp://www.media.mitedu/wearables/ 9 AnandSbachar(2001) analyze brand loyalty to multiprodue ing choices. Their findings suggest that the profile of a mult ment the information set of consumers. Ubiquitous availability firms products that affects loyalty (2001) 353
2 THE MOBILE INTERNET AS STRATEGIC CHALLENGE FOR MEDIA AND ENTERTAINMENT COMPANIES According to Rogers (1995) perceived attributes of innovation, the adoption of mobile communications services will be influenced by the relative advantage, compatibility, complexity, trialability, and observability5. Parameters of the mobile Internet that may contribute to the first attribute, the perception of a relative advantage, could be the spatial and temporal needs of communication, functional needs of users, an individual cost optimum of communication, and content. Among these parameters, media content on mobile wireless distribution platforms could become a dominant driver of data traffic. Therefore, content will be an important element in both media and telecommunications companies’ business models. The success of mobile wireless media could be largely dependent on the context in which it functions 6. Ubiquity of content does not necessarily create relevance, and pure availability does not create demand. It is context that creates relevance that can be translated in a further step into transactions. “Wearable” computing is an example of trying to avoid disruptive experiences with mobile devices. Projects at the MIT Media Lab such as Nomadic Audio7 or MIThrill8 experiment with how to smoothly integrate communications technology into clothes and into the context of the individuals’ life. IBM introduced pervasive computing in intelligent jewelry, e.g., in watches, rings, necklaces, and earrings. The use of media content is affected through ubiquitous computing as well. Timesensitive information is being pushed at the consumer; location-based services can be pulled by consumers. Both have the potential to become an integral part of individual and business life. Customer loyalty to certain media offers can be increased by these measures 9. However, ubiquitous technology can easily harass consumers and turn the vision of a continuous information flow into a permanent intrusion through distractions and sales pitches10. 2.1 DISTINCTIVE FEATURES OF THE MOBILE INTERNET The mobile Internet enhances the use of services in the dimensions time and space. It does so by adding ubiquity of Internet access and immediacy of communication and (inter)activity. Mobile Internet sbr 54 (4/2002) 353 5 For a derivation and discussion of these attributes see Rogers (1995). 6 See Feldmann (2001). 7 See Sawhney/Schmandt (1999). 8 See http://www.media.mit.edu/wearables/. 9 Anand/Shachar (2001) analyze brand loyalty to multiproduct firms using data on television viewing choices. Their findings suggest that the profile of a multiproduct firm is an important element in the information set of consumers. Ubiquitous availability may be one attribute across the media firm’s products that affects loyalty. 10 See Gleick (2001)
V Feldmann Originally, the concept of mobility was rooted in the area of transpo it has been transferred to communications networks mobile commu quers constraints of location and geography and allows ubiquitous New time management capabilities emerge with real-time pushed and pulled voice and data communications that quicken the pace of both business and per- sonal life in business-to-business and business-to-consumer markets. The mobile Internet's access device also differs from the fixed desktop computer that accesses he Internet. The mobile phone is far more personal than a PC and is likely to be used by only one single person. Personalization of processes and services in the mobile Internet based on the depicted characteristics may be among the most rel- evant sources of competitive advantages in strategic mobile Internet management. A characteristic of the mobile Internet is its hybrid structure, which combines the virtual and the real world in a unique way. This hybridisation differs from the vir- tual worlds of the Internet. Movement and mobility in the physical offline world and surfing in virtual online world o longer exclusive. Instead, they can now be combined. This hybridization of on-and offline media environments as well as of voice and data communications has fostered ideas and expectations for the mobile phone as a transaction device. Integrating the on- and offline experience without shifting the channel becomes possible when interactive rich media appli cations of the Internet which have already been implemented in e-commerce, are augmented through their use in nomadic environments 12 and the option to link mobile data transaction offers to call centers Another interesting process of hybridization will take place in navigation, which nay also use the voice to browse mobile Internet offers. Voice-activated service are being developed to adapt mobile Internet usage to the specific usao S context 13. When a person is moving, e. g, walking down a street, voice navigation as a background activity will be the only possible navigation mode that will nable the user to keep on moving and still be able to concentrate on the street as ground activity. While it has been argued that the Internet serves mainly as a tool to gather infor- mation on a product that will later be bought in bricks-and-mortar stores, the mobile Internet can reverse this relationship. a customer can gather information in a store and, if there are price, quality or service advantages, purchase the good in the virtual world via the mobile device. Whereas the Internet reduces the impor- tance of location since virtual markets are not bound to it. the mobile internet emphasizes the importance of location Various capabilities and functions are integrated into mobile communications ser- vices. One can distinguish communications, real-time content, storage content and transaction services. the most obvious function is communications. Voice ser- vices and complementary data communication services such as Short Message Ser- 12 For a definition of nomadic environments see SaubneyScbmandt (1999). 13 See werbach(2000b) sbr54(4/2002)
Originally, the concept of mobility was rooted in the area of transportation. Now, it has been transferred to communications networks. Mobile communications conquers constraints of location and geography and allows ubiquitous availability11. New time management capabilities emerge with real-time pushed and pulled voice and data communications that quicken the pace of both business and personal life in business-to-business and business-to-consumer markets. The mobile Internet’s access device also differs from the fixed desktop computer that accesses the Internet. The mobile phone is far more personal than a PC and is likely to be used by only one single person. Personalization of processes and services in the mobile Internet based on the depicted characteristics may be among the most relevant sources of competitive advantages in strategic mobile Internet management. A characteristic of the mobile Internet is its hybrid structure, which combines the virtual and the real world in a unique way. This hybridisation differs from the virtual worlds of the Internet. Movement and mobility in the physical offline world and surfing in virtual online worlds are no longer exclusive. Instead, they can now be combined. This hybridization of on- and offline media environments as well as of voice and data communications has fostered ideas and expectations for the mobile phone as a transaction device. Integrating the on- and offline experience without shifting the channel becomes possible when interactive rich media applications of the Internet which have already been implemented in e-commerce, are augmented through their use in nomadic environments12 and the option to link mobile data transaction offers to call centers. Another interesting process of hybridization will take place in navigation, which may also use the voice to browse mobile Internet offers. Voice-activated services are being developed to adapt mobile Internet usage to the specific usage context 13. When a person is moving, e.g., walking down a street, voice navigation as a background activity will be the only possible navigation mode that will enable the user to keep on moving and still be able to concentrate on the street as foreground activity. While it has been argued that the Internet serves mainly as a tool to gather information on a product that will later be bought in bricks-and-mortar stores, the mobile Internet can reverse this relationship. A customer can gather information in a store and, if there are price, quality or service advantages, purchase the good in the virtual world via the mobile device. Whereas the Internet reduces the importance of location, since virtual markets are not bound to it, the mobile Internet emphasizes the importance of location. Various capabilities and functions are integrated into mobile communications services. One can distinguish communications, real-time content, storage content, and transaction services. The most obvious function is communications. Voice services and complementary data communication services such as Short Message SerV. Feldmann 354 sbr 54 (4/2002) 11 See Buderi (2001); Townsend (2000). 12 For a definition of nomadic environments see Sawhney/Schmandt (1999). 13 See Werbach (2000b)
Mobile internet vices(SMS)are the basic feature of cell phones and today also the main reason for usel4. This primary use has the potential to expand to using the cell phone as device to access the mobile internet. forecasts estimate that data communications will increase in importance for cell phones15. The success of SMS and related info services, the possibility to read e-mails, send Multimedia Messaging Services (MMS), and use instant messaging (IM), are raising high expectations on more advanced data services, especially in terms of generating revenues The real-time content in mobile devices is time sensitive published data. Examples are stock quotes, weather reports, or traffic information. This data can be provided by media companies like Reuters, the Financial or The Weather Channel content aggregators like Yahoo; or other wireless portals as well as municipal authorities. Storage content comprises databases such as the "Yellow-Book"phone directory or restaurant guides. This content can also be provided by publishers such as lifestyle magazines, as well as established institutions and brands like the Yellow Pages or the Zagat restaurant guides Transactions represent an area that raises as many hopes as it raises doubts Mobile electronic commerce can develop the cell phone from a communications into a transaction device. However, the adoption of m-commerce transactions is still very low. The limited size of the display, e. g, determines the amount of pro- duct information. However, when the device can support convenient use, includ ing one-click m-commerce applications as well as secure and trusted billing sys- ms, adoption rates may be higher. Identification of the user is one clear advan- tage of cell phones over other mobile devices as well as traditional e-commerce Yet, before m-commerce can play a significant role in e-commerce, telecoms need o implement secure identification processes and a standardized micropayment system. A central success factor for m-commerce will be its context specificity Connecting e-commerce offers to the described enhanced dimensions of time and space and embedding it in context-aware services will be crucial for building and sustaining competitive advantages in m-commerce Taking into account the discussed distinctive features of the mobile Internet as ell as thinking in terms of immediate, fast access to information, customers will have little acceptance and a short attention span when they are surfing the mobile Internet. They will instead rely on information they can find quickly and in trusted brands with which they already have a customer relationship. This potential con sumer behavior suggests that the mobile Internet could enhance the importance of brands and of customer relationship management. 2.2 UNCERTAINTIES BETWEEN TECHNOLOGY PUSH AND MARKET PULL Mobile Internet access does not improve the mobility of its users-(since this is a question of transportation), but information and communications infrastructure 14 Voice over IP is a possibility for future voice communications via these handheld devices. One rea son, why this might not become too successful is the unstable connection and inconveniences of 15 See Durlacher Research(2001), p. 13; Boston Consulting Group(2000), P. 12. sbr54(42002) 355
vices (SMS) are the basic feature of cell phones and today also the main reason for use14. This primary use has the potential to expand to using the cell phone as device to access the mobile Internet. Forecasts estimate that data communications will increase in importance for cell phones15. The success of SMS and related info services, the possibility to read e-mails, send Multimedia Messaging Services (MMS), and use instant messaging (IM), are raising high expectations on more advanced data services, especially in terms of generating revenues. The real-time content in mobile devices is time sensitive published data. Examples are stock quotes, weather reports, or traffic information. This data can be provided by media companies like Reuters, the Financial Times, or The Weather Channel; content aggregators like Yahoo; or other wireless portals as well as municipal authorities. Storage content comprises databases such as the “Yellow-Book” phone directory or restaurant guides. This content can also be provided by publishers such as lifestyle magazines, as well as established institutions and brands like the Yellow Pages or the Zagat restaurant guides. Transactions represent an area that raises as many hopes as it raises doubts. Mobile electronic commerce can develop the cell phone from a communications into a transaction device. However, the adoption of m-commerce transactions is still very low. The limited size of the display, e.g., determines the amount of product information. However, when the device can support convenient use, including one-click m-commerce applications as well as secure and trusted billing systems, adoption rates may be higher. Identification of the user is one clear advantage of cell phones over other mobile devices as well as traditional e-commerce. Yet, before m-commerce can play a significant role in e-commerce, telecoms need to implement secure identification processes and a standardized micropayment system. A central success factor for m-commerce will be its context specificity. Connecting e-commerce offers to the described enhanced dimensions of time and space and embedding it in context-aware services will be crucial for building and sustaining competitive advantages in m-commerce. Taking into account the discussed distinctive features of the mobile Internet as well as thinking in terms of immediate, fast access to information, customers will have little acceptance and a short attention span when they are surfing the mobile Internet. They will instead rely on information they can find quickly and in trusted brands with which they already have a customer relationship. This potential consumer behavior suggests that the mobile Internet could enhance the importance of brands and of customer relationship management. 2.2 UNCERTAINTIES BETWEEN TECHNOLOGY PUSH AND MARKET PULL Mobile Internet access does not improve the mobility of its users – (since this is a question of transportation), but information and communications infrastructure Mobile Internet sbr 54 (4/2002) 355 14 Voice over IP is a possibility for future voice communications via these handheld devices. One reason, why this might not become too successful is the unstable connection and inconveniences of IP telephony. 15 See Durlacher Research (2001), p. 13; Boston Consulting Group (2000), p. 12
V Feldmann becomes ubiquitously available on personal devices. It will complement, rather han substitute for. conventional Internet service However, a sensitive question that still needs to be considered concerns the ratio of technology push and market pull in the emerging mobile wireless telecommu nications and content markets. There is much uncertainty on uncertainty influences the development of innovative processes, products, and services. Uncertainty appears on two levels, about technological development in highly competitive environments and the establishment of standards 6 that might drive market acceptance and shift competition to services, as well as about con- sumer demand networks& technological development, the broadband capacity offered by 2.5G Concernin might be sufficient for services that users demand via their mobile phones and would call into question investments in 3G networks. Positioning chnologies, device operating systems, microbrowser, protocols, gateways, lan guages, and micropayment systems need to be developed and standardized for the mobile Internet. This list represents only a very small fraction of unsolved echnological problems. The choice of the device is also in the technological realm, but may be determined by the context in which the device is used and how well it fulfills the functions that customers demand 1 It is even less clear what market pull, i.e. consumer demand, will be. Little reliable data is available that deals with demand for 3G services and consumers' willing- ness to pay for them. To acquire information on the development of the mobile Internet in Europe or North America, telecom researchers are closely watching how the mobile Internet in Japan and the rapid adoption of NTT DocoMo's i-mode service develop 18 However, the diffusion of innovative products and services in media communica- tions is always particularly related to their social meaning and use. Innovative ser vices for mobile phones create different usage contexts. Communications are not restricted to the private sphere, but are performed in public spaces. The personal nature of the mobile phone is leading to new usage patterns. It also marks the articipation in certain lifestyles and peer groups. The dimension of functional images of the mobile Internet in relation to and in the context of communication and media usage patterns of existing media is relevant for the creation of usage options for consumers. Against this background, the integration of mobile Internet services in existing companies strategies as well as the evolution of new busi- nesses19 seems both very promising and risky. The key drivers of market develop ent could be personalization of services, ubiquity and immediacy of access, and possibly the reduction of transaction costs. For the specification of key drivers, especially consumers' motivations for mobile interactivity are crucial. 16 See Funk(2001b) or a comprehensive discussion of new digital media and devices see Rawolle/Hess(2000). 18 See Funk (2001a) 19 For research on the origin and evolution of new businesses see Bbide (2001). sbr54(4/2002)
becomes ubiquitously available on personal devices. It will complement, rather than substitute for, conventional Internet services. However, a sensitive question that still needs to be considered concerns the ratio of technology push and market pull in the emerging mobile wireless telecommunications and content markets. There is much uncertainty on this question, and this uncertainty influences the development of innovative processes, products, and services. Uncertainty appears on two levels, about technological development in highly competitive environments and the establishment of standards16 that might drive market acceptance and shift competition to services, as well as about consumer demand. Concerning technological development, the broadband capacity offered by 2.5G networks might be sufficient for services that users demand via their mobile phones and would call into question investments in 3G networks. Positioning technologies, device operating systems, microbrowsers, protocols, gateways, languages, and micropayment systems need to be developed and standardized for the mobile Internet. This list represents only a very small fraction of unsolved technological problems. The choice of the device is also in the technological realm, but may be determined by the context in which the device is used and how well it fulfills the functions that customers demand17. It is even less clear what market pull, i.e. consumer demand, will be. Little reliable data is available that deals with demand for 3G services and consumers’ willingness to pay for them. To acquire information on the development of the mobile Internet in Europe or North America, telecom researchers are closely watching how the mobile Internet in Japan and the rapid adoption of NTT DoCoMo’s i-mode service develop18. However, the diffusion of innovative products and services in media communications is always particularly related to their social meaning and use. Innovative services for mobile phones create different usage contexts. Communications are not restricted to the private sphere, but are performed in public spaces. The personal nature of the mobile phone is leading to new usage patterns. It also marks the participation in certain lifestyles and peer groups. The dimension of functional images of the mobile Internet in relation to and in the context of communication and media usage patterns of existing media is relevant for the creation of usage options for consumers. Against this background, the integration of mobile Internet services in existing companies strategies as well as the evolution of new businesses19 seems both very promising and risky. The key drivers of market development could be personalization of services, ubiquity and immediacy of access, and possibly the reduction of transaction costs. For the specification of key drivers, especially consumers’ motivations for mobile interactivity are crucial. V. Feldmann 356 sbr 54 (4/2002) 16 See Funk (2001b). 17 For a comprehensive discussion of new digital media and devices see Rawolle/Hess (2000). 18 See Funk (2001a). 19 For research on the origin and evolution of new businesses see Bhidé (2001)
Mobile internet 2.3 MOTIVATIONS FOR ENGAGEMENT IN MOBILE INTERACTIVITY Uses-and-gratifications research20 has identified gratification factors for cellular telephony such as sociability, relaxation or entertainment, instrumentality or acqui- sition, reassurance, and fashion and status21. From the consumers' perspective motivations for the use of mobile wireless data communications are often rounded in lifestyle criteria and may focus on communications, and convenience 22. Communications, comprising e-mail, text and multimedia mes- saging, and mobile instant messaging, has the potential to become the killer application", similar to its function for the Internet. Forecasts for the use of mobile interactivity underline the growing popularity of entertainment services such as multiplayer games or music downloads 23. Convenience is also a promising factor Mobile interactivity offers instant gratification. If conducting certain transactions via mobile devices is more convenient, e.g., due to the integration of barcode scanning technology, then mobile commerce could become a key driver for using mobile interactivity. The necessary precondition is mobile usability and ease of mobile Internet navigation The motivations for media companies to expand their services onto new digital platforms and to engage in mobile interactivity are brand and customer relation- ship management and the creation of multiple revenue streams. Integrating mobile wireless platforms into a digital multiple-platform strategy will build on existing brands' identity and will extend the reach of the digital media brands into markets without significant PC penetration. Thus, a mobile strategy will not only deepen the relationship with existing customers, it will also open the potential to acquire new customers. Mobile revenue streams can have multiple sources, subscription from customers, advertising revenues from cross-promotion, and revenue-sharing agreements with network operators Mobile network operators have past, focused primari speed at which they can enlarge their customer base. They must now direct their focus to profitability and rethink their strategic approaches. To define a unique value proposition for their customers, they turn to content providers who in return gain bargaining power. Telecommunication companies are dependent oviders since they do not have the core competency to create the appealing content that may generate revenue. Media companies are dependent on the new mobile distribution platform and the customer contacts and billing relationship of wireless operators. Since there is the potential for a shift of power from the net work operator to the content provider, the next section will discuss the emerging co-opetition 24 between the media and telecommunication companies 20 The uses-and-gratifications-approach is concerned to identify how people use the media to gratif their needs, in contrast to the previous media effect paradigm that asked what media do to the 21 See Leung/wei (2000) 22 See Nobria/leestma(2001) 3 See Jupiter MMXI(2002): Durlacher Researcb(2001), p. 96 24 See Nalebuff/Brandenburger(1996)
2.3 MOTIVATIONS FOR ENGAGEMENT IN MOBILE INTERACTIVITY Uses-and-gratifications research20 has identified gratification factors for cellular telephony such as sociability, relaxation or entertainment, instrumentality or acquisition, reassurance, and fashion and status21. From the consumers’ perspective, motivations for the use of mobile wireless data communications are often grounded in lifestyle criteria and may focus on communications, entertainment, and convenience22. Communications, comprising e-mail, text and multimedia messaging, and mobile instant messaging, has the potential to become the “killer application”, similar to its function for the Internet. Forecasts for the use of mobile interactivity underline the growing popularity of entertainment services such as multiplayer games or music downloads 23. Convenience is also a promising factor. Mobile interactivity offers instant gratification. If conducting certain transactions via mobile devices is more convenient, e.g., due to the integration of barcode scanning technology, then mobile commerce could become a key driver for using mobile interactivity. The necessary precondition is mobile usability and ease of mobile Internet navigation. The motivations for media companies to expand their services onto new digital platforms and to engage in mobile interactivity are brand and customer relationship management and the creation of multiple revenue streams. Integrating mobile wireless platforms into a digital multiple-platform strategy will build on existing brands’ identity and will extend the reach of the digital media brands into markets without significant PC penetration. Thus, a mobile strategy will not only deepen the relationship with existing customers, it will also open the potential to acquire new customers. Mobile revenue streams can have multiple sources, subscription from customers, advertising revenues from cross-promotion, and revenue-sharing agreements with network operators. Mobile network operators have, in the past, focused primarily on growth and the speed at which they can enlarge their customer base. They must now direct their focus to profitability and rethink their strategic approaches. To define a unique value proposition for their customers, they turn to content providers who in return gain bargaining power. Telecommunication companies are dependent on content providers since they do not have the core competency to create the appealing content that may generate revenue. Media companies are dependent on the new mobile distribution platform and the customer contacts and billing relationship of wireless operators. Since there is the potential for a shift of power from the network operator to the content provider, the next section will discuss the emerging co-opetition24 between the media and telecommunication companies. Mobile Internet sbr 54 (4/2002) 357 20 The uses-and-gratifications-approach is concerned to identify how people use the media to gratify their needs, in contrast to the previous media effect paradigm that asked what media do to the people. 21 See Leung/Wei (2000). 22 See Nohria/Leestma (2001). 23 See Jupiter MMXI (2002); Durlacher Research (2001), p. 96. 24 See Nalebuff/Brandenburger (1996)
V Feldmann 3 COMPETITIVE STRATEGY IN THE MOBILE INTERNET The digitization of content distribution has lead to structural changes in media and entertainment markets 25. Online content has become an established component of raditional media companies'offers. It has also led to the emergence of new media companies. The next diversification in the multiple digital distribution strategies of media companies can relate to the provision of personalized mobile wireless media content. However, before analyzing emerging strategic options for media companies, we must observe changes in industry structure, and changes in activi- ties of media companies by using the tool of the value chain in order to seek potentials for building sustainable competitive advantage A lesson that media companies have learned from the Internet is that they do not vant to follow the Internet rule"follow the free"26. The media companies want to charge for mobile Internet services, although it is still unclear if customers are will- ing and ready to pay for such services after having been used to getting content for free on the Internet. The telecoms have learned from past experience with mobile communications that they must avoid distorted revenues, costs, and share prices. For example, strong subsidies of handsets, in Europe have led to a distor- tion of telecommunication companies' customer base and the determination of the industries' leading revenue measure, the average revenue per user (ARPU). Subsi- dizing prepaid phone handsets contributed to this trend. Consumers bought hand- sets,used the prepaid card and simply bought a new handset instead of buying a new prepaid card. Thus, the telecommunication companies' customer base has grown on paper, but not in revenue. The subsequent distortion of ARPU not only leads to mistakes in internal processes bought forecasting demand and sales, but also misleads shareholder The impact of strategy in mobile Internet markets is extremely high, because gain ing sustainable competitive advantage lies in differentiation awareness of cus- mer demand, and good estimation of technological development to overcome the high level of uncertainty of the mobile Internet. These are the elements that will determine if the mobile Internet can create economic value for the players involved in the mobile value chain. Ultimately, this uncertainty will be resolved by the uses and gratifications the mobile Internet will offer to businesses and con sumers. When we analyze the industry structure of mobile Internet markets related to the media and telecommunications industries, we see that there is the potential for profitability. However, we have yet to see who is going to capture the eco- nomic benefits. This uncertainty is due to potential power shifts in the industry and how much value can be reaped by the customers 26 See
3 COMPETITIVE STRATEGY IN THE MOBILE INTERNET The digitization of content distribution has lead to structural changes in media and entertainment markets25. Online content has become an established component of traditional media companies’ offers. It has also led to the emergence of new media companies. The next diversification in the multiple digital distribution strategies of media companies can relate to the provision of personalized mobile wireless media content. However, before analyzing emerging strategic options for media companies, we must observe changes in industry structure, and changes in activities of media companies by using the tool of the value chain in order to seek potentials for building sustainable competitive advantage. A lesson that media companies have learned from the Internet is that they do not want to follow the Internet rule “follow the free” 26. The media companies want to charge for mobile Internet services, although it is still unclear if customers are willing and ready to pay for such services after having been used to getting content for free on the Internet. The telecoms have learned from past experience with mobile communications that they must avoid distorted revenues, costs, and share prices. For example, strong subsidies of handsets, in Europe have led to a distortion of telecommunication companies’ customer base and the determination of the industries’ leading revenue measure, the average revenue per user (ARPU). Subsidizing prepaid phone handsets contributed to this trend. Consumers bought handsets, used the prepaid card and simply bought a new handset instead of buying a new prepaid card. Thus, the telecommunication companies’ customer base has grown on paper, but not in revenue. The subsequent distortion of ARPU not only leads to mistakes in internal processes bought forecasting demand and sales, but also misleads shareholders. The impact of strategy in mobile Internet markets is extremely high, because gaining sustainable competitive advantage lies in differentiation27, awareness of customer demand, and good estimation of technological development to overcome the high level of uncertainty of the mobile Internet. These are the elements that will determine if the mobile Internet can create economic value for the players involved in the mobile value chain. Ultimately, this uncertainty will be resolved by the uses and gratifications the mobile Internet will offer to businesses and consumers. When we analyze the industry structure of mobile Internet markets related to the media and telecommunications industries, we see that there is the potential for profitability. However, we have yet to see who is going to capture the economic benefits. This uncertainty is due to potential power shifts in the industry and how much value can be reaped by the customers. V. Feldmann 358 sbr 54 (4/2002) 25 See ECC (2002); ECC (2000). 26 See Jupiter MMXI (2002). 27 See Geng/Whinston (2001); Porter (2001)
Mobile internet 3.1 CHANGING MARKET STRUCTURES IN THE CONVERGING MEDIA AND ENTERTAINMENT AND MOBILE WIRELESS TELECOMMUNICATIONS INDUSTRIES The rules of competition that determine an industry's attractiveness and influence a firm,s competitive strategy are embodied in five competitive forces. The entry of new competitors, the threat of substitutes, the bargaining power of buyers and of suppliers, and the rivalry among the existing competitors determine a firms profitability. The strength of these five competitive forces can change as an indu try evolves Table 1: The Mobile Internet influences the Media Industry's Structure A()2.5G services are potentially sufficient, 4G services are on the horizon Products or servic ()New distribution platforms complement onal media markets by serving different needs Bargaining Power competitors End-Users industry enter the mobile wirele (- (+)Raises bargaining power over (+)Competitors from the media (+)Attention telecommunications industry (+)Access to mobile consumers through ower to end a carrier each end user intermediating companies ()Strong intra-medial competition (+) Lack of licenses to media content Barriers to Entry (+) Strong brand identities of established As the mobile Internet develops, the industry structure of the media and enter- tainment industry turns into a relationship of co-opetition with wireless operators Rivalry among competitors extends from the competition among pure media com- panies to the competition among players in the converging telecommunications and media industries. Media companies gain in bargaining power, because con- tent is suggested to be a main driver of the adoption of mobile communication services in the business-to-consumer (B2C)sector With the option to establish mobile virtual network operators (MVNOs ) media companies can use their core assets and enter the wireless telecommunications market. From the point of view of wireless operators, the emergence of new play ers such as MVNOs will be even more crucial, if MVNOs such as media compa- nies or Internet denovo companies, e.g. portals like Yahoo! 29, establish strategic 28 See Porter(1998). sbr54(42002) 359
3.1 CHANGING MARKET STRUCTURES IN THE CONVERGING MEDIA AND ENTERTAINMENT AND MOBILE WIRELESS TELECOMMUNICATIONS INDUSTRIES The rules of competition that determine an industry’s attractiveness and influence a firm’s competitive strategy are embodied in five competitive forces 28. The entry of new competitors, the threat of substitutes, the bargaining power of buyers and of suppliers, and the rivalry among the existing competitors determine a firm’s profitability. The strength of these five competitive forces can change as an industry evolves. Mobile Internet sbr 54 (4/2002) 359 28 See Porter (1998). 29 See Bughin/Lind/Stenius/Wilshire (2001). Rivalry among existing competitors Bargaining Power of Suppliers Buyers Bargaining Power of Channels Bargaining Power of End-Users Barriers to Entry Threat of Substitute Products or Services Adapted from: Porter (2001), p. 67 Competitors from the mobile wireless telecommunications industry enter the media industry (+) Access to mobile consumers through a carrier (+) By adding another distribution platform, media markets could be expanded, but serve different needs (+) 2.5G services are potentially sufficient, 4G services are on the horizon (-) (+) Lack of licenses to media content Strong brand identities of established brands (+) Raises bargaining power over licenses (+) The mobile Internet provides a channel for production companies to reach end users, reducing the leverage of intervening companies (+) Attention economy shifts bargaining power to end consumers (-) Binding contracts Telecoms’ (+) portals are dependent on content (-) (-) Strong intra-medial competition Table 1: The Mobile Internet influences the Media Industry’s Structure As the mobile Internet develops, the industry structure of the media and entertainment industry turns into a relationship of co-opetition with wireless operators. Rivalry among competitors extends from the competition among pure media companies to the competition among players in the converging telecommunications and media industries. Media companies gain in bargaining power, because content is suggested to be a main driver of the adoption of mobile communication services in the business-to-consumer (B2C) sector. With the option to establish mobile virtual network operators (MVNOs) media companies can use their core assets and enter the wireless telecommunications market. From the point of view of wireless operators, the emergence of new players such as MVNOs will be even more crucial, if MVNOs such as media companies or Internet denovo companies, e.g. portals like Yahoo! 29, establish strategic reducing the leverage of intermediating companies Strong intra-medial competition Competitors from the media industry enter the mobile wireless telecommunications industry New distribution platforms complement rather than substitute traditional media markets by serving different needs
V. Feld alliances with banks and other content and application providers. These players not only have a lower churn rate than do the mobile carriers, but can also reduce carriers to mere providers of pipes 30. However, among the carriers' most valuable assets are their existing customer relationships. Barriers to market entry in the wireless telecommunications market for established media companies therefore do not represent major investments for spectrum licenses, network infrastructure, or other physical assets. The carriers' existing customer relationships and media com- panies need for access to mobile consumers are instead a barrier to market entry Moreover, entry barriers include the ability to establish conventional telecommuni- cation services and billing relationships with customers For potential new entrants who would like to pursue a similar approach to that of existing media companies the lack of licenses and digital rights to attractive con- tent could be one additional barrier to market entry. For these new entrants strong brand identities of established brands in the real world as well as in the Internet can be another entry barrier. The brand extension of existing media brands onto the mobile Internet will already attract a lot of the scarce attention dedicated to the mobile Internet. However, the experiences of the mobile Internet in Japan give evidence of competitive advantages for new entrants due to the dis- ruptiveness of the mobile Internet 51 Substitute offerings are another specific and interesting characteristic of 3G mobile wireless markets, because a potential threat does not come from an enhanced, but from a reduced technology. 2. 5G services could be sufficient for business and consumer needs 32. These services already offer enough bandwidth to deliver new media services. This characteristic means even greater uncertainty for investments in future 3G markets. The cost structure for 2.5G services is far less, and relative price performance of 2.5G services has good potential to outperform 3G services In Japan, the success of i-mode can so far not be duplicated for NTT DoCoMo's 3G Freedom of Mobile Multimedia Access (FOMA) services. Consumers do not perceive that FOMA offers enough additional value to justify higher prices for handsets and services 33. In comparison to the 2.5G offers, the increasing adoption of wireless local area networks(WLANs) poses substantial threats to 3G license holders as a possible shortcut to 4G, although WLANs are rather seen as a com- plementary technology. Traditional media as a potential substitute will not threaten mobile Internet offers because of its different usage context and its com- onship The bargaining power of 四 will decrease on the one hand. because of strong internal competition handset manufacturers' and telecommunica- tion equipment suppliers Bargaining power can increase however 30 See Harrigan (2001) 31 The concept of disruptive technologies and their implications on incumbents and new entrants has been developed by Christensen (1997) and has been applied to the mobile Internet by Funk 32 See Knorr(2001); moreover, applications such as streaming video will not be feasible in 3G net- works due to trar on speeds of up to 384 kbps 33 See Nishimura(2002) 34 In Europe, HiperLAN2 is an interesting system that is also designed for wide area networks. See Dornan(2002)for the comparison of different 4G systems sbr54(4/2002)
alliances with banks and other content and application providers. These players not only have a lower churn rate than do the mobile carriers, but can also reduce carriers to mere providers of pipes30. However, among the carriers’ most valuable assets are their existing customer relationships. Barriers to market entry in the wireless telecommunications market for established media companies therefore do not represent major investments for spectrum licenses, network infrastructure, or other physical assets. The carriers’ existing customer relationships and media companies’ need for access to mobile consumers are instead a barrier to market entry. Moreover, entry barriers include the ability to establish conventional telecommunication services and billing relationships with customers. For potential new entrants who would like to pursue a similar approach to that of existing media companies the lack of licenses and digital rights to attractive content could be one additional barrier to market entry. For these new entrants, strong brand identities of established brands in the real world as well as in the Internet can be another entry barrier. The brand extension of existing media brands onto the mobile Internet will already attract a lot of the scarce attention dedicated to the mobile Internet. However, the experiences of the mobile Internet in Japan give evidence of competitive advantages for new entrants due to the disruptiveness of the mobile Internet 31. Substitute offerings are another specific and interesting characteristic of 3G mobile wireless markets, because a potential threat does not come from an enhanced, but from a reduced technology. 2.5G services could be sufficient for business and consumer needs32. These services already offer enough bandwidth to deliver new media services. This characteristic means even greater uncertainty for investments in future 3G markets. The cost structure for 2.5G services is far less, and relative price performance of 2.5G services has good potential to outperform 3G services. In Japan, the success of i-mode can so far not be duplicated for NTT DoCoMo’s 3G Freedom of Mobile Multimedia Access (FOMA) services. Consumers do not perceive that FOMA offers enough additional value to justify higher prices for handsets and services33. In comparison to the 2.5G offers, the increasing adoption of wireless local area networks (WLANs) poses substantial threats to 3G license holders as a possible shortcut to 4G34, although WLANs are rather seen as a complementary technology. Traditional media as a potential substitute will not threaten mobile Internet offers because of its different usage context and its complementary relationship. The bargaining power of suppliers will decrease on the one hand, because of strong internal competition in, e.g., handset manufacturers’ and telecommunication equipment suppliers’ markets. Bargaining power can increase however V. Feldmann 360 sbr 54 (4/2002) 30 See Harrigan (2001). 31 The concept of disruptive technologies and their implications on incumbents and new entrants has been developed by Christensen (1997) and has been applied to the mobile Internet by Funk (2001a). 32 See Knorr (2001); moreover, applications such as streaming video will not be feasible in 3G networks due to transmission speeds of up to 384 kbps that are far below initial expectations. 33 See Nishimura (2002). 34 In Europe, HiperLAN2 is an interesting system that is also designed for wide area networks. See Dornan (2002) for the comparison of different 4G systems