Carsten Brinkschulte, the CEO of Synchronica, is a serial entrepreneur specialising in the mobile sector. Prior to founding Synchronica he founded a number of successful companies including Century Software and Weblicon Technologies in Germany. Before this, he worked as a consultant at SAP and Apple Computer. Mr Brinkschulte is a respected speaker, presenting regularly at conferences. He is also a panellist and presenter at the European Technology Roundtable Exhibition (ETRE). Mr Brinkschulte began a degree course in Computer Science before leaving to start work in the IT industry.
The mobile phone, together with applications such as mobile email, will make great headway in emerging markets over the next few years, but the challenge for device manufacturers, service providers and software vendors is to understand the drivers that underpin this growth and amend their offerings accordingly. The rewards for everyone in the value chain are potentially huge, but there are challenges ahead too. The quiet revolution will continue, but who wins and who loses is still up for grabs.
There is a quiet revolution going on in emerging markets. At the heart of this revolution is the mobile phone, which is rapidly transforming people’s lives in regions as far-flung as the Middle East, Asia, Africa and Latin America. Increasingly, the mobile phone is becoming the communications lifeline for business users and consumers in these regions, providing not only voice, but also SMS services and mobile email. Almost 60 per cent of the world’s first three billion mobile phone subscribers are from emerging markets, and most market researchers and analysts predict that the next billion will also come from these low-ARPU developing countries. According to a recent study by Portio Research, nine out of the top ten growth markets over the next four years have one key defining factor in common - they are all low income per-capita markets. The only high-income per capita market to make the top ten is the USA. So what is driving this revolution, and how will the global market for mobile phones - and core applications such as mobile email - change over the next few years? The challenges Over the past 18 months, I have travelled extensively in Africa, the Middle East, Asia and, more recently, Latin America and have found that mobile operators in these regions are facing different challenges than those in the developed world. In many of these countries, fixed line and PC penetration is low, a high percentage - up to 70 per cent - of the population live in rural areas, and those that have mobile phones tend to be on a pre-paid tariff and switch between operators frequently to get the best available price plan. They also tend to use lower-end handsets. In Bangladesh, for example, smartphone penetration is only about 0.5 per cent, close to 30 times lower than in the UK. Furthermore, although the potential subscriber base in these regions is huge and still largely untapped, the relative value of each customer to anyone in the mobile phone value chain is small compared to the developed world. As a result, the focus is on capturing as much of the subscriber base as possible, to achieve economies of scale and optimal profitability from these markets. Low fixed-line penetration In India, as in many other developing countries, the number of email users outstrips the installed base of PCs, because relatively few people have the luxury of a broadband connection at home. In countries like India, the cost of establishing a fixed line network is prohibitive; this left the way open for more cost-effective wireless infrastructures to permeate all levels of society - from rich to poor, business to consumer - at an incredibly fast rate. Currently, most people have to travel to an Internet café to send and receive emails. In rural communities, one might walk a few miles each way just to send an email. This gives the mobile operator an enormous opportunity to provide convenient, low-cost mobile phone services including mobile email and other Internet-based applications on their existing handsets. High churn rates Another challenge in developing countries is to reduce churn among the largely pre-paid subscriber base, protect ARPU and contain customer acquisition costs. With the majority of subscribers opting for pre-paid tariffs, customer loyalty is minimal and mobile operators are struggling not only to keep existing customers from switching to the latest low-cost option, but to entice new subscribers to their service. The forward-looking operators are already looking at mobile email as a differentiator, as a way to reduce churn and increase ARPU. Mobile email is a valuable and convenient service they can offer to customers at a flat rate of around US$3 a month - or even as a free service initially, funded from the customer acquisition budget. Which handsets? There is also the thorny issue of mobile handsets. The consensus is, that for mobile email and other content-rich data services to take off, customers first need to invest in the more expensive feature phones, or buy a smartphone. Most vendors in the value chain are trying to persuade customers to move up to a higher functionality phone in order to benefit from these new services. The reality is that this is just not going to happen in emerging markets: these higher functionality phones, while great for the developed world, are too expensive to suit the pocket of a Sudanese or Bangladeshi consumer. They need applications and services that can work on even the most basic of phones. For device manufacturers and mobile operators, this means ensuring that they are able to offer customers in these markets the ability to sign up for these new premium services, without having to invest in one of the more expensive handsets. Mobile email standards For new applications such as mobile email to succeed at a mass-market level in emerging markets, the issue of standards needs to be addressed. Most existing mobile email solutions are based on proprietary protocols, requiring users to download additional client software. This approach is set to fail in the developing world, where the overwhelming majority of people have feature phones that cannot use proprietary clients. Time and again, it has been proven that consumers won’t adopt services that are hard to set up or difficult to use. They want to be able to use mobile email services on standard mobile phones, right out of the box - no software installation, no fiddly configuration, no expensive proprietary devices. The only viable option is for service providers to use open standards to interface with the built-in email applications that are shipping pre-installed with the vast majority of devices today, enabling both smartphone and mass-market feature phones to receive push email, or convert email to text so that the message can be received on every single phone in use today. Once they have that part sorted, operators need to ensure a seamless set-up, by adding automatic client provisioning of the built-in email application. The next four years Given all of the above challenges, how will this market play out over the next four years or so? Informa predicts that there will be 4.81 billion mobile phone subscribers by 2012, with the next billion subscribers coming from emerging markets. Which handsets will these subscribers be using, which service providers will be successful and which applications/services will prove to be the mobile phone’s ‘killer app’? My belief is that handsets sold into emerging markets will continue to be mainly lower-end devices. Consumers will adopt very few smartphones in these markets. Mobile software vendors and service providers need to acknowledge this fact and offer applications and services designed to work on even the most basic handsets, if they are to succeed in these regions. As an example, service providers must offer mobile email services with a push email solution that works on the majority of standard mobile phones already out there in the market. This means using a mobile email solution that does not require an email client to be installed on the handset and that can be set up and configured quickly and easily from the user’s phone, rather than needing a PC to do it. Mobile operators need to provide relevant additional services to their customers and get their pricing plans right, in order to reduce churn while also increasing ARPU and customer loyalty. I believe email will be the ‘killer app’ for the mobile phone in emerging markets. Email is one of the oldest Internet applications; it serves a real need and will continue to do so on the mobile platform. It complements SMS service and is a cost-effective and convenient way of allowing people in disparate locations to stay in touch. By offering a mobile email service to subscribers at perhaps US$3 or US$4 dollars a month - or even free of charge for a limited period - mobile operators can steal a march over their competitors, reduce churn and, in time, increase ARPU. Another service that I believe will prove successful in emerging markets, as well as in the developed world, is a backup and restore service - an insurance policy against the loss of data stored on a mobile phone. As people in emerging markets start to rely almost exclusively on their mobile phone as an information repository for their entire business and social network, a lost or stolen phone becomes a huge problem. A lost or stolen phone is also bad news for the mobile operator: studies show that it can take up to three months for a subscriber to restore his data, during which time ARPU will plummet. Service providers offering a low-cost facility for backing-up and restoring this lost contact information over-the-air will be providing customers with a valuable service that will improve customer loyalty while also raising ARPU.