Friday Feature: U.K. operators push for a communal garden

By Nick Lane

Direct-to-consumer or off-deck was once conceived as a threat by European mobile operators looking to safeguard the potential revenues generated from content enclosed within their own portal. Along came a frog--supported by an extensive cross-media marketing campaign--and the wireless operators looked on in horror as their revenues started 'hopping' off-deck. Following the success of Jamba/Jamster's Crazy Frog push, brands became increasingly frustrated at the limitations imposed on their content by the on-deck model and started exploring opportunities beyond the operator deck. Television, online and print campaigns jettisoned into the mass media and spawned the short code and premium SMS payment mechanisms that are prevalent throughout Europe today.

The U.K. operators have had to bear the brunt of the rise of direct-to-consumer more than any other nation globally. In 2006, over 70 percent of content revenues were off-deck. That figure is creeping toward 75 percent this year, and looks set to hit 80 percent by 2010. But the extent to which off-deck is wounding the mobile operators--in the U.K .in particular--largely depends on their ability to adapt to this changing marketplace or face the unfavorable label of dumb pipe.

Operator role

The role of the operator portal has come under scrutiny in 2007. Neil Montefiore, CEO of Singapore wireless operator MobileOne, said earlier this year that he expects operator portals to disappear. While Vodafone's live! portal is still alive and kicking, the operator became disillusioned with the portal earlier this year after disappointing traffic levels. Ultimately content sales forced the operator to revise its portal strategy.

Vodafone is looking to address any perceived off-deck threat by embracing the move to open Internet access and introducing flat-rate data pricing. In doing so, Vodafone customers accessing live! will be greeted by a search box now residing at the top of the home page. Vodafone's intention is to become a gateway for the mobile Internet with a primary goal of becoming the Amazon.com of the mobile industry. Vodafone intends to work in conjunction with off-portal partners to drive the portal ecosystem, making not only its own content more visible but off-deck content as well. For Vodafone, the change is a necessity if it is to become a mobile Internet mega-mall facilitator, but one that risks brand dilution. By working with content partners in an off-deck environment, Vodafone is effectively maintaining an element of control beyond live!

Orange UK wants to alter consumers' preconceived notion of the mobile Internet and to guide them toward what it calls "Internet lite," to reflect users' tendency to "snack" on mobile content and services rather than use them for long periods of time.

To this end, Orange UK has outlined its endgame of being "habit-forming", with the ability to identify user behavior based on user profiling, segmentation, personalization and recommendation. This process will start in September when the U.K. operator will be able to segment its Orange World homepage in 10 ways, including gender, age, race and device type.

Like Vodafone, Orange wants to embrace off-deck as means of controlling off-deck content. The operator refers to the demise of the walled garden as "deportalisation" but a more appropriate term would be the emergence of the communal garden, where on- and off-deck boundaries are becoming increasingly blurred.

By positioning themselves as guardians of off-deck content, both Orange and Vodafone are inadvertently migrating toward a model similar to one that has proved successful only in Japan--the i-Mode model.

U.S. embraces off deck

The off-deck movement isn't just happening in Europe. In the U.S., AT&T is adopting a similar strategy to Vodafone live! by forging close partnerships with off-deck content partners, though the pressure to tap into the lucrative off-deck market is not as essential as it is in Europe.

Off-deck in the U.S. remains immature, with some 25-30 percent of content revenues generated beyond the operator portal. The growth of off-deck has been highlighted by U.S. operator Alltel, which has seen 240-times growth in off-deck content revenues between 2004 and 2006. Off-deck content now accounts for 20 percent of the company's total mobile content revenues.

Whether off-deck will play as large a role in the U.S. content market as it is does in the U.K. remains to be seen. Given that short codes and SMS are not as widely adopted in the U.S., on-deck revenues will likely remain more stable in the near-to-medium term. However, adoption of the mobile Internet in the long term could play a significant role in off-deck chipping away at on-deck revenues.

Brands are also becoming increasingly savvy at selling their content off-deck as the mobile entertainment market matures. What's more, brands will promote their direct-to-consumer offerings more heavily to users, and will therefore decrease the importance of the operator portal.

The big brands are taking this a step further and now pursuing convergent strategies on- and off-deck, attempting to coordinate their activities so that they can reach as many potential customers as possible, using their on-deck location as a storefront for its off-deck site. For big brands, the likelihood is that the smart content providers will continue to use both operator and direct-to-consumer portals so long as operator portals continue to be an effective channel.

And operators have the opportunity to facilitate this strategy provided, of course, they have the back-end functionality to support this.

BREW's role

Qualcomm wants to position BREW as a key part of the off-deck market. The company believes that brands will only invest heavily in mobile provided they have a secure distribution platform, clear business model and auditable revenue streams.

The off-deck strategy for BREW is founded on the delivery-based elements of deliveryOne. Over time, Qualcomm expects to see the on-device experience of uiOne blending with operator decks to create a more unified and intuitive experience for consumers. The company is confident that uiOne will be a key enabler for bridging the on-deck and off-deck, though today, uiOne is confined to the on-deck experience.

But the off-deck market is reliant on services, such as search, mobile advertising and community services. Qualcomm said that it is working to support these elements with BREW and is willing to explore and support any partnerships that will ultimately benefit the brands, wireless operators and subscribers that are reached with an off-deck solution.

Qualcomm is confident that its long-standing relationships with wireless service providers give it a clear understanding of challenges facing the off-deck content industry. Success in this space will emanate from a collaborative effort from all players in the value chain.

Nick Lane is principal analyst, Mobile Content & Applications, Informa Telecoms & Media.