2008 ericsson bucharest stockholm school of economics
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ERICSSON: Powering Vodafone’s Growth
Team ERICSSON Bucharest
AnnachiaraNicholasNisargVidmantas
Challenge for ERICSSON
Can operators afford being ‘pipe owners’?
04080
120160
2006 2007 2008 2009 2010 2011
Huge market potential for multimedia
Consumer multimedia revenuesUS$ billion
Who will take a large share of the pie?
Operators are under threat as ARPU is almost stagnantARPU in Western Europe€/user/month
$27bn
$149bn
CAGR 41%
Source: IDC Jan ’08, mobile advertising report
The Looming Threat
Google A combination of WiMax and the
ANDROID platform threatens to squeeze mobile operators’ multimedia share
Apple iPhone opened up for developing
applications Venture Capital fund launched
Recommendation
An Open Garden
Mobile Advertising
Vodafone can stake their position in the future of mobile multimedia by trusting ERICSSON to lead the transformation of their mobile environment to a vibrant open eco-system
Harness the most efficient revenue model for mobile providers by developing a structured and dedicated mobile advertising solution
Focus of Project ‘Crystal Palace’ currently is developed markets (NA, EU, Japan & Oceania)
Presentation Structure
Future of multimediaFuture of
multimediaProject
Crystal PalaceProject
Crystal Palace ImplementationImplementation ImpactImpactFuture of multimediaFuture of
multimedia
The future of mobile multimedia is The Ideal User Experience
Watch
BollywooBollywoodd
Be
Future-proof platformDriven by
intended actionApplications bid
for attention
Who will capture the future value?
Intensity of competition
Web Consumer Insight
Prices close to web rates
Telecom
(Data)
IT/Internet
(Ads)
Media
(Content)
Key Drivers
High degree of competition
Limited capabilitiesStill charges for content & services
few big players (Google, Yahoo, Microsoft)
Key capabilityAdvertisement based free for consumer
Intense competition across various media types
Key capability amongst players like Youtube, Facebook etc.
Charges for premium content only
Presentation Structure
Future of multimediaFuture of
multimediaProject
Crystal PalaceProject
Crystal Palace ImplementationImplementation ImpactImpact
New business model for Vodafone in mobile multimedia
Realize ideal user experience
Most effective revenue model
Advertising model independent of search companies
“Open garden” model with limitless applications
Simple, total, customized web experience on converged media devices
Project Crystal Palace at VodafoneBusiness Model Innovation
The Open Garden
Vodafone’s networks must become mobile ecosystems that mirror the open ethos of the web
Transform into a platform for new applications
A larger share of multimedia value creation for Vodafone
Small share of multimedia value, reduced data profits
Small share of multimedia value, reduced data profits
Developing multimedia strategy
Vodafone 2011Vodafone 2008
Project Crystal Palace will increase Vodafone’s share of mobile multimedia market
Large share of multimedia value,
reduced data profit
Project Crystal Palace
Presentation Structure
Future of multimediaFuture of
multimediaProject
Crystal PalaceProject
Crystal Palace ImplementationImplementation ImpactImpact
Implementing Crystal Palace
Vodafone becomes one of the leading mobile multimedia companies
Project Crystal Palace
Independent advertising
modelValue Network
…
…
Fast development of
applications…
Open garden for content and
applications
Ideal user experience and sustainable revenue model
ERICSSON powering Vodafone’s growth
ERICSSON value proposition
Enable Vodafone independent advertising model
Manage transformation to Open Garden
Sony Ericsson strengthens Developer World
Reputation of industry shaper will attract the value network
Vodafone’s growth needs
Advertising competences
Move to open garden for content
Fast development of applications
Value network
Powered by
ERICSSON can develop key capabilities to power growth in multimedia
Advertising capabilities
Developing winning products for advertising
Partnership with Application Service Providers (ASP’s)
Establish focused advertising operation – try lure Yahoo employees
Open garden content support capabilities
Develop and acquire capabilities to manage open garden content
- E.g.: Acquire start-up PlayerX
Operation Crystal Palace Leadership
Jan WärebyHead of Business Unit Multimedia
Strong marketing background
Deep understanding of mobile environment
Part of the team to be based in Silicon Valley
Presentation Structure
Future of multimediaFuture of
multimediaProject
Crystal PalaceProject
Crystal Palace ImplementationImplementation ImpactImpact
Timeline for Project Crystal Palace
Q2 08 Q4 08 Q2 09 Q4 09
2010
Launch of Vodafone
“open garden”
Get value network partners on board for
“open garden” and advertising strategy
ERICSSON management
discusses strategy internally and with
R&D/product teams
ERICSSON and Vodafone management discuss strategy, ERICSSON
competences showcasedPublic
announcement of strategy
Launch of independent
Vodafone advertising
Launch of ERICSSON services to
other operators
Financial impact on Ericsson
Forecasts:
60% - expected mobile broadband's share (66% in 2012, according to Ericsson data)Ericsson's revenue - equivalent of 30% of operator's EBITDA
Assumptions:Scenarios for mobile multimedia (MM) Negative Neutral Positive
Expected operators' revenue share in MM, %: 10 25 40Operators' EBITDA margin on MM, % 5 10 15Discount rate 9.3%
* based on EV/Sales=0.7 (Deutsche Bank estimate of fair value, Feb 2008), discounted.
Based on multimedia revenue forecasts for 2011
Mitigating risks in implementation
Risk Likelihood Mitigation strategy
Vodafone is resistant to change ++Reach innovative operators: e.g. Orange, T-Mobile, O2
ERICSSON unable to achieve scale by selling to other operators
++Adapt model to handset manufacturers, reach smaller operators
Google or new iPhone apps come to market before 2009
+++Project Crystal Palace is defensive measure
Consumers do not evolve to “ideal experience”
++“Open Garden” and advertising model will ensure web-like experience and prices
Risk of inaction would be higher than risk of implementing Crystal Palace
The future of Vodafone will be Powered by ERICSSON
A Thriving, Profitable Mobile Industry
Project Crystal Palace
Open Gardens
Mobile
Advertis
ing
Thank You
Thank You!!!
Back-up
How ERICSSON can support Vodafone
Influence
Positioning
Services
Turn around image of operators as slow movers
Get handset makers to focus on fast applications development
Existing services (Multimedia Communication Suite, Mobile TV, Billing solutions)
New services (Enablers supporting advertising, Data Mining, ad orchestration)
Communicate the need for change
Show Ericsson can power Crystal Palace
Propose to other telecom operators
Potential of mobile advertising
Example of Japan
Operators in advertising
Consumers accept mobile ads
Mobile subscriptions
Advanced generation handsets
Mobile advertising – Spam vs. Win-Win
A Winner Application
Loopt is being offered by Sprint and Verizon
- “Social Compass,” friend locating application
- Received coverage in WSJ, CNET, Gawker
Ideal user experience
Any content, any application, any device
User managed, easy to customize
In hardware, software and web experience
Action based look and feel
Open garden model
Customization
Simplicity in use
Choice of partners – Verizon
Customization of mobile web experience 89 web 2.0 applications based on data plan
revenue model Strong industry solutions and business
applications, fee-based Open Development : consumers can use any
device, application or software
Verizon Wireless has developed relevant capabilities. As has owned by Vodafone, closer cooperation is realistic.
Verizon Wireless
Choice of partners – NTT DoCoMo
NTT DoCoMo establishing strong advertising model JV with Dentsu (Japan's largest advertising agency) for mobile ad on i-
mode NTT DoCoMo plans to control its own inventory for ad placement
through i-mode portal
NTT DoCoMo has developed relevant capabilities in advertising. As Vodafone does not compete in Japan, partnership is realisitc.
NTT DoCoMo
Open Garden
Any content provider can bid to be on Vodafone network
Need to protect advertising revenue on open garden model
Vodafone needs help implementing the model
Ericsson can support Vodafone by providing the platform on which content is approved and managed
Fast development of applications
Open network to developers community
Push handset makers to open up to developers community
Promote open mobile platform
Ericsson can support Vodafone through Sony
Ericsson by further opening up their platform
Vodafone ERICSSON
Services and Content revenues
Services & content revenues
Premium content paid
Advertising on content
Sustainable revenues that fit consumers’ willingness to pay
Most content free
Developing advertising competences
• Vodafone does not know consumers’ buying intentions, unlike Google
Ericsson can help Vodafone acquire the competences and consumer knowledge needed for independent advertising model
Vodafone can build on its capabilities:• Knowledge of customer location in real time• Knowledge of services and applications used
And develop more:• Support investment together with Verizon Wireless• Partnerships with marketing agencies
Mobile Advertising Solution
"Mobile ads are twice as profitable or more as non mobile ads "Mobile ads are twice as profitable or more as non mobile ads because they are more personable“because they are more personable“
-Eric Schmidt, CEO Google
Targeting and Context
Build a “database of intentions” from user actions, location
BannersInteractive banners with click-to-call and click-through destination sites
SMS & MMS Ads
Annoying, forces opt-outs
Financial impact on EricssonForecasts:60% - expected mobile broadband's share (66% in 2012, according to Ericsson data)Ericsson's revenue - equivalent of 30% of operator's EBITDA
Scenarios for mobile multimedia (MM)Negative Neutral Positive
Expected operators' revenue share in MM, %: 10 25 40Operators' EBITDA margin on MM, % 5 10 15Operators' EBITDA on MM, $bn 0.7 3.7 8.9
Ericsson's revenue, $bn 0.2235 1.1175 2.682Ericsson's value, SEKbn 0.9 4.7 11.2Discounted Ericsson's shareholder value, SEKbn 0.71 3.57 8.56
Exchange rate (29/03/08) SEK/USD 5.9518Discount rate 9.3%* based on EV/Sales=0.7 (Deutche Bank estimate of fair value, Feb 2008), discounted.
Limited value for operators in mobile TV
• Only 1% of customers willing to pay for mobile TV (Jupiter research)
• At £3/month mobile TV subscription, Vodafone’s revenues are only £90 m/year
• Data revenues were £1 billion in y/e Nov 2007
Back of the envelop calculation on
Vodafone:
Advertising needed to drive value from mobile TV
Thank You
Thank You!!!
Discussion
Discussion