Staying relevant in the age
of over-the-top services
A triangular value proposition
Visit us under
2 Staying relevant in the age of over-the-top services
The emergence of over-the-top service providers as a hugely
important force in communications changes the game for
traditional operators
The companies that provide services on top of networks are driving much of today’s innovation. Unlike conventional communications service provider (CSPs) businesses, where the services and infrastructure are linked and network operators control the value chain, OTT services are delivered without any affiliation with the network. But opportunities are open to operators that add value to the use of over-the-top services. OTT providers today wield immense power in the market and include household names in content
(YouTube, Netflix, Lovefilm), advertising (Google), communications (Skype and Facebook), commerce (Amazon and eBay) and device platforms (Apple, Microsoft).
There are huge rewards at stake. For example, Facebook had more than 700 million subscribers in July 2011 - reaching more than half of the online population in many countries. Skype’s VoIP service increased its share of international call minutes from 8% to 25% between 2008 and 2010. Results like these mean that revenues for over-the-top service providers are predicted to grow by more than 40% between 2010 and 2015.
Traditional CSPs built their businesses on communications networks, but OTT providers have decoupled services from networks in terms of both the technology and business. Broadband connectivity is a growing business, yet CSPs must find ways to generate new revenue streams and avoid losing relevance within the value chain.
The good news is that with the right approach, CSPs can evolve their business and occupy key parts of the value chain, even as the relationship between OTT players and end users gets stronger.
“ Imagine what the industry would be like without Yahoo or Google or Facebook and so on. [...] We can help other
industries and bring value to them. [...] We are ready to take up the over-the-top approach to enrich our customers experience.”
Olivier Baujard,
CTO of Deutche Telekom
Competition and co-operation through the value chain
Most OTT providers began by focusing on one link
in the value chain, such as Google’s search engine
or Apple’s devices, but they’re now broadening their
influence. So Google is expanding from its original
position into apps, social networks and devices,
while Apple is expanding into apps, content and
social networking, for example.
Their aim is to support and protect their core businesses, so not every area of operations is viewed as a standalone profit generator. There might therefore be opportunities for CSPs to compete against them successfully in areas outside their core competence.
There might also be opportunities for partnering with OTT providers in areas where they do not have a core competence. An obvious example is the provision of managed connectivity services. For instance, cloud services work better when connectivity is managed end-to-end and that’s something that only network operators can provide.
Creating long-term partnerships is another possibility.
The discussions between Verizon and Google to provide differentiated wholesale delivery and pricing for wireless connectivity is a good example of collaboration.
CSP
Content* Commerce Communication Device &
SW platforms Advertising Connectivity
Hosting VoD
Ping, VNO intention? iTunes,
Apple TV Apps store
Widgets UGC; Facebook
APIs Virtual Money
Android devices Google apps
YouTube Checkout Google Voice, Google+ Dark Fibre Zune Live Messenger, Skype
Portals & stores Billing & pay-ment services Voice & messaging Branded UIs Portal & mobile Adv. Kindle;
iPhone App Amazon.com
bing
Transport services
Search
Windows phone7, xBox
iPod, iPhone, iPad
Key questions for CSPs:
• What are sustainable value propositions in the new business environment?
• How can we maintain a relevant position in the ecosystem? • How can we adapt the business model to benefit from OTT? • How can we benefit from partnerships with OTT players?
* including cloud services and hosting
Competition and co-operation between CSPs and OTTs
“We’re incredibly co-dependant” “We’ll move much faster than any government”
Eric Schmidt
Executive Chairman of Google at e-G8 forum Paris, May 2011
How OTTs see the CSP role
OTT is driving the CSP business, not vice versa. However, CSPs can be much more than a utility in the age of OTT, because they still retain key assets.
Networks: Only network operators can provide the
quality of service that the new generation of video-dominated OTT services and applications demand.
Customer relationships: CSPs enjoy an unrivalled
intimacy with end users. They can leverage the
resulting insight, trust and access to provide enhanced services for both their upstream customers (OTT
providers) and downstream customers (end users). Network supplier
Joint service/application offering
Payment and billing
15
8
5
What OTTs expect from CSPs
Business: Agility is the key word, with faster time
to market for new offers and a flexible approach to forming strategic partnerships.
Higher flexibility / speed level*) Optimize internal responsibilities and processes
Implement cultural change
9 7 4
The CSPs that can adapt to the fast-moving culture of the OTT environment will be the ones that are most successful at exploiting the opportunities.
4 Staying relevant in the age of over-the-top services
A triangular value proposition to compete and co-operate
3 major impacts of OTT on CSP businesses…
OTT services are driving up traffic volumes, while stiff competition is driving down margins.
New end user experiences are arriving on the back of OTT services, with interaction and individual content creation and consumption replacing pre-selected formats. Even voice
services are under threat from Internet-based competitors. Brand will become ever more important in customer
purchasing decisions.
Business models are changing. OTT providers get most of their revenues from third parties and only a small fraction directly from end users. CSP revenues could stagnate unless they can exploit additional revenues that do not come directly from end users.
…and a triangular value proposition to compete and co-operate
Only network operators can manage network quality end-to-end, so they can deliver better quality services and optimize the customer experience.
CSPs can leverage
the individual customer relationships to
provide value from customer knowledge, trust and the
relationship/ channel. Their relationship with users enables CSPs to help OTT partners make their offers more relevant and visible. CSPs can integrate and
orchestrate services to simplify the digital lives of users. Creating
attractive bundles of content, services and billing turns the CSP into a
‘value-added shopping mall’, providing tailored packages that focus on what the customer wants.
With unique assets CSPs can optimize individual customer experiences to
support all three value propositions
By 2020, OTT video applications will probably generate more than half of all IP traffic globally (Cisco Visual Networking Index).
For many of our customers this is already a reality. The nature of the traffic is changing too. Where the bulk of OTT video used
to be composed of short clips viewed on laptops, this is shifting as people watch TV shows and movies on HDTV. Many viewers
may have tolerated low-resolution video that frequently froze when they were watching it for free on their computers, but when
they’re paying for content on their TVs they become very sensitive to anything other than crystal-clear video and audio fidelity.
OTT IP traffic is dominated by the consumer Internet. Forecasters predict that this trend will increase, with consumer Internet traffic rising from something over 10 Petabytes per month in 2010 to more than 40 PB/month in 2014 (Nokia Siemens Networks 2010). What’s more, these figures could be blown out of the water by step changes in services or customer behavior, such as the transfer of offline games to the online environment or the rise of 3DTV.
Capacity
Demand for capacity is set to grow 48 times greater by 2015, piling on more pressure
than ever, according to Cisco.
Quality
Best-effort traffic management is not well suited for delivering quality-sensitive video traffic. CSPs can guarantee levels of
service that the Internet can’t.
Cost/byte
CSPs will need to make massive efficiency savings of 95% per byte traveling through the network as their margins are eroded
Revenue
A differentiated and well managed logistical service offering opens up new revenue
streams from other parties in the value
chain such as Content Delivery Networks, content aggregators and content providers.
Profitability is under attack
Extrapolating the trend OTT video mayaccount for more than 50% of global IP traffic by 2020. 100 90 80 70 60 50 40 30 20 10 0
%
2010 2015 Smart deliveryOTT fuels the traffic tornado
6 Staying relevant in the age of over-the-top services
23% 77% 58% 42% OTT video traffic All other IP Traffic
The enabling technology for this smart delivery value proposition is already available for CSPs.
Any hesitation is more to do with market and regulatory uncertainty.
For example, will the end customer be willing to pay a premium? According to the Nokia Siemens Networks
broadband study, end users prefer high-end broadband offers of around 60 Mb/s for fixed and 7.2 Mb/s for mobile in mature markets. In addition, in the latest Consumer Behavior Study, 43% of Internet users in emerging markets and 20% in developed markets say they are willing to pay more for consistently high quality of service.
Whether the end user pays more for a premium OTT viewing experience or the CDN/content
storefront pays for a guaranteed SLA, the technical requirements placed on the CSP are identical.
• Identify the OTT video sessions and determine the correct policy for each session.
• Check the availability of resources in access, aggregation and core
• Allocate a specific amount of bandwidth for the duration of the video session
• Monitor the video quality during the session
• Release dedicated bandwidth and generate settlement records when terminating the session
Video plays a huge role in many OTT
services. Unfortunately for OTT providers, the only player in the value chain equipped to provide the kind of end-to-end quality of service (QoS) that viewers are increasingly looking for is the network operator.
The issue with video traffic can only be rectified by CSPs, because they own and operate the portion of the network between video servers and digital video players that does not carry an explicit SLA.
If CSPs can guarantee service quality for specific OTT video streams and provide SLAs for those streams, that’s a valuable service for at least two interested parties – the end user and the content storefront.
Smart delivery
CSPs must make it profitable to deliver quality
Smart delivery
OTT threatens to disrupt core business models
CSPs lose out in the customer relationship.
CSPs risk losing touch with customers and being left
unable to leverage end-user insights. The trend for OTT offers to include connectivity is a good example.
Notebooks: The Google Chrome Notebook is sold in the
US including a Verizon Wireless 3G deal with 100 MB free per month.
eReaders: Consumers buy the Kindle reader and content
from Amazon and Amazon pays the CSP for connectivity.
Gaming consoles: Consumers pay Zeebo for the console
and games, while Zeebo pays the CSP for connectivity.
Effective brokering
The key for CSPs is to retain a strong relationship with customers, because without it CSPs will lose their access to customer insight, which is a major asset, and become pure connectivity providers.
By holding on to customer
knowledge, CSPs can offer insights to OTTs, third-party application
developers, and advertisers in order to make services and ads more
relevant for end users. For the CSP this creates additional upstream
revenues and helps build a multi-sided business model.
CSPs’ main revenue sources threatened.
Even traditional telco services such as voice, SMS,
and broadband connectivity are becoming part of OTT services and offerings.
For example, Facebook and Skype became more integrated with the launch of Skype 5.0 in October 2010. Now people can call their Facebook friends directly. In fact, it looks like Facebook is becoming
the universal phonebook. In November 2010, Google announced that users with a Google Apps account will get Google Voice for free.
Voice share of total CSP revenues
OTT
Consumer CSP
Pay for device
or application Pay for connectivity
Effective brokering
Knowledge adds value
The benefit of consumer knowledge lies in helping third parties to contact customers more effectively, providing value on both sides:
CSPs can build value for 3rd party
customers by enabling them to
understand their customers better. This is essentially Google’s business model, even though Google holds only a fraction of the information held about customers by a CSP. They can also build value for end users by delivering the most relevant third-party services in the right way.
Upstream customers pay CSPs to
remove the distance between them and their customers. This distance results from a lack of knowledge and customer intimacy. Who am I dealing with? What services might they like? Can they pay? How do they like to pay? Partnering
based on such win-win relationships will be essential.
Competition and co-operation through the value chain
Effective brokering
Effective brokering: leveraging CSP assets
Trust
CSPs are among the most trusted players in the industry. Customers trust CSPs more than OTT
providers, giving CSPs the chance to form billing partnerships with
OTTs so that consumers can pay for OTT services via their phone bills. It’s often the most convenient payment method for end users, and don’t forget that most
consumers around the world don’t even own a credit card.
• Orange partners with both Nokia Ovi and Windows Marketplace for billing.
• Google partnered with NTT Docomo in April 2001.
• Telefonica has a similar
billing partnership with RIM / Blackberry.
Customer knowledge
CSPs can offer OTT providers and advertisers customer
knowledge to make services and ads more relevant.
• O2 UK is offering, together with Starbucks and L’Oreal, location-based discount
coupons via SMS.
• AT&T is offering ‘ShopAlerts by AT&T’ in US cities.
• T-Mobile USA offers the ‘More for Me’ daily deal aggregation service with deals tailored to user preferences, location and interests.
9 Staying relevant in the age of over-the-top services
Relationships and channel
CSPs face consumers(downstream) as a one-stop shop, and OTT and content providers (upstream) as a direct channel to subscribers.
CSPs can maintain their consumer relationships by bundling their own services in with OTT offerings into a compelling package.
• TeliaSonera offers Spotify music streaming with its broadband package.
• Verizon is offering the popular
Pandora Internet Radio streaming services to their FiOS TV
customers and create a “home-entertainment experience”.
• DNA Finland offers enterprises a DNA Office package incl. Google Apps. The DNA support service covers the whole package, so the customer gets everything from DNA as a one-stop-shop
Value-added mall
OTT shapes end-user behavior
Many aspects of people’s lives have
been irreversibly digitized, from
banking to diaries and from keeping in
touch to finding our way. But the more
life’s complexities are digitized, the
more we need solutions to help us to
manage our digital lives.
Customers face a plethora of services, applications, feature options, networks, devices, home
appliances and technologies. Managing contacts, communication channels, community memberships, content, media, devices, bills and passwords can all lead to stress and confusion. They need to manage the proliferation of these options in an effective and secure way. And that’s where the CSP can help.
There is an ongoing shift of user attention
and service uptake away from CSP offerings towards OTT services. For example, time
spent on social networking surpassed e-mail in November 2007 and the number of social networking users surpassed e-mail users in July 2009. Morgan Stanley’s 2009 Mobile Internet Report projects the mobile internet revenue mix sliding away from carriers at roughly one percent per year over the next few years.
Value-added mall
There are many ways that CSPs can guide end users through these challenges and simplify their digital lives, acting as an assistant and problem solver. CSPs can tailor services and the delivery of services to the individual‘s needs without users having to think about the access method, device or application they are using. CSPs can work
together with OTT providers to enrich and improve the experience of OTT services in ways that OTT players alone can’t.
CSPs can improve the end-user experience of OTT services in several ways:
• Delivering tailored services on-demand based on an analysis of the context
• Providing tools to manage privacy and security • Delivering proactive and automated customer
care, including the management of all end-user devices
Source: Morgan Stanley 2010
50% 60% 70% 80% 90% 100% 2008 2013 Advertising Paid services eCommerce Access
Solve customer challenges and
help them recognize the value
that CSPs provide
The close relationships that traditional CSPs have enjoyed with their customers provide an understanding of the challenges users
face in accessing their preferred services and communities. Providing solutions to overcome these challenges drives customer loyalty and higher uptake of other CSP services.
Managing passwords and access is a great
example. Most users access multiple services, each with a different combination of user name and password. Attempting to access these
services via the many devices a user owns (smartphones, PCs, tablets, internet TVs and so on) can leave people frustrated and detracts from the desired service experience.
Users also have strong concerns about their privacy and unauthorized use of their personal information. Solutions that address these problems are very tangible to users and increase the user’s attachment to the CSP.
Open play and user simplicity
Value-added mall
Engage on-device and via app stores
Users typically engage with OTT services via an application on their device, often installed via an application store. CSPs can look to raise their exposure using a similar approach.
Partner with selected OTT players
Selective partnerships with OTT players can
strengthen the CSP’s brand and relevance in the eyes of OTT service users.
Provide tailored offerings and bundling
Offer innovative bundles of content and access that are intelligently targeted and priced towards selected user groups.
Extend beyond the current subscriber base
CSPs can explore avenues to extend their services beyond their immediate subscriber base, to widen the potential for additional revenue and subscriber acquisition.
Examples:
Airtel’s Mobile App store targeted at the
Indian market achieved more than 2.5 million downloads within the first 30 days
Vodafone’s integration of a ‘Lite’ Facebook version resulted in a 20% increase in the number of users signing up for higher-value data bolt-on tariffs.
T-Mobile’s Web’n’Walk service, which offers users a customizable browser, widgets and applications, network-based content and data management and good integration to third-party application stores.
Value-added mall
Staying relevant in the age of over-the-top services
Smart delivery
CSPs take the roll of a modern, active and creative logistics company and provide and deliver services to the end-users in a very differentiated way – matching the offer to the
individual expectations and needs of each customer.
Building blocks to stay relevant in the age of OTT
Effective brokering
Bring user expectations and OTT offerings together by leveraging the excellent trust, insight and customer relations enjoyed by CSPs to add value to OTT offerings.
Value-added mall
CSPs position themselves as partners in the digital lives of customers, making their work and private lives easier by offering a comfortable one-stop-shopping experience for all their digital communication needs.
Visit us under
www.nokiasiemensnetworks.com/perspectives
Copyright 2011 Nokia Siemens Networks. All rights reserved. 12 Staying relevant in the age of over-the-top services
