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