How Does “Free” Work in the Post-Mobile Era?

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The mobile ecosystem is at an economic intersection. Device makers, value-added services and the network operators that underpin them are under pressure to innovate and keep growing profitably. The ways and means of mobile monetization are in flux.

Of course the mobile platform will remain an important platform for years to come. 5 billion people are yet to join the smartphone club, but commoditization and margin compression will influence how users interact and pay for devices and services.

OEMs and Operators Under Pressure

Even as smartphones evolve in new ways (e.g. the quixotic Project Ara from Google), their days as the coolest piece of consumer tech are numbered. Not surprising when no one besides Apple is making any money, and even their growth is slowing. OEMs are now turning their attention to VR and IoT as the next drivers of growth.

Over on the network operator side of the mobile business, the so-called “dumb pipe” has been steadily churning out profits for years. Despite being caught up in the 3G spectrum frenzy mobile operators have been fairly consistent in profit growth since the 2000s.

People have always understood the need to pay their phone bill and as a result, the mobile operator business has not been a bad one to be in. But even this growth engine has slowed. Monthly average revenue per user has peaked in the US and other mature markets. Even in developing markets, ARPU is falling victim to commoditization of voice and data services. And they still have the investments to make in 4G, let alone the 5G upgrades on network vendor roadmaps.

As mobile moves from adoption to the replacement phase of the cycle, how will operators, who are increasingly converging into content and media companies, sustain business models?

Mobile Video is Premium Video

Growth in mobile media consumption should be leveraged as a tool for creating new value. Video is over half the traffic on mobile networks, and accounts for the majority of growth. Americans spend ten hours a day looking at screens of all kinds, up from seven in 2010. That additional three hours is all on mobile, and around 30 minutes (and growing) of that is spent watching video.

But with APRU maxed out, operators can’t charge subscribers more for data plans that enable this video consumption. Prices per Gb will continue to fall with the rise of “all you can stream/download” plans. So from where will the revenue be sourced?

Brands are beginning to recognize that the handset is premium digital real estate. In the age of ad-blockers, measurement/attribution issues, and click fraud, mobile can be a robust option for sponsors looking to cut through and reach audiences.

When you think of the mobile OS itself as a media publishing destination, rather than individual apps or the browser, possibilities for new ways to engage with subscribers emerge. Wallpapers, lock screens, app transitions, and notifications are all potential sponsored inventory that could be managed by operators.

Combining this new inventory with premium video, operators are in a unique position to capitalize on subscriber data. Developing media-centric plans could lead to a new type of operator business model.

Imagine a completely free mobile experience, with as much video as you want. Younger subscribers and those in emerging markets could have their value enhanced by plans that let them consume video in exchange for targeted, quality messages.

All-you-can eat video experiences must delivered in a way that doesn’t crush the network infrastructure. Flattening the peaks in network utilization by separating video delivery from consumption is one approach.

As the next 5 billion smartphone users are added to their networks, operators can capitalize on the boom in video consumption to create a new type of mobile plan. Subscribers are becoming audiences, and video is going to be the next engine of growth for mobile operators.