Welcome to the fourth and last part of the mobile youth trends and behavior coverage. Today, Nick Wright, a Research Associate at the Wireless World Forum, who is a co-author of the mobileYouth 2006 report will be visiting here. Also, recently Nick has started blogging and you should pay a visit and read his insightful Virtual Marketing and Media blog!
For those of you who missed the previous parts of the mobile youth trends coverage here are the links: Nick Wright talked about mobile youth trends, Jan Kuczynski talked about mobile music and youth and Savka Andic talked about mobile marketing and youth.
Well, let's give Nick a warm welcome!
N: It’s great to be back again on Xellular Identity, Xen. As you know, last week we were frantically preparing for the mobileYouth summit, so I didn’t have time to visit here. As it turns out, waiting turned out to be the best move, as the summit itself provides a great talking point about mobile services.
X: How was the event? Did it go well?
N: It was great and the stimulating panel discussions provided plenty of healthy round-table discussion about the youth sector and the problems facing the industry in general. One of the highlights of the event is covered nicely by Bena Roberts on GoMo News, involving the final panel discussion of the afternoon between Jonathan Jowitt (formerly with Orange but now independent) and Raimond Scholze, VP of Customer Insights at T-mobile. The topic of this spirited debate surrounded the issue of youth churn amongst operators and the inability of the mobile industry to drive their young consumers towards adopting mobile services outside of voice and text. Raimond was arguing that with 40% market share, T-Mobile could not be concerned with micro-segmentation without alienating large parts of its audience. They were rolling out music services because that’s what their customers wanted but it was clear that T-Mobile did not consider music an essential revenue-generating service for operators. The music industry is worth US$30 million, Raimond pointed out, but the mobile industry is worth US$40 billion: the implication is that music is a “nice-to-have” rather than a “need-to-have” service. However, at this stage, the problem is not so much in generating revenue from youth customers (though that is obviously something mobile services are trying to achieve) as with actually keeping them on your service.
At 33%, the UK mobile operators not only have the highest churn rate of any country but this is also the highest churn rate of any service industry in the UK. That’s one third of youth in the UK changing operator at least once a year and that alone represents an estimated US$1.8 billion in lost revenue. There is also the cost of acquisition which amounts to at least $250 for each new subscriber including advertising costs, handset subsidies and customer service costs (a dissatisfied or confused customer costs far more to maintain than one who is well-informed and satisfied). A study of American companies in 90s shows that even a 5% increase in customer loyalty can amount to a 25-80% increase in profitability. Music’s value, or the value of any mobile service, should not be measured just in terms of its ability to increase youth ARPU but in its ability to keep the young consumer satisfied and therefore loyal - that in itself is likely to create more profit than a high-cost service that is rarely used.
X: So why have mobile operators failed to get youth to engage with mobile services?
N: It’s largely due to a very introspective approach that operators continue to adopt. This is still manifested in the language with which operators still address their consumers and the very channelled, inflexible “value chain” that exists. One of the most amusing but shocking revelations from a podcast I heard recently was that there is only one other industry that views its consumers as “end users” - the drug industry! The youth consumer has a need for a mobile service to improve his existing communications or provide significant entertainment within his peer group and if that is not achieved then they will not care about it. Part of the problem is the “if we make it someone will use it” mentality, which still needs to shift towards “if you want it, we will make it happen”. The issue can be most obviously explained by looking at the example of MMS.
MMS was subject to huge industry hype but once it was released consumers gave it the cold shoulder, failing to find any real use for it. In 2001, industry analysts predicted that MMS would overtake SMS as the preferred means of data communication by 2008. 83% of consumers still use SMS, whereas only 25% use MMS. SMS is still responsible for 90% of data revenue, despite predictions that MMS would generate 66.3% of mobile messaging revenues by 2006. Here it is important to distinguish between industry “hype” and consumer “buzz”. The industry was excited but consumers couldn’t find any use for it, mainly because they hadn’t asked for it and it didn’t improve any existing behaviour.
Mobile TV is currently undergoing similar industry hype and is also generating a fair amount of consumer buzz but whether consumers will be satisfied by mobile TV services is still unclear. Extensive consumer surveys seem to show considerable interest but it seems to me that the idea is appealing than the potential reality. BT Movio’s survey found that 59% of consumers would pay £8 a month for mobile TV service on their current network, while an O2 survey showed that 85% were satisfied with the service and that 57% would take up the service within the next 6 months. However, BT Movio’s is purely a broadcast service and, as such, its appeal will be limited unless the youth consumer is watching live events (which may have an additional pay-per-view cost). Why watch a snippet of your favourite TV show half-way through when you can use TiVo or Sky+ to record the show in full and watch it at home?
Operators need to think through the reasons why consumers want mobile TV and provide a service that fulfils that unanswered need. Do youth really have £8 a month to spend on a service that adds nothing except mobility into the equation and which they get for free at home? Can Mobile TV not more usefully replace youth spending on video rental services, for example via a video-on-demand service with a fixed-fee monthly subscription? There are plenty of unanswered questions about this service.
X: How can operators successfully position themselves to appeal to youth with their mobile services?
N: How about entertainingly educating their consumers on how their services can socially benefit them? We ran a workshop last week prior to the event, something we hope to make into a regular event, and showed the difference between an advert by a Western operator (02) and one by a Japanese one (DoCoMo). The O2 advert is fairly generic with no specific mention of any benefits the service offers, with a high-production feel but without any real message. The DoCoMo advert, while perhaps lower in production value and less polished, uses its special effects to clearly highlight all the benefits that its mobile services can offer the young consumer. DoCoMo is not even particularly youth-focused in comparison with its competitors but already it’s clear (even in another language!) that the mobile can give you what you want when you want it and simultaneously provides a guideline as to how to use it.
Operators often tend to highlight the technological advances in their phones and services involving a lot of numbers, capital letters and technical jargon that mean little to anyone, especially the young consumer with limited attention for details. All young consumers want to know is “what can I do with it that’s better than what I can do now?”; it’s not an unreasonable question and it’s up to the industry to answer it, rather than “improve” the technology of existing features.
Another issue that was highlighted at the Trends Summit was that operators believed many content providers were being “impatient”, that it took time to turn a traditionally technology-focused industry into a consumer-focused industry. In fact the impatient ones are not the content providers or the software companies it’s the consumers that these companies are trying to serve. Try telling that to someone young: “We understand what you are saying and we think we can do it: but it’ll take 2-4 years.” Will that young customer still care by that time? The customer demand will have moved on.
X: Would you say that operators have to treat their youth demographic differently?
N: To an extent, yes. Obviously telcos cannot abandon their other customer segments but they can market more specifically at their youth segment. It’s important to remember that simple “youth demographic” customer segmentation is fairly limited in its effectiveness. This “youth segment” is one of the most diverse and fragmented of any age demographic and if you adopt a “one size fits all” approach to the demographic you may as well not bother segmenting at all. Different youth groups require different approaches and the youth MVNOs Amp’d and Boost have already shown considerable reduction of churn (down to 2%) and increases in ARPU (Amp’d claims its average ARPU is $100, twice the average for other operators) by appealing to their fairly niche youth segments (athletic, interested in sports like surfing and snowboarding).
Appealing to youth involves speaking their language, allowing them to participate, creating relationships and allowing for creative experimentation. If you want to see examples of successful youth services, take a look at the internet right now. Social media is not just a buzz word, it’s the online language youth are using to connect to each other in new and diverse ways. Helio, another youth-based MVNO, aims to facilitate this new development by providing their consumers with mobile MySpace and most importantly it uses its website to communicate with its consumers directly and gain feedback to improve its services and gauge customer satisfaction. Operators need to consider rewarding youth loyalty more actively, as Japanese operators have done. Use of operator and partner services need to be promoted and consumers must see the benefits in the form of real discounts. Reward schemes are known to increase sales and decrease churn, as in the case of Tesco’s Clubcard which increased sales by 28%.
X: Thank you Nick for this interview!
I also want to thank Nick Wright, Jan Kuczynski and Savka Andic of the Wireless World Forum for the most interesting and eye-opening coverage of the mobile youth market during the last month.
One of my favorite examples of a smart business model and a VERY successful avatar service is Mobile Game Town (Mobagetown) from Japan. It is the largest and fastest growing mobile Social Networking Service (SNS), available only on mobile. The site is a blend of casual games and social networking, multiplayer and singleplayer games coupled with chat, blogs and avatars.
dept. store the companies have set-up a virtual avatar catalogue from which members can build, for a modest fee, their outfit based on actual products complete with best dressed contest prizes. This would seem to be a rather slick ad campaign ultimately designed to drive purchases of the real thing just in time for the summer matsuri (festival) season. The company ran a similar campaign for Nike where customers who bought physical goods were rewarded with virtual prizes."
Seamus McAteer at 
Just got the word about a cool new mobile personalization service called “Push Ringer”: 
