LBS BUSINESS MODELS (Last Update: 11-24-02) One of the biggest issues carriers and business enterprises face with location-based services is how to charge for them. This section provides an overview of potential business models, and describes which typs of applications should be considered for each business model. A CRITICAL note: a LBS Business Model should be application-specific; a carrier should not attempt to apply a one-size-fits-all business model on all LBS applications, or even generalize within a category of LBS applications (such as Navigation Aids), as it can limit the appeal of a given application to certain demographics (such as Road Warriors) at the expense of others (such as Soccer Moms). E911-LBS Consulting can help determine what business model(s) will maximize revenue for your suite of LBS applications. Basic/Core Business Model This business model assumes that the services involved are “additive” to the basic service (in a typical carrier's case, wireless-voice-minutes based service) on a “free”-basis, either because the service is: unlikely to have a significant amount of existing customers willing to pay incrementally for the service, is seen as an attractive feature for gaining new customers, or will contribute to reducing churn or increasing customer “stickiness.” Examples: Direct Connect (Nextel), AOL Instant Messenger (AIM). “Traditional” Business Model This business model assumes a traditional fee for service, born by the customer, not by the carrier (basic/core business model) or other parties (discussed next). There are numerous variations, including: ˇ Fixed Fee - (Financially) additive to basic/core services, with the additive service offered at a flat fee (usually monthly) additional to charges of the basic services (example - voice mail, call waiting). Several variations on this model include: § Limited usage volumes. Example: AT&T one-rate, § Limited usage/supplier participants. Examples: AT&T family plan, MCI friends and family, HMO in-network/out-of-network), § Service-tier pricing (different pricing, services, or privleges depending on “level” of customer (e.g. platinum, gold, bronze). Examples: Airlines, Hotels (Note: this has not been a model successfully used by communications companies), § Affinity Programs (In development): Examples: Diner’s Club, AX, ˇ Per Use - Services that are paid for on a per use or “event” basis. Example: 3-way plus voice conferencing. This business model can include several components/variations, including: § Basic per use – customers charged by # of discrete events, regardless of minutes or users involved, § Per use + usage - # of usage minutes +x LATA variations, § Per use +x setup +x usage +x # of users/ports (customers) – Example: conference bridges. Other Considerations The natural inclination for carriers will be to utilize some variation of the traditional business model described above. This model is certainly the primary business model for carriers curreently. However, an adoption of a traditional business model for location-based services should be considered potentially only transitory; that is, that it would apply only for a period of time, for only a subset of locatio-enabled services, or some similar variation. As location-based services evolve, they will likely migrate to advertising and/or context-based business models (discussed next). That said, in the near-term (<2 years) this will probably be the dominant business model relative to location-service deployment. Given this assumption, and the nature of the initial services, Carriers should assume that both the “fixed fee” and “per-use” models will be employed in the near-term. The question is what variation(s) will be most relevant given those models and the time-frame involved. The detailed discussion of the near-term services will address these options in more detail. Advertising/Sponsor-Based Business Model Research by the Kelsey Group indicates two-thirds of wireless users would prefer to have some form of advertising subsidise the cost of additional wireless information services. This research also indicates that one out of every four business listing requests over wireless directory assistance leads to a purchase from the requested business. Wireless services that offer the advertiser a chance to know exactly where the customer is and/or what situation the customer is in (e.g. Presence Services) and tailor promotional offers that are highly relevant to the wireless consumer are expected to generate high-levels of transactional follow-on, possibly approaching the 25% level of wireless directory assistance. Standards Issues Standards for advertising on cellular phones, palm pilots and other wireless devices are anticipated to be in place by the end of the first quarter of 2000. There are currently no precedents for this untapped ad space, so a variety of companies, including Mediaplex, DoubleClick, Avenue A, Brightstreet.com and others are working together as part of the adXML.org open-standards initiative to create advertising specifications.
The specifications will vary depending on which device is receiving the advertising message. The committee plans to use the self-describing XML-based vocabulary created by Mediaplex as the transmittal language for the ads. Although Mediaplex formed the vendor-neutral adXML, it is handing over the reigns to a steering committee Context-Based/Transaction-Oriented Business Model As carriers consider business models for LBS, one of the most significant is a context-based, transaction fee based business model. These can be either Advertising or Non-Advertising triggered transactions, though Advertising-triggered transactions would likely have higher volumes and margins. An example of the potential and direction of this business model is AOL.
| Macro-economic Considerations Alamo Rent-a-Car Offers Free Phones to Its Customers Overseas (2-27-03)
Alamo Rent-a-Car is offering its customers from the U.S. and Canada free international cell phones when they rent cars for use in Europe, Asia, the Middle East and Africa. Through partner Cellhire USA, Alamo customers can choose to receive by mail, before departing, an international cell phone with a British phone number, voice mail, earpiece, spare batteries, chargers and travel adapters. Alamo pays the phone rental charge, which can be about $8 a day. Customers pay for the calls they make and receive, and for a $10 shipping package in which to return the phone and accessories except the earpiece, which the customers can keep. Alamo said the free phone rental helps travelers stay in touch in light of increased security concerns. (Source: Wall Street Journal) Analysis: Major (though) inevitable change to the LBS business model - the device doesn't matter - it's the application! Paying for Wi-Fi via Cell Phone (2-14-03)
By Eric Griffith Imagine you sit down in a café hoping to partake of an hour or two of Wi-Fi access, but you don't have your credit card or any cash on hand. How are you going to pay for your time online? Swedish company Excilan has an idea, currently in a pilot program, that may take care of that issue by letting you put charges for hotspot use on your cellular phone bill. Authentication for you to get access and be charged would also take place over the phone, instead of via a Web browser. Sean O'Mahony, president and CEO of FatPort, the only wireless ISP (WISP) in North America currently part of the project, describes the service like this: " Where the usual [Web page] log in is for FatPort, there will also be a another link saying 'Pay by mobile phone.' You enter your country code and phone number and get a call seconds later on that phone asking you to accept charges." Pressing the "1" will mean you accept. Moments later, the computer you enter your phone number on will bring up a message telling you you've been authenticated to use the hotspot, and the recording on the phone will also tell you to start surfing.
The call you receive to authenticate access, which will explain any charges you'll receive, will come in using your home language. This is key, as Excilan's current program includes 6 hotspot providers in different countries:
Once you've given the okay on the phone, the Excilan system sends the authentication to the corresponding hotspot provider. Excilan will provide hotspot partners with branding signs that will indicated "Pay by Mobile Phone." O'Mahony says "The reason I'm excited is that the mobile carriers and the wisps are working together. It's one of those things, still very early, that could help mass adoption." The trial for the service is currently underway with four mobile phone operators, including Siminn-Iceland Telcom of Iceland and three unnamed partners in Europe. The potential audience of mobile phone users exceeds 7 million. Excilan takes care of the revenue split between the subcriber's telco and the hotspots. The company got the project running in less than three months, after initial meetings with potential mobile telcos and WISPs in November 2002. "Excilan does everything --all I do is put in their interface," says O'Mahony. "I've demoed it to quite a few people now and when they see it, it makes complete sense." THE FACTS MA'AM, JUST THE FACTS (12-04-02) http://www.nena.org/PR_Publications/911fastfacts.htm U.N. Reports Dramatic Growth in Internet Use (11-24-02)
By the end of 2002, there will be 655 million Internet users worldwide, a 30 percent increase over the same period last year, a report from the U.N. Conference on Trade and Development said. The value of goods and services bought and sold over the Internet (e-commerce) grew by 50 percent over last year to $2.3 billion. Commerce initiated from devices such as cell phones (m-commerce) will generate revenues of almost $50 billion in 2002, led by Western Europe and North America. Total global m-commerce revenue is forecasted to reach $225 billion by 2005. (Source: IDG News Service, Reuters, AP) Analysis: Good numbers to use for 2002 business case baseline numbers; take projections with a grain of salt. ======================= Report Finds Strong Returns on Mobile Data Investments (11-22-02)
Business users are increasingly beginning to realize significant and quantifiable benefits from mobile data products, which are continuing to emerge despite today's difficult IT spending environment, according to a recent report by Aberdeen Group. Aberdeen found that business use of hand-held mobile data products is clearly growing, but generally are used by line-of-business managers to augment specific business processes. Hand-helds are far from replacing the PC as ubiquitous business tools, but are clearly transforming the way sales forces, field service engineers, and executives conduct business. (Source: Wireless NewsFactor) Slow Take Up of Wireless Data Services Means Deals for Some (11-19-02)
Customers have been slow to sign up for the new data services that U.S. wireless carriers are offering on their new, higher-speed networks. As a result, analysts say the prices for services and the hardware are dropping. Pricing for Sprint PCS's unlimited wireless data plan has dropped by half over the last few months. AT&T Wireless has also cut the price of some of its data plans. The prices of Web-surfing phones are also falling. The Motorola T720 from Verizon Wireless is now available for a third of its $299 price of a month ago. Sprint PCS offers the Samsung A500 for $299, but includes a clip-on camera for free if customers sign up for data service. Sprint PCS said 10 percent of new customers added in the first half of October signed up for data service. Other carriers did not disclose how many customers are signing up for their data services. (Source: Wall Street Journal) ====================================== LBS Revenue"Estimates" Where's the Revenue in LBS?... Report finds LBS to Generate Millions, Not Billions of Dollars (11-22-02) ANALYSIS BELOW The market for Location-based services exists, however, recent findings from In- Stat/MDR reveals that its not the "killer-app" that it was once touted as. Instat's 200 page report on the future of LBS examines the future of LBS and reveals that its highly unlikely that carriers will break-even on their investments for atleast another decade. At least with respect to the U.S., this report assumes that the "investment" includes all capital outlays required to meet the E911 mandate. The above statement mixes the Public Safety aspect of location investment, and the commercial opportunities available to capitalize on the investment it is required by the government. It is in carriers best interest to accelerate the commercialization of location technology (e.g. LBS applications) as much as it can to offset as much of the E911 investment as possible, as E911 itself will generate little additional revenue. On a similar note, Glenn (WirelessDevnet Editor) was recently at an event in Munich where numerous presentations were made by operators from around the globe. It was quite evident when hearing about revenue generating prospects for European operators that LBS was not the solution. Since Europe lacks an E911-type mandate, LBS application business cases must include the full cost of location technology deployment, making the business case much more difficult than for U.S. carriers, which should seperate E911 infrastructure capital investments from LBS application development and implementation investments. LBS enablers or solutions were barely evident [or mentioned] and pretty much a no-show at the event. Location-centric applications, games, and data are part of the big picture, however, don't wait for LBS to become the next killer-app. - comments? Send em to WirelessDevNet
 Even though the total addressable market for offering location based services (LBS) will be large through 2006, the actual potential of that market will actually be quite small, according to In- Stat/MDR (www.instat.com). The high-tech market research firm reports that, despite the fact that practically every American wireless subscriber will be able to receive highly accurate location information on their mobile phones by 2005, the cost to carriers of this compliance will total in the billions of dollars and it is highly unlikely that US carriers will achieve break-even on this investment before the end of the decade (see above comment that U.S. carriers should segregate LBS application development and implementation investment from E911 technology infrastructure investment.
"US wireless carriers should look at every opportunity to find relief from the US government for the costs of complying with the FCC's E911 mandate (I TOTALLY agree)," says Ken Hyers, a Senior Analyst with In-Stat/MDR. "In addition, these carriers should explore applications and services that use LBS and cultivate the developer community to create these applications and services, with the aim of training customers to adopt and use LBS as quickly as possible in order to speed the point at which carriers can begin to see a return on their location investment." However, In- Stat/MDR believes that the opportunity for revenue for wireless carriers from location-based services will be quite small through 2006, and can be measured in millions, not billions, of dollars.
In the report, In-Stat/MDR has also found that:
- In Japan, where there are often no street names or addresses except on main roads, there is a high demand for location-based services.
- In Western Europe, where some less precise location- based services are now available, less than 1% of revenue for location providers comes from mobile users.
- The revenue opportunity for wireless carriers for location-based services is expected to grow from $5 million in 2002 to more than $167 million in 2006. Revenues will grow through the adoption of various services, especially of those that are non-intrusive and are initiated by the user.
- While the E911 mandate is US based, In-Stat/MDR expects location services to continue to be rolled out in other countries as well.
- The total addressable market of location-enabled subscribers by 2006 will top 1.3 billion subscribers. However, in earlier years of In-Stat/MDR's forecast (2003 ? 2004) when network based solutions are less precise, the addressable market will actually be much less, comprising, primarily, GPS enabled subscribers, which will make up 14% and 26% of the total wireless subscriber base.
The report, "Location, Location, Location: Meeting the E911 Mandate and Monetizing Location Based Services (#IN020260WP), summarizes the progress made by US mobile carriers to comply with the FCC's E911 mandate, and more particularly, their compliance, and expected compliance, with Phase II of the mandate. This report provides detailed forecasts through 2006 of the number of mobile subscribers that will be covered by the mandate, and breaks these forecasts out by Tier I wireless carriers, as well as total wireless carriers, and by airlink.
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