Few emerging operators have given the nascent mobile content market the attention in deserves. As a result, they have ignored their potential to dominate the sector, which has the potential to drive operator revenues in Asia's emerging markets.
Ovum believes that creating a content value chain is crucial for the future development of the market for mobile content and applications in such markets.
Emerging market mobile operators are prevalent in the value chain, dominating content delivery and the user retail environment for purchasing content and applications. Many are now seeking to expand their role into content aggregation and application stores.
Non-operator players will seek an expanded role in the content value chain, but unlike their counterparts in developed markets, operators in emerging markets are typically in a stronger bargaining position. This is due to a number of often overlapping factors.
There is a higher level of mobile penetration compared to fixed broadband/PC penetration, so the markets are often dominated by mobile. Likewise, there is lower penetration of banking and payment services, which puts greater value on operator billing capabilities. Expansion of mobile money services will strengthen mobile operators' competence in this area.
Operators in emerging markets also typically have powerful brands that have far more resonance with mass-market consumers than the brands of online players and device vendors. The lack of fixed broadband/PC penetration, particularly in rural areas, means that Google and the like will be little known to most people.
Brand status and power is important in the content value chain for building a powerful retail channel, particularly for application stores. It can also play an important role in negotiating content revenue-sharing agreements.
Operators dominate the consumer retail channels for purchasing content in the form of operator portals that typically function on walled-garden principals - a closed model that has almost disappeared in developed markets.
The rise of device vendor application stores in mature markets has been meteoric, and vendors are now setting their sights on emerging markets, with launches planned in India and China.
How deeply entrenched they will become in emerging markets, and how they will threaten operators' positions in the value chain remains to be seen, but we do not expect them to replicate the success they have seen in mature markets.
Device vendor application stores are typically coupled with expensive smartphones, which have low penetration in emerging markets and are largely confined to the affluent middle classes. This will not change dramatically in the next five years.
However, device vendors are not confining their content ambitions to application stores. Many have a wider agenda that could have a greater impact on the mass market. Some vendors have specific initiatives focused on developing countries - for example, the provision of utility applications supported on mass-market feature phones such as Nokia Life Tools service, which includes regional market information for popular crops in local languages.
Current models restrict innovation
Mobile operators in emerging markets take a higher cut of content and application revenues compared to operators in developed countries. Emerging market operators typically take around a 50% share, with the balance going to content partners. This contrasts the more generous 70:30 split between developers and operators becoming standard in mature markets.
The comparatively unfavorable terms for content partners in emerging markets gives them little incentive to produce compelling applications.
However, we do expect the current revenue sharing models to improve in favor of content providers in the medium term, for two reasons. First, operators will have to rely more on data revenues going forward, and will need the support of content partners - unbalanced revenue sharing will be a deterrent in this respect.
Second, device vendor application stores are starting to launch in emerging markets and offer a better percentage of revenues to content and application developers. This will have a knock-on effect and, at the very least, operators opening their own stores will have to offer comparable revenue-share agreements or risk seeing developers decamp to device vendor stores.
Nathan Burley is an analyst at Ovum