Professional Documents
Culture Documents
Aloke BAJPAI
Amir MOVASSAGH
Stefan SCHWARZ
Harish SHARMA
Louis TAN
Nicolas WENG KAN
15 Feb 2005
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Contents Pg
1.0 Introduction............................................................................................................. 3
2.0 Making Sense of Uncertainties in M-Payments Deployments ............................... 5
2.1 What is m-payments?.......................................................................................... 5
2.2 When can m-payments be used?......................................................................... 6
2.3 Where is m-payments today?.............................................................................. 6
2.4 Analysis of uncertainties..................................................................................... 7
2.4.1 Market entry uncertainty............................................................................. 7
2.4.2 Technology uncertainty .............................................................................. 9
2.4.3 Competitive uncertainty............................................................................ 11
2.4.4 Organizational uncertainty........................................................................ 13
2.4.5 Operational Uncertainty............................................................................ 14
2.5 Summary of framework for analysis................................................................. 15
3.0 Application of framework to SIMPAY................................................................. 16
3.1 Introduction to Simpay ..................................................................................... 16
3.2 Setting expectations in the five areas of uncertainties ...................................... 17
3.2.1 Market uncertainty ........................................................................................ 17
3.2.2 Technology uncertainty ................................................................................ 19
3.2.3 Competitive Uncertainty............................................................................... 21
3.2.4 Organizational Uncertainty........................................................................... 26
3.2.5 Operational Uncertainty................................................................................ 26
3.3 Conclusions about Simpay’s expectations........................................................ 27
4.0 Conclusion .................................................................................................................. 27
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1.0 Introduction
Mobile payments (m-payments) – the payment of digital or physical goods using mobile
devices, is estimated to yield revenues of $37.1 billion in 2008 world-wide, up from $3.2
billion in 20031. According to Forrester Research, the mobile payment market will be
worth $22 billion by 2005, making it the fastest growing area of the global payments
scenario.
1
“Making m-payments a reality”, Arthur D. Little, July 2004
2
“M-Payment – the art of turning handsets into wallets”, Northstream AB, Sep 2002, http://www.northstream.se
3
http://www.mobile.commerce.net/index_mcn.php
4
Diagram is from Mobipay, from website http://www.ifslearning.com/events/archive/2003/fwsem03/4june03/AlbertoSanz.pdf
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Despite these exits, the optimism behind mobile payments is not unsubstantiated.
Companies such as eNETS (Singapore), Vodafone, TeliaSonera (Finland/Sweden),
Mobipay (Spain) and Smart Communications (Philippines) continue to operate their
mobile payment service after launches spanning more than 2 years, and some have
publicly reported growing usage. Just recently, Simpay, the mobile payment scheme
founded by Orange, Telefónica Móviles, T-Mobile and Vodafone, announced its plans to
launch commercially in early 2005.5
After the roller-coaster ride (and a large number of analyst reports and academic papers),
the key question is whether the industry is any wiser about the potential in mobile
payments and if there is a market, what goes beyond the need for “simplicity”, “security”,
“partnerships”, “brands” – verbs that have been reiterated by analysts since 2001 as
supposed key ingredients of a successful mobile payments implementation. If a company
wishes to commercialise a mobile payment service today, is there a clearer evaluation
criteria that can be developed to assess the uncertainties of success for the m-payment
service?
This study attempts to answer this question in two parts. In the first part, we introduce
mobile payments - what it is as an enabler, the players involved, the markets it impacts
and where it is today. We then provide a framework to analysing the uncertainties facing
an m-payment organisation in the five areas of market entry, technology, competition,
organisation and operations. Each of these uncertainties, we argue, “funnels” and shapes
the market size from one that is possible, to one that is realizable. By taking into account
the impact of these uncertainties, managers can then better assess the realistic market
size and expectations of the m-payment venture.
In the second part, we apply our framework to Simpay – a new mobile-payment service
supported by mobile operators Orange, Vodafone, T-Mobile and Telefonica Moviles, that
is expected to be launched by the first half of 20056. Simpay had announced in 2004 that
it had plans to enable 1 billion Euros worth of transactions by 2007. Is this a realistic
expectation given the uncertainties facing Simpay? We answer this by quantitatively
showing how the initial market size of “280 million mobile subscribers represented by
the four operators” is funnelled into a more realistic market size as a basis for revenue
expectations.7 We conclude by showing that Simpay’s expectations are not realistic.
Using our framework, we also estimate that in the best-case, Simpay will only break-even
by 2007.
5
“Simpay announces providers to bring mobile payments to life”, June 2004, http://www.simpay.com/press.php
6
This venture has not been launched as at the time of writing (Feb 16 2005)
7
www.valista.com
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As Figure 2 below illustrates, there are typically four sets of players – the customer,
merchant, bank (payment service provider) and the telco (wireless service provider), that
need to interact in order to complete an m-payment transaction.
The customer accesses the m-payment service using a mobile device over a wireless
technology, selects the good desired and then pays for it by submitting payment
information over the air. The merchant, like an online e-commerce merchant, is
responsible for this virtual, albeit wireless “shopfront”. The payment service provider,
usually a bank, ensures that payment is settled between the merchant and customer.
Finally, the wireless service provider, usually the telco, provides the conduit for the
communication between the customer and merchant. In many m-payment services, the
telco also often provides other value-added services such as access to their mobile
subscribers via operator-owned portals and bill-on-behalf capabilities for micro-
payments.
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Mobile travel: In 2004, airline company Norwegian, launched an SMS based m-payment service that
would allow users to find, book and pay for tickets. Their receipts, which will be issued in the form of SMS
messages, will be used as valid tickets when they check in. Norwegian reported more than 500,000
registered users at launch.8
Mobile ticketing: In 2002, the Helsinki Traffic Authority launched an m-payment service that would allow
Helsinki residents and visitors to buy their tickets to city trams or subways with their mobile phones. After
a slow start the SMS ticket sales have gained popularity and so far over a million tickets have been
purchased by SMS. The customer buys a single trip tram or subway ticket by sending a SMS message to a
certain phone number and receives the "ticket message". He must show the ticket to a traffic authority
inspector if one boards the tram of subway car. The price of the ticket is added into the travellers phone
bill. In 2002, the Traffic Authority had reported that the SMS ticket arrives into the phone so fast that some
riders order the ticket only when the inspectors come abroad. The Traffic Authority is planning to build a
delay into the SMS ticket to close this loophole.9
Mobile top-up: In 2003, Connex, the largest mobile operator in the Romanian market launched an m-
payment service that would allow their subscribers top-up their prepaid mobile accounts securely from their
bank account using SMS.10
Table 1. Examples of m-payment applications
8
“Telenor customers fly on their phones”, Jan 2004, http://www.nordicwirelesswatch.com
9
“Helsinki SMS tram tickets gain in popularity”, Aug 2002, http://www.mobile.commerce.net
10
“Connex Launches SMS Activated Prepaid Top-up in Romania”, http://www.macalla.com/downloads/download.php
11
http://www.epaynews.com/statistics/mcommstats.html#34
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Five years down the road, however, m-payments is still in its infancy today. While more
than 35 m-payment systems have been launched since 200112, none have gained
widespread acceptance on a nation-wide basis, much less globally. In Singapore, for
example, a country recently ranked among the most advanced countries in mobile
payments maturity13, only 70,000 people or less than 2.2 per cent of the 3.24 million
mobile phone users – are believed to have adopted m-payments as at 2004.14 Figure 3
shows the relative level of perceived m-payments maturity in various countries.
12
“ePayment Systems Database: Trends and Analysis”, Electronic Payment Systems observatory (ePSO). Available:
http://epso.irc.es/Docs/Backgrnd-9.pdf, Carat, G. 2002,
13
“Making m-payments a reality”, Arthur D. Little, July 2004
14
“Pay by phones schemes in need of major overhaul”, http://it.asia1.com.sg/newsdaily/news001_20040717.html
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In terms of market partnerships, different players including telcos, banks and pure-plays
have adopted differing strategies. To illustrate, when Spanish pure-play Mobipay
launched an m-payment service, it partnered with almost all major telcos and banks in
Spain to connect to the Mobipay infrastructure. At the same time, Mobipay offered a
wide-range of m-payment services from over-the-counter retail payments, vending
payments, Internet purchase payments to even fines payment using the phone, to attract
as many merchants as it could. In pursuing this strategy, Mobipay attempted to reduce the
diffusion effect of merchants, telcos and banks by focusing on increasing the number of
partners that supported Mobipay. As Mobipay found, the drawback of this strategy is the
time and effort required to string together such alliances especially when the market
concentration of the partners is small.15 Mobipay is today invested by 92 financial
institutions, 3 mobile operators and 3 Spanish payment processing companies.16
In contrast, when mobile operator Vodafone launched their m-payment service, M-Pay
Bill17, it allowed merchants to bill its subscribers using bill-on-behalf. In other words,
consumers who purchased mobile content on M-Pay Bill were billed on Vodafone’s
existing telephone bill. Vodafone in certain cases, also acted as the “merchant”, as it sold
its own mobile content over these channels. Players who have selected such a “vertical
integration” strategy in the past for m-payments entry typically possess a sufficiently
large customer base and include banks such as The Development Bank of Singapore’s
Gemini project (Singapore), ING/Postbank (Netherlands) and telcos including
TeliaSonera (Finland/Sweden), SingTel (Singapore) and Vodafone.
Figure 4 depicts the different market entry strategies of different players and
considerations that each might have.
15
“Mobile payment’s growth challenge”, Forrester, July 2002
16
www.mobipay.com
17
http://mpay-bill.vodafone.co.uk/
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18
Adapted from Mobipay presentation at “Paying in a Mobile World”, EFMA conference, Jan 2003
19
www.paybox.net
20
www.mobipay.com
21
The concept of a beach-head segment – as an initial market leading to follow-on markets, was adopted from Geoffrey Moore’s
Crossing the Chasm and Inside the Tornado.
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What guides m-payment providers in their selection of wireless access and payment
offering? While all wireless technologies such as WAP, SMS and IVR technologies and
the various payment methods have been available in the market since 1999, the
technological uncertainty relates more to the suitability of these wireless technologies for
different m-payment applications. To illustrate, the eNETS m-payments trial in Singapore
revealed the unsuitability of SMS for movie-ticketing.22 To use SMS for m-payments, a
consumer needed to send at least six SMS messages (cinema location, time, day, movie
show, username and password) to the cinema to define a movie ticket. At a cost of five
cents per SMS, this cost 30 cents – or 3% of an average ticket price. From the cinema’s
perspective, the messages sent to the consumer would also cost the company a total of 30
cents for each transaction. Such variable costs were exacerbated when the cinema
realized that a number of consumers were using the m-payment service to enquire about
movie information and were abandoning the transaction at the confirmation stage! Annex
B compares the user-interface of a movie-ticketing service using SMS and WAP.
In selecting the payment method(s) for the service, m-payment providers need to consider
the different revenue as well as market implications associated with each payment
methods. For example in countries such as Singapore and UK, online credit card
merchant rates typically fell in the range of 3-5% of transaction value while mobile
22
“Mobile Payments Call for Collaboration”, March 2003, Infocomm Development Authority of Singapore, www.ida.gov.sg.
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Annex C provides further details of differences in payment and wireless access methods.
Beyond recognizing these attributes, m-payment providers would need to know the
consumer willingness to pay for each of them. In other words, if Figure 6 was indeed a
correct positioning map of m-payments, one needs to find out how much consumers
would pay for the convenience and speed net the cost of “losing” the perceived reliability
and security.
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Till now, our discussion of available substitutes had revolved around the perspective of a
consumer. Evidently, a similar framework to evaluate the value attributes and willingness
to pay should also be applied to others parties that are impacted by m-payments including
the merchants, mobile operators and payment providers.
Another aspect of competition is that of value creation and value capture. In the case of
m-payments, a symptom of this can be found in the different m-payment standards that
are competing today. Figure 8 below summarizes the different m-payments standards
bodies while Annex D provides further details of each of these standards organizations.
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We believe that the presence of competing standards reflects the concerns that players in
the industry possess over value creation and value capture. If banks and payment
providers invest in m-payments, it is in their interests to promote standards which ensure
that other players such as mobile operators do not capture a disproportionate share of the
value created. After all, for every m-payment transaction that is performed, mobile
operators will stand to benefit from additional airtime generated. Moreover, since mobile
operators own the telecommunications conduit and customer SIM cards24, they are in a
strong position to build on early awareness generated by other players to then sell new m-
payment services to consumers. Likewise, mobile operators will be cautious about
promoting any m-payment standards that cause “lock-ins” to particular financial
instruments that are bank-centric such as debit cards. Yet, mobile operators know that for
higher value goods such as airplane tickets, fines and bill payments, there are often
regulations preventing non-financial institutions from collecting payments on behalf of
merchants. In such cases, mobile operators need to leverage on banks and payment
providers while being mindful about not giving away too much value to them.
23
Information of standards bodies from “Overview of Mobile Payment Standards Initiatives”, Forrester, March 12,2003
24
In countries such as Singapore, SIM cards provided to mobile customers are contractually “rented” and not owned by the customer
and mobile operators often own the right to send new applications Over-the-Air to subscribers.
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One exit strategy for m-payments companies has been to launch the service as a “trial” or
“pilot” involving a limited set of customers and partners. Examples of this include m-
payment trials such as the Gemini trial (a dual-chip Person-to-Person payment trial) in
Singapore or the Nordea trial in Finland. The signalling thus is that the company and its
partners retain the right to discontinue the project, and as expected, such approaches are
more typical of m-payment projects initiated from larger organisations whose aim is to
experiment with the technology and whose core business is not in m-payments.
Another possible exit strategy is to switch the positioning of the company both in terms
of business model and market segments in the m-payments market. Paybox, a widely
touted m-payment pure play success in 1999 and early 2000s, became an equally
highlighted casualty in 2003. After failing to secure new funding from lead investor
Deutsche bank, Paybox has since changed its business model from being a service
provider to a technology provider. In most of its markets thus, Paybox today no longer
markets to consumers, but sells instead to enterprises by helping them deploy m-payment
solutions25.
Another aspect of operational uncertainty relates to the timing of market entry and
marketing investments. As we had shown at the start of the paper, there have been a
number of m-payment trials and commercial launches since 1999. A company that is
launching an m-payment service today is likely no worse off than the early-movers, given
25
http://www.payboxsolutions.com
26
“White Paper on Micro-payments”, GSM Association, July 2002, www.aecomo.org/kbase/library/documents/mcig016_02r5.pdf
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the still nascent state of industry in spite of the investments already made by the pioneers
to generate early awareness.
We will show in the next section how this framework may be applied in assessing the
expectations for Simpay – an m-payment service due to be launched in early 2005.
27
The expectations funnel is a framework developed by the report writers. It ties together the five areas of uncertainties discussed in
the report (and in class) and shows how it can be used to quantitatively lead to realistic expectations for an innovation.
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In its first press release, Simpay stressed that its objective was to create an open and
interoperable framework for mobile payments. As CEO of Simpay, Tim Jones said,
“Simpay will be easily identifiable in our key markets for its convenience and reliability.
Our aim is to see it on music websites, when making a flight booking or when paying a
bus fare.”28 Soon after its formation, Simpay announced that its first product would be
available for commercial launch in early 2005. This first product would be aimed at
enabling m-payments under 10 Euros and Simpay expected that, “thanks to its
interoperability of its platform, it will enable over 1 billion Euros of extra transactions
for the mobile phone industry by 2007”.29
Given the timing of its formation, in the midst of a cycle of hype and disappointments
experienced by the m-payments industry, Simpay’s formation has expectedly been met
by mixed reviews. Table 3 lists some industry reviews of Simpay to date.
“…new billing systems, including Simpay, will further enrich payment options for ‘browse and buy’
services”, TelephonyWorld, April 2004.
“…"Pay for stuff with your mobile." That's the simple tag line from Simpay, but its impact could be
significant if projections by the founders of Simpay are any indication…” Billing World, Dec 2004
“..If mobile content is really going to take off, content will have to be accessible to mobile users in many
different areas, including outside the operators' own portals. To enable that to happen, four operators
bonded together a little over a year ago to form what is now called Simpay….”, Mobile Europe, Aug 2004
“The emergence of Simpay the mobile payments company and proposed clearing house set up by
Vodafone, T-Mobile, Orange and Telefonica Moviles earlier in 2003, may well become the catalyst for the
establishment of de facto standards in the next 12 to 18 months. This in turn will make mobile payment
systems more attractive for content/service providers and consumers alike.”, Forrester, September 2003.
“But Simpay raises as many questions as answers. First off, what’s the incentive for retailers and
consumers to use something like this in the face of something as simple as reverse-charging or premium
28
Simpay press release, 23 June 2003
29
Simpay press release, 24 Feb 2004
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“the MPSA (old name of Simpay) signals a new approach. The operators have realized that mobile
payments are not a source of competitive advantage and that they will benefit from a single standard”, The
Economist, March 2003
Table 3. Selected industry reviews of Simpay
At the time of writing of this report, Simpay has not been launched though it is expected
to do so “by early 2005”.
In the remaining part of this report, we apply the expectations funnel framework in
answering the following questions: Is Simpay’s goal of enabling 1 billion Euros of
transactions by 2007 realistic? How will Simpay’s investments compare to its expected
profits by 2007?
In the worst-case scenario till 2007, we expect that Simpay will only be able to tap on the
customer bases of Vodafone, Orange and T-Mobile in the UK. This is possible for the
following reasons: First, the UK is the only country where at least three of the mobile
operators (Orange, Vodafone and T-Mobile) have market shares (see Figure 10 below).
30
Simpay FAQs Q4 “Why is the membership limited to mobile operators?”, www.simpay.com
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Secondly, the fact that the company is London-based shows management’s interest in UK
at least as an initial market. Thirdly, Simpay has indicated that it will focus at least
initially on the European market. 31 Lastly, should it over-extend itself in the first three
years of launch, it will have to contend with dilution of its marketing as well as content
sourcing efforts.
In the best case scenario, Simpay will launch in three markets – specifically UK,
Germany and Spain. These are the three markets where at least two operators have
interests. These operators will thus be more willing to direct Simpay’s marketing
resources in seeking content providers for Simpay’s business.
Exhibits 1a and 1b list our expectations of the the market size potential due to the
partnerships in both scenarios.
Simpay has made it clear that its initial market segment is the micro-payment market of
mobile entertainment goods that are below 10 Euros:
“Over time with Simpay, you will be able to buy all sorts of stuff through your mobile either online or in
the shops. At first you will be able to buy things like music, ringtones and games by putting them on
your mobile phone bill. In the future Simpay also expects to work as an alternative to cash as well as
enabling you to buy higher price items such as flights and cinema tickets but billing them to your credit or
debit card.” – www.simpay.com
31
http://www.simpay.com/about.php
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By doing so, Simpay has explicitly selected a sub-set of mobile users which Forrester
categorizes as “fun fanatics” - consumers who use the phone mainly for entertainment, in
addition to voice calls. Simpay will thus exclude other segments of users including
“wireless enterprise” users who use the mobile for business productivity, “utility
workers” who are heavy voice and SMS users not keen in additional functionality, and
“mobile masses” that use almost exclusively voice. In 2002, it was estimated that “mobile
masses” made up 55% of the Europe market, followed by “utility workers” (16%),
“wireless workers” (15%) and “fun fanatics” (14%).32 We feel that the follow-on
potential of mobile downloads to other non-“fun fanatics” segment is limited as the usage
of micro-payments for mobile downloads differs significantly from macro-payments for
all other m-commerce transactions such as “flights and cinema tickets” as planned by
Simpay. This is because macro-payments often requires credit card or debit card
payments and additional user registration. To the user thus, these changes will mean
entirely new sets of user-interfaces and trust expectations.
Exhibits 2a and 2b list our assessment of the market size potential due to two different
growth rates of the “fun-fanatics” segment in the mobile market.
The third aspect of market entry uncertainty is the conversion rate – that is, the
percentage of browsers who actually purchase using Simpay. In assessing the impact of
conversion rate on market sizing, we apply a lower bound of 5% for the worst-case
scenario and 38% for the best-case scenario. The former comes about from articles
mentioning that conversion rates of WAP shopping sites are often in the “single digits”.
The latter is derived from the presence of softwares in the market which claim to achieve
higher conversion rates of up to 38% for WAP shopping sites. 33 As a reference, the
conversion rate for PC/Internet purchases on Amazon is estimated at close to 8%.34
32
Consumer Technographics Q2 2002, European Study, Forrester, October 2002. While there may be some overlap in these segments
(e.g. “fun fanatics” and “wireless workers”), Forrester’s sizing added to 100% and we assume that they have counted each user as
belonging only to one predominant category.
33
Silk Mobile, www.symbianone.com/content/view/1452
34
Case Study of Amazon, Sigma Consultancy.
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Figure 11. SimPay’s current positioning of wireless access and payment method
Simpay’s choice of bill-on-behalf as a payment method not only leverages on its telco
partners’ existing billing channels, but is also suitable for micro-payment goods given the
relatively lower risks of such goods. Moreover, since bill-on-behalf is present for every
pre-paid and post-paid subscriber (in the case of pre-paid subscriptions, the value of the
mobile content is deducted off the pre-paid value), this payment method ensures minimal,
if at all, dilution of Simpay’s customer base.
Simpay’s choice of WAP as a means of wireless access35, however, implies that its
success will be dependent on the take-up of WAP and 3G in its markets. As of 2003,
WAP usage in Europe has been estimated at close to 9%.36 Figure 12 shows the growth
of user adoption in WAP since 1999.
35
www.simpay.com
36
Centre of Economic and Tourism Research, www.crt.dk/uk/staff/chm/wap/sms.pdf
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Exhibits 4a and 4b outline our worst and best-case projections of WAP adoption in UK,
Spain and Germany – a technology uncertainty that will impact Simpay’s market size.
As shown below in Figure 13, every mobile content purchase entails at least three
processes – browsing, purchasing and fulfillment. Of these, the browsing and purchasing
channels employed by mobile content providers may differ for reasons including pricing
considerations and usability issues.
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Figure 13. Options for browsing, purchasing and fulfillment and 3 examples of option choices
Simpay’s WAP billing service thus competes with other purchasing methods currently
available for mobile content. Specifically, its main competition in this space are the
existing micro-payment methods including premium SMS and pre-paid credits.37 Annex
E compares the different user interfaces between Simpay, premium SMS billing and pre-
paid credits (on the Internet) for the purchase of mobile content.
Comparing WAP-based billing, premium SMS billing and payment via pre-paid credits
from a consumer perspective, it is likely that a WAP-based billing method will be as
convenient, affordable and perceived to be as reliable as premium SMS billing.38 WAP
billing will also likely be more convenient than pre-paid credits which require users to
pre-register and top-up However, WAP-based billing systems like Simpay will have to
gain familiarity and acceptance with users who have long been accustomed to premium
SMS systems employed by the majority of content providers today. Figure 14
summarizes the tradeoffs from a consumer’s perspective.
37
“Wireless Content Services: Interesting Content and Optimized Billing Will Separate Winners From Losers”, Forrester, June 2002.
38
While the authors are aware of that technically, SMS (a best effort delivery protocol) is often considered less reliable as WAP, SMS
delivery systems have got to the point that users rarely lose SMS in normal day-to-day communications, much less premium SMS.
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From a merchant perspective, the key benefit that Simpay has promised is “a reduction of
costs by up to 20%.”39 As a benchmark, in the UK, when a user sends or receives a
premium SMS priced at 1.50 pounds, the content provider gets paid roughly 80-95 pence
(50-60%)40. Simpay should thus leave more than 60% of revenues to the content
providers. We believe the costs structure to merchants for premium SMS and Simpay’s
WAP-billing will be as in Table 3 below.
With Premium SMS
Range
53% to
Content Providers 63%
37% to
Mobile Operator 47%
With Simpay (Based on expected 20% reduction in costs for content provider)
Range Average
60% to
Content Providers 80% 70%
12% to
Mobile Operator 32% 22%
Simpay 0% to 16% 8%
(1) Content provider revenue share from "Will Simpay be that Simple?", The Feature, Aug 2003
(2) Mobile Operator revenue share from "Simpay eyes alternative way to bill for content", RCR Wireless,
April, 2004
(3) 20% improvement from "Simpay announces new brand plans", New Media Age, Oct 2004
Table 3. Comparison of expected revenue shares between premium SMS and Simpay
39
“Simpay announces new brand plans”, New Media Age, October 2004.
40
“A new carrier body hopes to promote a common m-payment system, but will it work?”, The Feature,
Aug 2003.
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Given the above comparison of Simpay’s WAP billing with existing premium SMS and
pre-paid methods, we estimate that Simpay will only be able to capture up to 20% of the
mobile content market by 2007 in the worst case and up to 50% of the mobile content
market in the best case from its competitors. Exhibit 5a and 5b details our expectations
of the impact on alternative billing methods on Simpay.
Another aspect of competitive uncertainty is the fact that Simpay targets off-portal sites
(i.e. sites that are not directly linked from an operator portal).
"With Simpay, end-users can buy from a much wider range of off-portal sites owned by content providers
dealing with other telcos but with no Vodafone UK relationship. Content providers with a relationship with
Vodafone UK off-portal can reach end-users from all other participating telcos: thus Simpay will enable
growth of the mobile payments market”, - Susie Lonie, senior product manager for Vodafone UK41
From the above quote, it is likely that this market segment boundary was drawn as a way
to avoid cannibalising the founding operators’ existing revenue from WAP and premium
SMS billing on their portals. What are the implications of this on Simpay’s market size?
To understand this, we first examined the differences between off-portal and operator
WAP sites in terms of customer access.
41
“Put the tab on my mobile”, May 2004, http://money.guardian.co.uk/phones/
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As Figure 16 above shows, there are at least two implications of this market
segmentation: First, it is likely that Simpay will not operate for WAP sites that are within
the operator portals. This is because an operator such as Vodafone has little reason to
share its revenues with other operators in the Simpay alliance if its users access the
content through its portal. As may be expected, operators such as Vodafone are extremely
protective over their portal revenues. For example, Vodafone's WAP pricing is around 7
times more expensive for subscribers who surf off-portal compared to those who surf
within Vodafone Live!42 In addition, when Vodafone launched its 3G service, it charged
its users who surf outside its portal, but made it free for users who browsed within the
Vodafone Live! portal.43 Secondly, the top-tier content providers such as Disney, MTV,
Sony will likely not be Simpay’s customers since these big brands often prefer to market
with the operator portals instead of off-portal. In the best case, Bango.com – an off-site
portal predicts that 40% of WAP traffic will be off-site by 2007.44
Accounting for the differences between off-portal and operator portal WAP sites, we
anticipate that 7% and 40% of WAP traffic will be off-portal in the worst-case and best-
case scenario respectively by 2007. Exhibit 6a and 6b details the impact of market size
due to this uncertainty of WAP-site traffic destinations.
42
“High charges hit users leaving Vodafone Live! portal”, The New Media Age, Oct 2003
43
http://www.mobile-weblog.com/archives/vodafone_pricing_and_strategy.html
44
“Off-portal – the new holy grail”, http://bango.com/news/materials/offportal_1004.pdf
pg 25 of 46
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Given this structure, it is likely that the four mobile operators are shielded at least
financially from the shut-down of Simpay, should this need arise. In this area, we also
made estimates of the likely burn-rate of Simpay. This will be used later to assess the
likelihood of shut-down (regardless of its ability to achieve 1 billion Euros of
transactions). As shown in Exhibit 7, the annual operating costs of Simpay is
conservatively estimated at around 800,000 Euros annually.
In this aspect of operational uncertainty, we expect close to zero impact on the market
share of Simpay given the lobbying clout of the four large European mobile operators.
45
www.companyregistrations.co.uk. Underlines are made by the report writers.
46
“Mobile phone charge system hindered by banking regulations”, Nov 2003, Computer Weekly.
47
www.simpay.com FAQs Q18.
pg 26 of 46
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Also,
• In the worst case scenario, Simpay’s annual revenues at 2007 is estimated at
39,000 Euros. This represents a loss of 2.3 million Euros for Simpay by 2007.
• In the best case scenario, Simpay’s annual revenues at 2007 is estimated at 3.4
million Euros. It is in this situation that Simpay is close to break-even after 4
years of being in the market.
As such, there is a possibility that Simpay will break-even after 2007. However, its
management should not expect it to do so before 2007.
4.0 Conclusion
In preparing this report, we also considered the impact of the 4i framework and how it
complements the use of the expectations funnel. While we do not provide details of this,
the different risks impacting the 4i framework will also certainly change the shape of the
funnel. To illustrate, we pointed earlier that Simpay intends to (eventually) launch with
macropayment methods involving credit cards/debit cards. When this is done, this
increases the interdependence risks and fattens the “value tree” horizontally. This may
on one hand, increase Simpay’s expectations due to heightened market entry expectations
(more initial market segments), yet on the other shrink expectations due to a potentially
smaller cut in revenue share.
pg 27 of 46
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pg 28 of 46
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1. SMS-a-Movie
2. SMS-A-Movie (Shortcut)
pg 29 of 46
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3. WAP-a-Movie
Source: Diagrams from eNETS (www.enets.com.sg), for the purchase of Eng Wah Cinema tickets in
Singapore
pg 30 of 46
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Merchant
- User Base > Age 21, >$30K No. of Bank customers Varies with Payment No. of Mobile
annum Provider subscribers
- Transaction Limits Non other than credit Varies with Bank Varies with Payment Limited. Mobile Operators
limit Provider typically impose limits due to
financial risks.
Consumer
- Convenience in Usually requires Usually requires Usually requires Registration No additional registration
Registration and Top- Registration Registration and Top-up of card
up Process
- Availability > Age 21 Usu. Internet Banking No age restrictions Post-paid customers
Customers
- Liability Usu. as per online (PC) Usu. as per online (PC) Stipulated by payment As per online (PC)
transaction transaction provider transaction
Table 1. Comparison of payment methods
Potential Consumer Base Consumers with SMS- Consumers with WAP 3 million mobile Consumers with Bluetooth- /
capable phones (IDC est (GPRS/CSD) phones. subscribers Infrared enabled devices
95% of subscribers)
Source: Rates shown are estimates of market rates in one sample country – Singapore, in
2002.
pg 31 of 46
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SimPay (Formerly Mobile Payment Services Association): This initiative was announced
on February 26. SimPay is a limited company, set up by mobile operators Vodafone,T-
pg 32 of 46
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Mobile, Orange and Telefonica. The aim is to establish "an open, commonly branded
solution for payments via mobile phones" that works across boundaries and networks;
other mobile operators have indicated an interest in joining. Participation in existing
standards initiatives on the part of the individual mobile operators is being maintained, as
the aim is to ensure interoperability with other developments.
pg 33 of 46
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c) d)
pg 34 of 46
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e) f)
g)
source: www.simpay.com
pg 35 of 46
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a. Obtain the code for the ring-tone (either by SMS or sometimes as advertised on TV or
newspaper ads)
b. Order the ring tone by sending a SMS. The cost of the content is built into the premium
SMS and is deducted off the phone bill.
pg 36 of 46
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Source: www.aol.com
pg 37 of 46
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In this worst case scenario (1a), we assume that Simpay only manages to launch in the UK, with three operators - UK, Orange and T-Mobile
up till 2007.This is a possibility given that the UK market may be first used as a "trial" site for Simpay. Moreover,
2001 2002 2003 2004 YOY Growth 2005 2006 2007
Number of subscribers (000s)
Vodafone UK 13,947 15,241 9% 16,655 18,200 19,889
Orange UK 12,387 13,312 14,306 15,374 7% 16,522 17,756 19,082
T-Mobile UK 13,600 15,700 15% 18,124 20,923 24,154
Total Simpay base 51,302 56,879 63,125
Note: (1) Figures highlighted in yellow are figures from annual reports of respective operators
(2) 2005,2006,2007 subscribers estimates based on YOY estimated growth rates
In this best case scenario (1b), we assume that Simpay manages to launch with all four operators, but in UK, Germany and Spain only by
2007. This is a realistic best case given that Simpay's marketing efforts needs to initially focus on a few markets. Eve
2001 2002 2003 2004 YOY Growth 2005 2006 2007
Number of subscribers (000s)
Vodafone UK 13,947 15,241 9% 16,655 18,200 19,889
Orange UK 12,387 13,312 14,306 15,374 7% 16,522 17,756 19,082
T-Mobile UK 13,600 15,700 15% 18,124 20,923 24,154
Simpay base in UK 46,315 51,302 56,879 63,125
pg 38 of 46
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In this worst case scenario , we assume that Simpay will have to continue to focus on the segment of the mobile market that is only keen on mobile
entertainment downloads for micropayments till 2007. This assumption is reasonable given that there is little
2002 2003 2004 2005 2006 2007 Implicit CAGR
"Fun Fanatics" (In addition to voice
calls, use mobile mainly for
entertainment. This is Simpay's
target market till 2007 under this
scenario) 14% 15% 15% 16% 17% 18% 5%
"Wireless Workers" (In addition to
voice calls, use mobile mainly for
business productivity) 15% 16% 17% 17% 18% 19% 5%
"Utility workers" (Heavy voice and
SMS users, not intereted in
additional functionality) 16% 18% 19% 21% 23% 26% 10%
"Mobile Masses" (Low levels of
mobile usage - use almost
exclusively voice) 55% 52% 49% 45% 41% 37%
Total 100% 100% 100% 100% 100% 100%
Note: (1) 2002 segmentation of customers given by Forrester’s Consumer Technographics Q2 2002 European Study
While we note that this segmentation seems to suggest that these 4 segments are "mutually exclusive", when they may not,
(eg some "fun fanatics" might also be "wireless workers"), we assume that the segment lines are drawn based on predominant behaviour
(2) We are also making a strong assumption that customers across Germany, UK and Spain have similar usage behaviour.
In this best case scenario, we still assume that Simpay will have to continue to focus on the segment of the mobile market that is only keen on mobile
entertainment downloads for micropayments till 2007. This assumption is reasonable given that there is l
2002 2003 2004 2005 2006 2007 Implicit CAGR
"Fun Fanatics" (In addition to voice
calls, use mobile mainly for
entertainment. This is Simpay's
target market till 2007 under this
scenario) 14% 15% 17% 19% 20% 23% 10%
"Wireless Workers" (In addition to
voice calls, use mobile mainly for
business productivity) 15% 16% 17% 17% 18% 19% 5%
"Utility workers" (Heavy voice and
SMS users, not intereted in
additional functionality) 16% 18% 19% 21% 23% 26% 10%
"Mobile Masses" (Low levels of
mobile usage - use almost
exclusively voice) 55% 51% 47% 43% 38% 33%
Total 100% 100% 100% 100% 100% 100%
Note: (1) 2002 segmentation of customers given by Forrester’s Consumer Technographics Q2 2002 European Study
(2) We are also making a strong assumption that customers across Germany, UK and Spain have similar usage behaviour.
pg 39 of 46
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In this worst case scenario , we assume that Wap users who browse actually do very little purchasing. An estimate of a low conversion rate is that it
is in its "single-digits". Just as a basis of comparison, the percentage rate of browsers who actually buy
2005 2006 2007
% of Wap users who will actually
purchase 5% 5% 5%
Note: (1) "single-digit" estimate from "Silk Cards launch with 37.5% conversion rate", Silk Mobile,www.symbianone.com/content/view/1452/
5% conversion rate was used as a median for "single-digit" estimate.
In this best case scenario , we assume that Wap users who browse actually do higher level of purchasing. Assuming best-case, where intelligent
heuristics is used, "In a UK pilot last year, a global operator used a software (Silk Cards) to demonstrate its m
2005 2006 2007
% of Wap users who will actually
purchase 38% 38% 38%
Note: (1) 37.5% conversion rate was achieved by use of a software (and was claimed as a good conversion rate).
Silk Mobile,www.symbianone.com/content/view/1452/
pg 40 of 46
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In this worst case scenario , we assume homogenous Wap usage and growth across all markets in Europe. In this case, we assume that WAP / xHTML
adoption grows at a rate of 50% annually.
2001 2002 2003 2004 2005 2006 2007
% of WAP users (among mobile
users) 4% 6% 9% 14% 20% 30% 46%
Annual Growth 50% 50% 50% 50% 50% 50%
Note: (1) 2001-2003 WAP user numbers from Centre of Economic and Tourism Research, Denmark. http://www.crt.dk/uk/staff/chm/wap/sms.pdf
Note: (1) 2001-2003 WAP user numbers from Centre of Economic and Tourism Research, Denmark. http://www.crt.dk/uk/staff/chm/wap/sms.pdf
pg 41 of 46
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Exhibit 5a - Expectations of market size due to Competition (WAP billing vs alternative billing methods)
In this worst case scenario , we assume minimal merchant adoption of Simpay vs existing methods of billing specifically premium SMS and
reverse billing, and Internet billing. Pls see our comparison of alternative billing methods to see the pros and cons of
2005 2006 2007
% of off-site merchants adopting
Simpay 5% 10% 20%
Note: (1) Percentage of off-portal traffic is based on assumptions and industry conditions as spelled out above in the scenario.
Exhibit 5b - Expectations of market size due to Competition (WAP billing vs alternative billing methods)
In this best case scenario , we assume high merchant adoption of Simpay vs existing methods of billing specifically premium SMS and reverse
billing, and Internet billing. Pls see our comparison of alternative billing methods to see the pros and cons of Sim
2005 2006 2007
% of off-site merchants adopting
Simpay 10% 25% 50%
Note: (1) Percentage of off-portal traffic is based on assumptions and industry conditions as spelled out above in the scenario.
pg 42 of 46
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Exhibit 6a - Expectations of market size due to Competition (Off-portal vs Operator portal sites)
In this worst case scenario , we assume minimal off-portal traffic. Note that when Vodafone's WAP pricing is estimated 7 times more expensive if
off-portal compared to within Vodafone Live!. In addition, when Vodafone launched its 3G service, it charges it
2005 2006 2007
% of WAP traffic off-portal 1% 3% 7%
% of WAP traffic within operator
"walled garden" 99% 97% 93%
Total 100% 100% 100%
Note: (1) Percentage of off-portal traffic is based on assumptions and industry conditions as spelled out above in the scenario.
Exhibit 6b - Expectations of market size due to Competition (Off-portal vs Operator portal sites)
In this best case scenario , we assume off-portal traffic will be boosted to the same extent predicted by off-site portal www.Bango.com. Ie that 40%
of traffic will be off-portal by 2007. This may happen if for example, wireless takes the same route as PC/
2005 2006 2007
% of WAP traffic off-portal 5% 15% 40%
% of WAP traffic within operator
"walled garden" 95% 85% 60%
Total 100% 100% 100%
Note: (1) Percentage of off-portal traffic in 2007 is based on "Off-portal, the new holy grail" http://bango.com/news/materials/offportal_1004.pdf
(2) 2005 and 2006 estimates are report writers' estimates.
pg 43 of 46
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Based on
estimated
2003 2004 2005 2006 2007 YOY Growth
Role Previous Position Est. Annual Salary (Euros)
David Taylor CEO VP at Orange UK 150,000 156,000 162,200 168,800 175,500 4%
Director of an
international IT
Simon Richards COO consultancy 120,000 124,800 129,800 135,000 140,400 4%
Head of m-Commerce
Jim Wadsworth CMO at Vodafone UK 120,000 124,800 129,800 135,000 140,400 4%
Formerly C&W Finance
Penny McCulloch CFO Director 120,000 124,800 129,800 135,000 140,400 4%
Employee 1 50,000 52,000 54,100 56,200 58,500 4%
Employee 2 50,000 52,000 54,100 56,200 58,500 4%
Total Estimated
Personnel Costs 610,000 634,400 659,800 686,200 713,700
equivalent of one
Contract with PR company employee 50,000 52,000 54,100 56,200 58,500 4%
pg 44 of 46
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g. - of which % will use off-site WAP sites 1% 3% 7% Exhibit 6a Competitive uncertainty: Off-site vs
portal sites
h. - of which chances that Simpay will be 100% 100% 100% Nil Operational uncertainty: Regulatory
allowed to operate under no new regulatory
restrictions
i. Realistic market size for Simpay (000s 4.21 14.70 51.39
subscribers)
(i=a*b*c*d*e*f*g*h)
j. Avg value of each mobile download 1.9 1.9 1.9 Estimate based on transactions from Bango's
transaction on Bango (an off-portal site) (in (www.bango.com) off-portal sites. Value = US$2.41 (1
Euros) Euro=1.2 US$)
www.openwave.com/us/openwave_iq/inside_the_wave/2
004/december/opportunities.htm
pg 45 of 46
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Exhibit 8b - Expectations of market size (best-case) due to expectations in market partnerships, initial segment, technology and competition
Pls see Exhibits 1b-6b for assumptions made for Best Case Scenario
2005 2006 2007 Source/Referenc Area of uncertainty
a Simpay base from partnerships (000s 143,289 156,572 171,204 Exhibit 1b Market entry uncertainty: Partnerships
subscribers)
b - of which % of "fun fanatics" 19% 20% 23% Exhibit 2b Market entry uncertainty: Initial
segment
c - of which % are WAP users 23% 37% 59% Exhibit 4b Technological uncertainty: Wireless
Access method
d - of which conversion rate (from browsing to 38% 38% 38% Exhibit 3b Market entry uncertainty: Conversion
buying is) rate
e - of which % are enabled by bill-on-behalf for 100% 100% 100% Nil Technological uncertainty: Payment
micropayments method
f - of which % will use off-site WAP sites 5% 15% 40% Exhibit 6b Competitive uncertainty
g - of which % will use WAP sites enabled by 10% 25% 50% Exhibit 5b Competitive uncertainty
Simpay
h - of which chances that Simpay will be 100% 100% 100% Nil Operational uncertainty: Regulatory
allowed to operate under no new regulatory
restrictions
i Realistic market size for Simpay (000s 31 444 4,554
subscribers)
(i=a*b*c*d*e*f*g*h)
j Avg value of each mobile download 1.9 1.9 1.9 Estimate based on transactions from Bango's
transaction on Bango (an off-portal site) (in (www.bango.com) off-portal sites. Value = US$2.41 (1
Euros) Euro=1.2 US$)
k Assuming each user makes 5 purchases in a 5 5 5 / / i /i id th /2
year,
Value of transactions passing through 292,210 4,214,740 43,259,567
Simpay (Euros)
(where l=i*j*k)
pg 46 of 46