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Telecommunications, Media, and Technology

Monetizing mobile:
Making data pay
By: David Arcelus // Miguel Fonseca // Joao Leonardo //
Jos Miguel Novo // Pierre Pont

June 2014
Copyright McKinsey & Company, Inc.
Telecommunications, Media, and Technology
Monetizing mobile: Making data pay 2

Mobile data usage is booming, but revenues from digital trac are
not. Operators can capture more of datas full value by giving cus-
tomers what they really want.

Mobile datas strong growth continues to be across markets, with an eye toward identifying
impressive, but the revenues generated by this specic shareable approaches and techniques
tidal wave of digital trafc are less inspiring. While other industry players can use to get more out of
global mobile data trafc increased 40 times from their mobile digital investments.
2008 to 2013, the revenues associated with it
barely tripled (Exhibit1). Mobile data nevertheless
represents the strongest revenue growth oppor- Understanding datas importance by
tunity for operators, especially since the mobile market
voice business continues to decline as operators
move toward at-rate pricing and are disintermedi- McKinsey research suggests that after price, data
ated by over-the-top (OTT) attackers. has become the customers most important buy-
ing consideration. In fact, if we remove price from
One trend supporting mobile datas growth the equation, data volume and speed contribute
involves the increase in multi-device ownership, about 40percent of the remaining weight in a
which is causing the mobility needs of consum- consumers purchasing decision. This data prefer-
ers to expand into OTT, video, social networking, ence exists across both developed and emerg-
transactions, news, and other applications. On ing markets. Of the two attributes, volume plays
top of this, many the most signicant role by far, with the impact of
Less than 70% of operators have yet speed being quite limited (i.e., volume is more than
to tap into the digital ve times as important as speed). The third most
SIM cards in Ger-
markets full poten- sought-after attribute an operators brand is
many are used in tial. One analysis of the customers perception of an operators net-
smartphones with the German market work quality and the network effect, which itself
data plans shows that, out of a relates quite closely to the data experience.
total SIM card base
that equals 100percent, customers use less than To understand market differences better, McKinsey
70percent of them in Internet-enabled handsets has developed three distinct market segments
with data plans. Only half of these saw monthly (Exhibit 2).
trafc that exceeded 0.1gigabyte (GB) and just a
third had trafc greater than 0.5GB. Heavy data markets. Data volume is the main
decision driver for customers and they are ready
Consequently, operators need to understand in to pay for it. Telcos operating in these markets
detail how to boost their data monetization efforts, should offer increasingly more to their customers
achieve greater protability and accelerate growth. in the way of data-centric plans. Add-ons and ex-
To this end, McKinsey initiated a global conjoint ceptional service will enhance their mobility experi-
analysis to determine what customers really want ence and help ensure that ARPU is maintained or
(and are willing to pay for) when it comes to data. perhaps even increased.
This research draws heavily on McKinseys exten-
sive experience in conducting pricing and portfolio Mature/commoditized data markets. Data pricing
reviews. The objective was to chart the similarities has become the most relevant factor for subscrib-
3

Data revenues are not keeping pace with trafc


Mobile data, global "@OHS@KHMSDMRHSX
B@ODWQDUDMTDR

Growth factor,
2008 - 2013
7.9
Data traffic
46x
(TB millions)
6.7

 

(MBQD@RHMFF@OADSVDDM
SQ@EjB@MCQDUDMTDR
 

   Data revenues


  97   3x
 (EUR billions)
66

2008 2009 2010 2011 2012 2013

18% 17% 16% 16% 17% 16%

2.41"$"HRBN&KNA@K,NAHKD#@S@3Q@EjB%NQDB@RS8@MJDD .UTL3DKDBNL  M@KXRHR,@RNM


Exhibit 1

ers, with data having lost most of its perceived the smartphone base increases, network quality
value since operators offer similar, quasi-unlimited improves, and mobile usage becomes more per-
data bundles across the board. Typically, operators vasive, subscribers increasingly see the value of
are now only competing on price, continuously data. From here, these countries typically evolve
overbidding each other on how much data capac- into heavy data markets. Unfortunately, as compe-
ity they provide for similar or lower prices. In these tition increases and data becomes the key swing
markets, operators need to implement a market factor in customer decision making, competitive
repair (i.e., raise prices to more accurately reect dynamics start playing out and attackers start
datas value) and/or reinvent the data experience, dumping prices in order to regain market share
push new plans that will increase penetration, and and load their networks.
increase usage beyond current caps. Promoting
multi-device and family offers is a typical rst step. A markets location plays an essential role when
it comes to understanding how to monetize data
Emerging data markets. Data usage is still rela- and approach
tively low in these markets typically with limited The region de- customers. For
smartphone and/or data plan penetration. An instance, an opera-
operators brand is the main customer decision
termines whether tors brand strength
factor due to on- versus off-network prices and brand-, access-, strongly drives
network quality differences. Consequently, a or price-conscious consumer data
companys best data strategy is to pursue pay- choice in some
consumers drive the
per-usage and low-capacity bundling to encour- emerging markets
age consumer trial usage. mobile data market such as Brazil,
Chile, Mexico, and
Countries usually start their digital journeys with Russia. McKinseys research reveals that a con-
limited overall data capacity and minimal trafc. As sumers brand preference in these markets takes
Telecommunications, Media, and Technology
Monetizing mobile: Making data pay 4

Regions fall into three categories regarding data importance and supply

Relative data High


importance1 Singapore
Heavy data
markets

Australia
Malaysia

Spain Mature data


markets
Germany

Brazil
Emerging
Russia markets
Mexico markets
Chile
Low
Low High Data supply2

#DL@MCHMSDQDRSLD@RTQDCVHSGC@S@ODMDSQ@SHNMSHLDRSGDQDKDU@MBDNEC@S@@SSQHATSDODQBNTMSQXEQNLSGDBNMINHMS@M@KXRHR
2TOOKXLD@RTQDCVHSG@MCHMCDWA@RDCNMRL@QSOGNMDODMDSQ@SHNM@MCPT@KHSXNEMDSVNQJR@UDQ@FDADSVDDM"#1@MC&BNUDQ@FD

2.41"$,B*HMRDXOQNOQHDS@QXLTKSH BNTMSQXBNMINHMS@M@KXRHR -DSVNQJ0T@KHSX!DMBGL@QJ2SQ@SDFX M@KXSHBR /XQ@LHC1DRD@QBG


Exhibit 2

into account his or her price sensitivity due to three specic questions: How important is data
the high cost of off-network calls and the pro- versus other attributes at a granular, segment-
nounced quality differences among carriers. In the by-segment level? How can digital play elements
Malaysian and Singaporean markets, in contrast, be tailored to create a unique value proposition?
customers who value data above all else seek And how can that value proposition be promoted
access rather than brands and are the most im- across key building blocks such as voice, handset,
portant segment, comprising roughly 20percent and data allowance to optimize customer value
of the population. Here, companies should offer while not falling into the mature market trap?
data-centered plans with add-ons that improve
the mobile data experience. Finally, in mature data
markets like Germany, Spain, and Australia, price Profiles of the data consumer
plays the major differentiating role among con-
sumers due to the small differences in network McKinseys analysis of data pricing and portfolios
quality across operators and the wide availability and customer insights has revealed six primary
of data plans. To succeed in these markets, oper- consumer segments.
ators need to optimize their pricing and bundling
strategies to match customer preferences. Price seekers make up 38percent of the
population and include pure price seekers
More generally, experience suggests that play- (20percent) and value for money data seek-
ers can escape the highly commoditized mature ers (17percent).
market archetype by implementing a mix of actions
such as introducing new value propositions and Data lovers (22percent) include heavy data
innovative pricing plans. Operators seeking to el- at any price consumers (8percent), data-
evate their competitive game to this level and max- and brand-driven customers (5percent), and
imize customer value with data need to answer multi-device data lovers (9percent).
5

More than 40% of the population considers data a key factor in the buying decision

Percent of population
Segment Data importance Data-relevant segments

Pure price seekers (20) 7


Price seekers (38)
Value for money data (17) 31

Heavy data at any price (8) 48

Data lovers (22) Data and brand driven (5) 29


Data is a relevant
decision factor for
Multi-device data lovers (9) 32
43% of the population
Brand loyal (20) 12

Handset lovers (7) 19

Voice driven (4) 25

Flexibility seekers (4) 16

Avg. 21
2.41"$,B*HMRDXOQNOQHDS@QXLTKSH BNTMSQXBNMINHMS@M@KXRHR 
Exhibit 3

Brand-loyal consumers who make up Money-making mobile oers


20percent of the population value specic
operator brands. If the objective of mobile leaders is to replicate
the success of players in heavy data markets or
Handset lovers, at 7percent of the population, to avoid the value-destroying environment seen
will lock in service in order to obtain a specic in mature data markets, they need to nd ways
brand of smartphone. to offer customers more of the value they seek at
the right price. Doing so requires them to adopt a
Voice-driven consumers are 4percent of the data-centric value proposition strategically com-
total and tend to seek a combination of voice bined with other elements of the mobile plan.
and data services. The ideal offering will involve an optimum mix of
voice and data allowances as well as data speed
Flexibility seekers make up 4percent of the and handset strategies. All of these elements will
consumer market and those in this segment depend on the market situation.
perfer to avoid any commitments.
Voice. With voice service fully commoditized
Five of these subsegments view data as their rst in many markets, research shows that offering
or second decision factor, accounting for 43per- unlimited minutes
cent of the population (Exhibit 3). They include adds little incremen-
three clusters that collectively represent the data Data-centric plans tal value. In general,
lover segment multi-device lovers, heavy data that include tailored people do not want
at any price, and data and brand driven. The voice and device of- to pay for voice or
two other data-focused segments are value-for- for unlimited ser-
money and voice-driven data users. The ap-
ferings is a revenue- vice. Only the niche
proach to reach each will be slightly different. boosting recipe voice-driven cus-
Telecommunications, Media, and Technology
Monetizing mobile: Making data pay 6

Customers highly value having at least 1 GB, but unlimited data does not make a
big difference for most of them
$PTHU@KDMSLNMSGKX
LNMDS@QXU@KTD $41 ,TKSH CDUHBDC@S@KNUDQR 5@KTDENQLNMDXC@S@

#@S@@MCAQ@MCCQHUDM 'D@UXC@S@@S@MXOQHBD UDQ@FDQDRS


 Consumer requires a data plan
 data plans are a hygienic factor

 High incremental value perceived


up to 1 GB - higher capacity plans
 have only marginal value

 Only heavy data users (8% of the


population) perceive high value in
 unlimited plans


,! ,! &! &! &! &!6 4MKHLHSDC Data
capacity

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&!"GHKD@MC,DWHBN &!"GHKD@MC,DWHBN &!"GHKD@MC&!HM,DWHBN

2.41"$,B*HMRDXOQNOQHDS@QXLTKSH BNTMSQXBNMINHMS@M@KXRHR 

Exhibit 4

tomer segment (4percent of total users) are willing Data size. While conventional wisdom assumes
to pay a premium for unlimited service. consumers want unlimited data allowances,
research shows that most of the people in all of
Given these realities, operators have two basic the countries studied were satised with plans
choices depending on their competitive position that offered no more than 1GB of data a month
and market situation. First, they can offer unlim- (Exhibit4). Knowing this, operators can aggres-
ited voice to everyone. For this move, an operator sively price unlimited data plans for heavy data
would need to believe that without it, voice-driven users (about 8percent of the population) who are
customers will switch to competitors and that cus- willing to pay for them.
tomers in general will not increase the minutes they
use signicantly. This strategy will leave money on When designing data-centered plans, operators
the table for voice-driven customers who would should take into account three main guidelines.
likely pay more for unlimited voice. Second, an The rst is to offer low-cost bundles. These work
operator could offer unlimited voice as a premium well in markets where the lack of a data offering
service. For this strategy to succeed, operators can deter customers, where price-sensitive buy-
need to compete in markets with commoditized ers willingly trade-off some data for other benets,
voice service where most customers seek no more and where operators can charge a data activa-
than a thousand minutes of service per month. tion rate for new customers. Typical offers should
Also, the voice-driven segment should be willing to provide about 500megabytes (MB) of data. Next,
pay extra for unlimited minutes. operators will want to focus on mass-market
offerings. All customers, except heavy data us-
To identify which strategic choice makes the most ers, view 1GB data plans as being sufcient to
sense, operators need to understand their com- meet their needs. Plans ranging from 500MB to
petitors offers and their own relative strengths 1.5GB typically offer the right range of trade-offs
and weaknesses in this area. for mass-market and value-for-money data cus-
7

Value add-on service: Mobile datas VAS


Data-centered value propositions combine market- and segment-specific oerings in the categories of data
volume and speed, voice, handsets, and multiple devices. To add a boost toward achieving their growth
targets, operators can promote a variety of add-ons or bonus features to their oerings based on cus-
tomer interest and willingness to pay.

Data sharing gives multiple users on a single account access to one data allowance. McKinseys research
shows that there is high interest in and willingness to pay for this add-on across most countries. More than
60 percent of survey respondents indicated a willingness to pay for plans that share data across friends
and/or family members. High-value options involve oering it as a VAS available with regular plans or
selling packaged data plans that customers can share with friends and family.

Data volume limits are removed for the two apps the customer chooses, while maintaining regular plan
restrictions on other apps and Web browsing.

Speed boost can make sense even though most consumers do not value data speed as highly as volume.
McKinseys research shows that consumers do at times value the opportunity to secure guaranteed mini-
mum speeds. This has broader implications for operators oering currently unlimited data but with a
speed step-down (i.e., the speed throttles down beyond a certain usage) to create virtual upsell paths.

Additional data capacity gives users an insurance package for when they run up against their data vol-
ume allowance. It may also provide a guaranteed minimum percentage of a users contracted speed at all
times (e.g., 25 percent).

Content and applications are also add-ons that telecoms players might consider, although options such as
music streaming tend to generate low interest levels and low willingness to pay among consumers.

tomers in terms of price and data volume. Finally, heavy data lovers. Even these users, however, say
they will need to provide premium plans. These speed plays only a moderately important role in
deals offer 4 to 8GB of data, which only heavy their purchasing decisions. Therefore, operators
data users perceive as providing high levels of have two ways to take advantage of speed. First,
incremental value. The heavy data users segment they can go after the heavy data at any price
will pay as much as it takes to receive large or and multi-device data lovers segments. Repre-
unlimited data allowances. This segments willing- senting about 17percent of the population, these
ness to pay for unlimited data is 14times greater segments are willing to pay a little bit more to
than the average users. guarantee high speed and greatly value having ac-
cess to the fastest possible connections either all
Data speed. Speed does not play a major role in the time or on an ad hoc basis via speed boost-
customer purchasing decisions and the advent of ers (see text box Value add-on service: Mobile
4G has not changed this fact. As a result, most datas VAS). Second, they may decide to milk
customers will not willingly pay extra for higher the mass market. This remaining 78percent of the
speeds, making it a premium product only for market currently hesitates to pay for speed, but
Telecommunications, Media, and Technology
Monetizing mobile: Making data pay 8

operators could entice them by offering exclusive other benets such as a 25-percent discount for
services such as video streaming. the rst six months and provide the option of hav-
ing a preferred handset either sold separately or
Multi-device. In many markets, customers increas- bundled with a higher rate plan.
ingly seek more than one SIM card. Consequently,
the multi-device data lovers segment, at 9percent Simply receiving a new handset can cause con-
of total users, has become a sizeable cluster. In sumers to boost their data usage. In the UK,
fact, in some markets such as Brazil and Mexico, for example, data use jumped nearly 55per-
it represents almost 15percent of total mobile cent among customers who upgraded from one
Internet users. McKinseys research shows that generation of a specic smartphone to the next.
mass-market consumers will pay up to EUR4.20 The benets of putting newer smartphones in the
a month for an additional SIM, while those in the hands of customers have prompted some op-
multi-device data lovers segment would willingly erators to offer earlier upgrades, moving from a
pay up to EUR10 a month for two additional SIM 24-month cycle to 12 or even 5months.
cards. Because virtually everyone is willing to pay
for one extra SIM card, operators should consider In line with this strategy, a number of industry play-
bundling this feature in basic plans. For multi-de- ers have introduced new smartphone nancing
vice data lovers seeking at least two additional SIM to offset rising handset prices and reduce subsi-
cards, operators could consider pricing the third dies. Ideas such as leasing smartphones, splitting
SIM at a premium as a value-added service (VAS). contracts, and offering front- or back-end bank
nancing offer operators ways to limit subscriber
The multi-SIM approach gives operators a good acquisition and retention costs.
way to escape the commoditized middle ground
inhabited by the mature data countries. By offer- In important parts of the mobile market, data has
ing customers more than one SIM, operators can become a key reason for choosing one opera-
entice them to increase their digital consumption, tor over another. Consequently, leaders need to
causing more users to exhaust their data allow- recalibrate their strategies to accommodate this
ances each month and request additional capac- important market shift, and tailor the elements of
ity. Alternatively, telecoms players can choose their data go-to-market plans to create a uniquely
to penetrate households, keeping data capacity attractive value proposition.
limits high and charging extra access fees for
each additional SIM.

Handsets. As handsets have grown more sophis- The last six years have seen a dramatic rise in
ticated and expensive, some customers have the amount of data trafc, but this growth has
begun to look for SIM-only contracts. As a been accompanied by a relatively tiny increase in
result, two types of plays have potential. Telecoms revenues. Operators still have the opportunity to
players may decide to focus on the handset lov- capture bigger revenue rewards from the mobile
ers segment and nance high-end smartphones data revolution. With a granular understanding of
bundled with rate plans that are more expensive market differences as well as consumer prefer-
but not necessarily linked to large data allowanc- ences and priorities regarding data, operators can
es. There is also a mass-market option in which give their customers exactly what they want and at
operators create SIM-only offers in exchange for a price that reects datas real value.
9

David Arcelus
is an Associate Principal in McKinseys
Kuala Lumpur ofce.
david_arcelus@mckinsey.com

Miguel Fonseca Joao Leonardo


is a Principal in McKinseys is an Associate Principal in McKinseys
Lisbon ofce. Lisbon ofce.
miguel_fonseca@mckinsey.com joao_leonardo@mckinsey.com

Jos Miguel Novo Pierre Pont


is a Senior Associate in McKinseys is an Associate Principal in McKinseys
Madrid ofce. London ofce.
jose_miguel_novo@mckinsey.com pierre_pont@mckinsey.com