Mobile data ‘value add service’ companies, including apps advertising and content providers, which were so prevalent at Mobile World Congress (MWC), are under intense price pressure and must consolidate to build scale.
The App World section of the exhibition at MWC had 250 exhibitors alone this year, up more than 25% on last year, reflecting the enormous growth in small companies straining to find a profitable niche. Dozens of these companies have App as part of their name, reflecting the urgent clamour to achieve relevance and prominence.
There is an opportunity for one ‘General Motors’ to consolidate the industry and finally deliver real profits the way GM did in the 1930’s car industry.
In the 1930s, General Motors became the market leader not because it was the best company but because it went on a acquisition streak and hoovered up a lot of small businesses to achieve scale.
These acquisitions built a business that led global sales in its market for 77 consecutive years from 1931. One or two network operators have that opportunity today and we expect to see one step out in front and acquire multiple unprofitable businesses that play an important role in the mobile ecosystem but make no money.
Mobile app and value add service companies, from operator divisions such as Telefonica Digital to independents such as Millenial Media, are simply not yet able to generate significant profits, despite very rapid growth. While online giants like Skype, Twitter, Facebook and others are grabbing most of consumers’ mobile time, ‘native’ mobile players are finding profits hard to achieve because the market is so fragmented.
Even operators such as Telefonica, Vodafone and NTT who face a ‘must win’ game in mobile data services, cannot grow enough data service revenue to compensate for declining call and SMS revenue.
The 2013 mobile industry looks very similar to the US car industry in the 1930s. Many app and service vendors are struggling to attract the attention of consumers and the $64 billion question is “how do we make money?” The answer, in my view, is scale.
Many of these smaller businesses are logical acquisition targets for a General Motors-style consolidator with global ambitions. The network operators are the best placed to be General Motors in this scenario, but so far they are doing very little despite the wider threats that the changing dynamics of the industry present.