Christopher Ambrosio, executive director/global wireless practice at Strategy Analytics, estimates that Nokia by 2012 will generate 5% global revenue from its Ovi Internet service that supports an online destination for consumers to store content, Nokia's Music Store, N-gage games and Nokia Maps. That's up from less than 1% last year.
The real impact from Ovi and other services from Apple and RIM will come from increased shipments of rich-media smartphones like iPhone and Blackberry that consumers will need to access advanced services. "Profit margins are higher for smartphones," Ambrosio says. "Consumers have more appeal for these devices because of the services Apple, Nokia and RIM offer."
The content and services are offered to consumers at low margins to drive smartphone device sales, which have fatter margins, Ambrosio says. Nokia could offer music labels a cut of the device price so they can push the hardware into the market and tie consumers to unlimited use for the life of that device. That's what makes these business models interesting.
Ambrosio says only a few brands--Apple, Nokia, and RIM--have the "brand power" to draw consumers to devices and services that will allow them to operate under these profitable business models for revenue sharing, reverse revenue, and transactional revenue.
Revenue sharing becomes the most lucrative among the three business models outlined in the report. When Apple launched the iPhone, the well-known brand offered consumers a unique device exclusively through AT&T Mobility. Connecting to the Web through the iPhone requires subscribers have a data plan, costing between $59 and $99 monthly. AT&T sealed the deal with the Cupertino, Calif., handset maker after agreeing to share data revenue from the devices. Ambrosio says Apple gets between $7 and $15 from each monthly AT&T subscriber service plan.
Revenue sharing is nascent, but Apple, Nokia and RIM will capitalize on the concept. RIM and Apple realize between 20% and 25% of their total mobile revenues from revenue sharing with carriers. Danger, recently acquired by Microsoft, operates a revenue-sharing business model with T-Mobile in the United States and several other Asian operators.
Advertising on mobile phones has Google, Microsoft, Nokia and Yahoo battling it out to become the preferred search and ad platform. Three or four years from now, it is predicted, companies will use mobile advertising revenue to subsidize delivery of services and device sales to consumers. Strategy Analytics' Wireless Media Strategies Service estimates mobile advertising will become a $10 billion market in 2012.
Transactional revenue becomes the most basic business model. This means Samsung sells music track downloads, or LG maintains a warehouse of user-generated video or partners with YouTube to offer premium content and services.
Strategy Analytics estimates Nokia's mobile advertising business could become 10% of its total revenue. Smaller handset makers with less brand equity will find it difficult to achieve the same level of success. Other forms of revenue such as subscription based revenue will not create similar cash flow.
The report points to Apple as having the strongest potential of creating the most compelling consumer market network by evolving into a "wireless multimedia hub." Its efforts to expand offerings beyond music into movies, video and streaming content that builds on a service for wireless distribution via Wi-Fi and cellular technologies.
RIM has been successful in enterprise and "prosumer" e-mail applications, expanding its messaging platform, which appeals to a variety of consumers. Plans in place will expand these services to market its Blackberry Internet services to average consumers.