substitution of mobile services€¦ · • usage and traffic generated by mobile internet (mi)...
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Substitution of Mobile ServicesT-109.5410 Technology Management in the
Telecommunications Industry
Juuso Karikoski
Doctoral Student
Aalto University Department of Communications and Networking
8-Nov-11
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Outline
• Trends related to mobile (communication) services
• Substitution in:
– Economics
– Marketing
– Strategic management
• Adoption and diffusion
• Case: Smartphone Communication Services
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Trends
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Mobile market
• Usage and traffic generated by Mobile Internet (MI) services have exploded in the recent years
• Flat-rate pricing schemes also introduced
• Mobile Network Operators (MNOs) forced to make network investments without increasing their revenue substantially
• MNOs business models disrupted by services like Skype and Facebook
• Voice and SMS services still generate most of the operators’ revenues, although ARPU (Average Revenue Per User) is declining
• MNOs suspect that the new MI communication services might substitute their voice and SMS/MMS services - this might affect their marketing strategy decisions, for example
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Communication services
Hours spent communicating weekly,
15-25 years old
Source: TeliaSonera, Ovum, various sources (2009)
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Substitution
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• In economics complements and substitutes are defined in terms of cross elasticity measures– E.g., cross elasticity of demand (ε) between services j and k is
defined as the percentage change in the demand (x) for service j per percentage change in the price (p) of service k:
• Thus, if δxj(p)/δpk > 0 services j and k are substitutes and if δxj(p)/δpk < 0 they are complements. If δxj(p)/δpk
= 0 the services are independent.
𝜖𝑗𝑘 =𝛿𝑥𝑗 (𝑝)/𝛿𝑝𝑘
𝑥𝑗/𝑝𝑘
∆𝑥𝑗
𝑥𝑗= 휀𝑗𝑘
∆𝑝𝑘𝑝𝑘
Substitution: Cross Elasticity
Source: Courcoubetis & Weber (2003)
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Substitution: Multiproduct Interaction
Source: Adapted from Bayus, Kim & Shocker (2000)
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Substitution: Porter’s five forces
Competitive rivalry
Potential entrants
Buyers
Substitutes
Suppliers
Threat of substitutes
Bargaining
power
Threat of entry
Bargaining
power
Source: Adapted from Porter (1980)
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Adoption and diffusion
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Techology S-curve and the Technology
adoption life cycle
Source: Kivi PhD (2011), adapted from Rogers (2003)
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”Crossing the Chasm”
Source: Moore (1999)
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Diffusion of handset features as an
example (N = 4-6.6 Million)
Source: Riikonen (2011)
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Case example
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Case: Smartphone communication
services• Based on a recent paper:
– Karikoski, J. and Luukkainen, S., 2011. Substitution in Smartphone Communication Services. In: The 3rd International Workshop on Business Models for Mobile Platforms. Berlin, Germany, October 7 2011.
• Motivation:– Critical for the operators to understand the cross-elasticities
between these services
– A very limited amount of research conducted in this area of substitution that is based on empirical behavioral data
– Market level analysis not detailed enough to study substitution –micro (or user) level analysis needed
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Methodology
• Handset-based measurements are implemented with
software installed on the participants devices
Source: Karikoski (2011)
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Data sets
• Three handset-based data sets collected between 2008
and 2010 from early-adopter Symbian users (N=183) in
Finland
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Smartphone communication services
• Mobile Internet (MI) communication services– all Internet-based operator independent mobile communication
services
– further divided to email, Instant Messaging (IM)/Voice over IP (VoIP) and social media services
• Traditional communication services– services offered traditionally by mobile operators
– cellular voice calls, SMSs and MMSs
• Correlation analysis conducted on individual user level with users that have experience in using MI communication services
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Descriptive statistics – application class
launches
0 %
5 %
10 %
15 %
20 %
25 %
30 %
35 %
40 %
45 %
50 %
2008
2009
2010
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Descriptive statistics - communication
application category launches
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
SMS IM/VoIP Email MMS Social media
2008
2009
2010
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Descriptive statistics - usage ratio
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
2008
2009
2010
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Correlation analysis
• No significant correlation indicating substitution - also the direction of the
correlation varies among the datasets.
• This implies that the services are independent and cross elasticities are near
to zero.
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Discussion
• Our results agree with other results implying that operators should not be afraid of MI communication services cannibalizing their traditional communication services (with these services measured as such)
• Smartphone communication services seem to be independent services used for different purposes
• However, services might evolve to substitutes or complements in the future– Services are converging in the devices phonebook
– Pricing schemes might change in the future
• Network externalities will probably play a major role in the mass adoption of MI communication services
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Questions or comments?