Technology | Media | Telecommunications

Wednesday, December 03, 2014

Mobile Cloud Services will Disrupt Old Business Models

The competition for market share in the mobile cloud arena will escalate during 2015. The cloud content and services markets -- enabled by the ubiquity of smartphones and media tablets -- are now the battleground between major content providers, device manufacturers and internet service providers.

ABI Research recently conducted a worldwide market study of several key growth segments of cloud content and services -- including gaming, music, social networking and search.

Overall, revenues in these important digital content ecosystems are expected to grow 122 percent from 2014 to 2020 and approach $320 billion, according to the ABI Research assessment.

Search and Social are each led by dominant international companies, with Google capturing 60 percent of 2013 search revenue while Facebook has 55 percent of 2013 social networking revenue.

ABI believes that while some regional differences exist, these positions should remain relatively defensible for the foreseeable future.

The gaming market is significantly more fragmented, but Tencent's leading 8 percent share in 2013 game revenue highlights the impact of digital content and importance of the Chinese market.

While search and social incumbents both face challenges arising from changes in consumer behavior, such as the use of online retailer sites for search related shopping, the music and gaming industries have the added challenge of moving business from physical media to digital distribution.

"As new populations shift their purchases from physical goods to digital goods, and as advertisers follow consumers migration of their screen time, you see the average revenue per engaged user increasing together with the number of consumers in each region growing," said Sam Rosen, practice director at ABI Research.

The total spend -- including both physical and digital goods -- in transitioning markets such as music and gaming, is increasing at a modest pace overall. But there are still significant commercial challenges to overcome.

This often results from a penchant for content creators to favor online business models that put user participation before their revenue and profit.

As an example, purchasing behavior for music has shifted from the lucrative CD compilations to single digital tracks and now ad-based or subscription services. Each new transition has often resulted in less revenue per user.

For some companies within the gaming industry similar issues might arise if their business model likewise moves from discs and game downloads to ad-based and free-to-play online games. The mobile cloud era therefore could become either a blessing or a curse for each industry participant.