WHITEPAPER Why It s Time for Operators to Get Personal with Cloud Propositions Published by 2017
INTRODUCTION As telecoms operators grapple with the twin challenges of declining revenues from their traditional services and the continued need to reinvest in new technologies to support the needs of their customers, it s clear that new sources of revenue are needed in order to transform the operator business case. Even though many of the new technologies, in particular 5G mobile and virtualization of network hardware enabled by network functions virtualisation (NFV) and software defined networks (SDN), will present a chance for operators to achieve substantial operational and capital expenditure savings, it s not possible for an operator to save its way to glory in the digital economy. Instead, the new efficiency gains will help offset the increased demands being placed on the network and profit must come from new sources. This is especially challenging for operators as revenue from their traditional voice, messaging and data services has commoditised in many markets and traditional sources of profit, such as roaming, are being regulated out of existence. In the European Union, for example, mobile operators are projected to lose 7bn as a consequence of roaming charges being capped at domestic rates. At the same time, operators have been under attack from over the top (OTT) service providers which have entered their marketplace using the web to provide traditional telecoms and valueadded services to operators customers over their networks. Attempts operators have made to fight back by offering new, value-added services themselves have been largely unsuccessful. We ve seen operators fail to win significant market share with digital music offerings, social networking, premium content and app stores. One widely-known lost battle for the subscriber is the one between operator SMS and OTT messaging. Personal cloud services represent a similar opportunity where, if they deploy quickly, operators can take a large share of the market and monetise personal cloud effectively. However, if they delay, the opportunity will be lost as users turn to Microsoft, Google, Dropbox and others. Personal cloud could be a big win for operators, especially in the developing markets where they have the potential to capture the percentage of customers typically well in excess of 50% who are not yet cloud natives. However, the window of opportunity for operators to target and win these unaddressed customers is quickly shrinking. Operators therefore have an opportunity to capitalise right now on the personal cloud market which we explore further in this paper. For them to do so effectively, a change in operator mindset is needed in their approach to personal cloud because of operators demonstrated failure to dominate new markets. Even when faced with opportunities that seem well-aligned to their existing skills and customer bases success for operators has been elusive. Personal cloud services, which enable users to store their digital assets such as photos, music, video and other content and data in a secure, private data repository provided by a third party, would seem to be a natural fit for operators. After all, they have the customer relationship, they re often the provider of the mobile device and they know how to provision IT resources at great scale with high resilience and appropriate security. Yet, they have been slow to offer the market what it wants, focusing on telco-grade performance indicators in a web-centric world, which has resulted in delayed service launch and offerings that have limited user appeal while, in fact, being over-engineered. A reason for the failure of operators value-added services initiatives has been the traditional operator priority of owning the platform and technology themselves. In the web world, ownership of hardware is a nebulous concept but operator thinking continues to be rigorously traditional, which makes relatively straightforward propositions like private cloud services appear much more complex and costly to roll-out than they are. Of course, operators are now starting to recognise that they do not have to build everything they need to support a service themselves, especially when the ingredients to do so already exist and have been developed by specialists and are already in use. For this reason, white label clouds, which enable operators to offer customers personal cloud services that are operator-branded, are gaining in popularity. The white label approach reduces upfront costs, accelerates time to market and puts proven, attractive services in the hands of operator customers. Critically, these can be effectively monetised as an incremental cost within a monthly subscription that generates revenue as part of a wider bundle. 1 WHITEPAPER
WHY PRIORITISE PERSONAL CLOUD NOW? There s a battle going on right now inside operators to win investment for new projects and a vital success factor is whether an investment will lead to new revenues. Personal cloud services can demonstrate a clear return on investment and a rapid route to additional revenues, especially for white label services where the investment required is reduced. This is appealing to chief financial officers but also to other decision makers such as chief technology officers and marketing heads because personal cloud services fit well with operators existing service portfolios and use infrastructure and technology that operators are already familiar with. The emergence of white label services makes the introduction of personal cloud services far easier than an internal service construction. Personal cloud service providers now have significant experience in integrating the services with the operator s infrastructure, thereby simplifying and smoothing the path to service launch. The improved ease of launch of personal cloud services is one attraction to operators but for a service to be successful it must have the potential to be a mass-market phenomenon. It s clear that personal cloud services are already in this arena. Dropbox claims more than 500 million users for its service, Google Drive hosts two trillion user files and rivals Amazon Web Services and Microsoft s OneDrive are comfortably attracting hundreds of millions of users. However, an aggregate personal cloud user base of even two billion demonstrates that there are more than five billion potential personal cloud users on the planet that have not been addressed yet and this is an opportunity for operators, especially because they are present in developing markets where users only experience of the internet is via a mobile device and with connectivity provided by their operator. This absence of traditional internet means the influence of typical western cloud storage giants may not be so apparent and operators have the opportunity to carve out a leading position in these markets for themselves. Add to this that images, video and files are increasingly created, interacted with, shared and stored on mobile devices and over operator networks and it s only a small extension of operators existing footprint to offer personal cloud services as an adjunct. They won t have to educate the market or make the case to consumers of the value of cloud storage; customers want personal cloud. It s becoming vital to securely store and host personal content to be accessed by different devices and also to free up on-device memory and, for many, operators are the ones that have the trusted brand, reinforced by a billing relationship, to give confidence in them as the providers of storage. WHY IT S TIME FOR OPERATORS TO GET PERSONAL WITH CLOUD PROPOSITIONS 2
SHOW ME THE MONEY In spite of the large and growing number of users of personal cloud services it has to be acknowledged that monetisation has proven challenging for personal cloud service providers. Dropbox, for example, announced it had hit a revenue run rate of US$1bn earlier this year and that s from a service with 500 million users (although the firm acknowledges it has 200,000 paying business customers). These figures indicate that, while the revenues being generated from users are not large individually, the sheer volume of users is creating a multi-billion dollar marketplace. For operators that adopt personal cloud services provided via a white label service provider, there is attractive revenue generation potential, although this does not necessarily take the form of upfront charges to users for the service. Cloudike, a white label personal cloud services provider, has analysed its client data and found that operators who choose to monetise subscribers directly could typically expect to achieve an uplift in average revenue per user (ARPU) of US$1.33 per month just under US$16 per year. However, the upside doesn t end there. Consumers that take up personal cloud services for free as part of a bundled package typically generate increased monthly ARPU of US$0.50 in the form of package upselling and additional data consumption. Further value is created because the link in customers minds between taking a picture and storing it in a personal cloud provided by the operator is reinforced. The operator gains the opportunity to widen its relationship with the customer beyond simply being a connectivity provider. In addition, personal cloud services create value by strengthening loyalty. Once a user has started to host content in a personal cloud, they are reluctant to shift providers because of the inconvenience involved in moving their files from one to another. For operators this provides a means to aid customer retention when it comes to communications contract renewal time or prepaid balance top-up time. It will depend on the requirements of individual operators and the motivations that exist in different markets but a viable and attractive equation can be solved that generates revenue for User Adoption of Carrier Personal Cloud (Tier-1 Carrier in Turkey) 200,000,000 150,000,000 Total Files Uploaded 100,000,000 50,000,000 0 Year 1, Q1 Year 1, Q2 Year 1, Q3 Year 1, Q4 Year 2, Q1 Year 2, Q2 Year 2, Q3 Year 2, Q4 3 WHITEPAPER
operators while providing customers with real value via personal cloud services. For example, the combination of a small monthly or annual fee that is no higher than that of alternate OTT providers for a comparable service plus incremental ARPU increases for additional service take-up stimulated by personal cloud services adds up to attractive new revenue. On the flip side, this is supported by operators abilities to manage personal cloud services at great scale to bring costs down and their ability to zero-rate data and use existing, local data centre infrastructure to offer faster speeds. No other class of personal cloud service provider has the capability to support and augment their offering with the network attributes of an operator. In addition, some operators will uncover value from providing personal cloud service in terms of differentiation, customer loyalty and retention and indicators such as net promoter score (NPS). In addition, there is substantial value to be derived from the data operators will gather about their customers usage of the service. This can both be used to tailor and refine offerings for specific types of customer or be analysed and anonymised to enable a new source of revenue from personal cloud services. HOW OPERATORS CAN SUCCEED WITH PERSONAL CLOUD One provider of white label personal cloud solutions for operators is Cloudike, which focuses on service efficiency, design and accessibility to ensure that users have reliable and easy-to-use online storage space. Cloudike software is currently offered by six major operators around the world and is used by millions of operator customers in Russia, Turkey, South Korea and Indonesia. although there are monthly traffic limits. The service has been pre-installed on all branded devices. The operator has experienced positive impacts in both ARPU and churn reduction and plans to develop the personal cloud services it offers further. The telco-grade personal cloud service is branded by the operator with the logos, colours, layout and functions all set according to the operator s preferences. The system then integrates with the operator s existing IT ecosystem for user authentication, billing, SMS, RCS and USSD and can be hosted in the data centre of the operator s choice either its own or a trusted third party s. One operator in Turkey has used Cloudike to offer personal cloud storage both as a standalone offering or as a bundled service at varying levels of storage quota based on the customer s tariff level. The result has been that hundreds of thousands of users have adopted the service within a few months and the operator now has a significant bundled and paying customer base for the service. Another operator, in Russia, has used Cloudike to enable it to offer personal cloud storage bundled with all tariffs with an unlimited storage quota, WHY IT S TIME FOR OPERATORS TO GET PERSONAL WITH CLOUD PROPOSITIONS 4
MARKET DEVELOPMENT With the Cisco Cloud Index reporting that, by 2019, cloud will be more important than devices, with 55% penetration expected, it s clear that personal cloud services move to the mass market mainstream is well underway but the majority of the market is currently unaddressed by personal cloud service providers of all types. For operators, the opportunity therefore lies in targeting the unaddressed, which may already be their customers. For that reason they should focus on taking attractive services to market that target the greenfield marketplace rather than expending energy trying to attract customers of other services to their own. For the reasons outlined earlier in this paper, the nature of cloud storage means that users are highly loyal so inducing them to move is challenging. services provider so operators should focus their efforts on attracting these to their services. However, as the benefits of personal cloud services become more widely known, the greenfield is getting smaller as users adopt non-operator cloud offerings so there is a need to act quickly because the window of opportunity is closing. It s vital that operators act quickly to avoid missing another value added services opportunity and one that is so integral to the digital value chain of the future. Fortunately, personal cloud awareness is moving more slowly than for other services such as OTT messaging so operators have an opportunity to compete with OTTs and win a large market share here. However, they must move in now without delay. Typically, more than 50% of an operator s customer base will not have an existing cloud 5 WHITEPAPER
CONCLUSION Operators have to discover and make a success in new areas of business as they seek to replace the dwindling revenues from their traditional services and address new technological innovations in the network and the wider digital transformation that is affecting all industries. Personal cloud risks getting lost in the noise of other new services such as big video, augmented and virtual reality (AR and VR) and the Internet of Things, but it is a fundamental technological foundation for all these services and one that is a natural fit with operators existing portfolios of services. Taking a white label approach to personal cloud services provides operators with the expertise they need to enter the market rapidly with attractive, fully-branded, telco-grade services that can help bind their customers to them and enable them to generate additional revenue. Speed is vital in this because if operators do not act now, the personal cloud opportunity will be lost to Microsoft, Google, Dropbox and others. MARKET DATA By 2020, 59% (2.3bn) of the consumer internet population will use personal cloud storage, reports the Sixth Annual Cisco Global Cloud Index. Juniper Research has calculated that the consumer migration from operator voice and text services to OTT (over the top) messaging services and social media will cost network operators nearly US$104bn this year, equivalent to 12% of their service revenues. The global personal cloud market was valued at US$20.79bn in 2016 and is projected to reach US$115.05bn by 2022, reports Zion Market Research Global consumer cloud storage traffic per user will be 1.7GB per month by 2020, says the Sixth Annual Cisco Global Cloud Index. The global market for personal cloud services is expected to generate US$89.9bn by 2022 with a CAGR of 33.1% during the period 2015-2020, according to Allied Market Research. Cloud traffic will represent 92% of data centre traffic by 2020, according to the Sixth Annual Cisco Global Cloud Index. WHY IT S TIME FOR OPERATORS TO GET PERSONAL WITH CLOUD PROPOSITIONS 6
Cloudike is a white label personal cloud solution for mobile carriers and OEMs to offer to customers. Cloudike s personal cloud service focuses on efficiency, design, and accessibility to ensure that users have a reliable and easy to use online storage space. With a strong presence in emerging markets, Cloudike software is currently offered by 6 major carriers around the world and is used by millions of users in Russia, Turkey, South Korea, and Indonesia. For more information visit: cloudike.com Produced by the mobile industry for the mobile industry, Mobile World Live is the leading multimedia resource that keeps mobile professionals on top of the news and issues shaping the market. It offers daily breaking news from around the globe. Exclusive video interviews with business leaders and event reports provide comprehensive insight into the latest developments and key issues. All enhanced by incisive analysis from our team of expert commentators. Our responsive website design ensures the best reading experience on any device so readers can keep up-to-date wherever they are. We also publish five regular enewsletters to keep the mobile industry up-tospeed: The Mobile World Live Daily, plus weekly newsletters on Mobile Apps, Asia, Mobile Devices and Mobile Money. What s more, Mobile World Live produces webinars, the Show Daily publications for all GSMA events and Mobile World Live TV the awardwinning broadcast service of Mobile World Congress and exclusive home to all GSMA event keynote presentations. Find out more www.mobileworldlive.com Disclaimer: The views and opinions expressed in this whitepaper are those of the authors and do not necessarily reflect the official policy or position of the GSMA or its subsidiaries. 2017