Experience Magazine - Issue 2 by WDS, A Xerox Company

Experience

ISSUE 02 | Q4 2012

WDS | DELIVERING ACTIONABLE INSIGHT FOR THE WIRELESS COMMUNITY

THE SMARTPHONE

RACE TO THE BOTTOM

CAN OEMS DIFFERENTIATE IN A WORLD OF LOW-COST SMARTPHONES?

LOYALTY VS SATISFACTION WHY THE TWO MUST NOT BE CONFUSED IS THREE A CROWD? CAN WINDOWS PHONE CRASH THE OS PARTY? SPRINT WHY CUSTOMER EXPERIENCE IS SO IMPORTANT TO SPRINT

WDS.CO

@WDSCOMPANY

EXPERIENCE@WDS.CO

The science of customer experience WDS, A Xerox Company is trusted by many of the worldâ&#x20AC;&#x2122;s best-known wireless brands to help assure the customer experience, improve future products and services and build long-term, profitable relationships with end-users.

Quite simply, we know what makes smartphones smarter and apps more appealing. Scan the QR code opposite and see how we do it. wds.co

editorial

contents

Creating industry value through the customer experience One of the principle mistakes made by wireless organizations is to correlate satisfaction directly to loyalty. Although intrinsically linked, the two are very different and while the desire to make this link is understandable, it’s also dangerously ineffective. In such a saturated market environment, one of the greatest challenges facing today’s wireless brands is the ability to differentiate, as such the need to inspire loyalty through the customer experience has become all the more obvious. However, if the end-goal is to improve loyalty, are today’s customer satisfaction methodologies even appropriate and is the industry making a link between satisfaction, loyalty and profitability that simply doesn’t exist?

Email : experience@wds.co

In this issue we investigate whether the industry is mistaking satisfaction for loyalty, highlight why many reward-based ‘loyalty’ programs are only serving a very short-term purpose and outline how wireless brands can better guide investment to drive true brand loyalty. It’s this type of insight that we believe creates actionable business intelligence for our customers and the wireless community at large. In what is now our second edition of Experience, we also take a look at the smartphone “race to the bottom” and the challenges this presents to the top-end of the smartphone market; mobile operators’ migration to 4G technologies and the potential pitfalls that threaten to keep price as the primary differentiator; as well as an

twitter: @wdscompany

in-depth analysis of the OS market economics and whether Windows Phone can break the current duopoly of Android and iOS? We hope you enjoy the magazine and we welcome your feedback at experience@wds.co

06 Meet a WDS customer

11 Race to the bottom

21 Mobile patents landscape

Deeanne King from Sprint talks about Sprint’s drive to improve loyalty and the challenges facing today’s wireless carriers.

Mature markets are now looking to drive growth in low-cost smartphones, but at what cost to brands at the top-end of the smartphone market?

Industry analyst Chetan Sharma looks at the explosion of mobile patents and the power shift from Europe to the US.

08 Build it and they will come... right?

16 Loyalty vs. Satisfaction

We ask whether technology and consumer expectations are aligned.

Is the industry mistaking satisfaction for loyalty? What are the key differences and why does it matter?

26 Is three a crowd? Can new Windows Phone break the duopoly of iOS and Android?

D avid Ffoulkes-Jones CEO, WDS, A Xerox Company 26

Blog: blog.wds.co

WDS, A Xerox Company is the trading name of Wireless Data Services Ltd. Registered in England and Wales (company number 01714719). Wireless Data Services Ltd., Alder Hills Park, 16 Alder Hills, Poole, Dorset, BH12 4AR, UK. VAT number GB 911330278 . WDS cannot accept (and hereby disclaims) any responsibility for loss or damage caused by errors or omissions. All rights reserved ©WDS, A Xerox Company 2012

editorial

contents

Email : experience@wds.co

twitter: @wdscompany

06 Meet a WDS customer

11 Race to the bottom

21 Mobile patents landscape

Deeanne King from Sprint talks about Sprint’s drive to improve loyalty and the challenges facing today’s wireless carriers.

Mature markets are now looking to drive growth in low-cost smartphones, but at what cost to brands at the top-end of the smartphone market?

Industry analyst Chetan Sharma looks at the explosion of mobile patents and the power shift from Europe to the US.

08 Build it and they will come... right?

16 Loyalty vs. Satisfaction

We ask whether technology and consumer expectations are aligned.

Is the industry mistaking satisfaction for loyalty? What are the key differences and why does it matter?

26 Is three a crowd? Can new Windows Phone break the duopoly of iOS and Android?

D avid Ffoulkes-Jones CEO, WDS, A Xerox Company 26

Blog: blog.wds.co

66% INCREASE IN

CUSTOMER

Meet a WDS customer

SATISFACTION

D eeanne King,

shared across multiple channels to ensure we are setting up our customers for success at each step in a way that meets their individual preferences. This focus on optimizing the customer experience has seen Customer Satisfaction (CSAT) increase by 66% and FCR improve by 41% since 2008.

Vice President, Customer Management Operational Support

Serving over 56 million subscribers, Sprint is the third largest wireless carrier in the United States (US). Founded over a hundred years ago it has a strong pedigree of technical innovation, including the first wireless 4G service from a national carrier in the US. It is also one of the industry’s most vocal advocates for the customer experience and winner of several awards, including being ranked No. 1 for customer satisfaction among US national carriers by the American Customer Satisfaction Index. WDS has been working with Sprint since 2011, helping the carrier to implement a business change program designed to deliver a more consistent customer experience. We spoke with Deeanne King, Vice President, Customer Management Operational Support about her role, Sprint’s drive to improve loyalty and the wider challenges facing today’s wireless carriers.

06 – Experience Issue 2

WDS: Sprint has been highly vocal in its support for a better customer experience. Why has customer experience become such an important topic for you? DK: When Dan Hesse became CEO of Sprint in December 2007 he set three key priorities, these were Brand, Cash and Customer Experience. Prioritizing the customer experience at this level has helped us to achieve many of our key financial improvements and focus our efforts where it really counts.

WDS: And those improvements have come in the form of improved net additions and subscriber retention? DK: Yes, absolutely. In Q1 2012 we achieved net adds of over a million subscribers for our sixth consecutive quarter, we were the only US carrier to do this. Our churn is also very stable. If you get the experience right, then the financial benefits will follow; our operating revenues have increased year-over-year for the seventh consecutive quarter (as at Q1 2012).

WDS: So, how do you define the Sprint Customer Experience? DK: Being a Sprint customer should be easy. We work hard to make it easy for our customers to engage with Sprint services. They shouldn’t have to expend a lot of effort trying to set up services or fix things if they go wrong.

WDS: Can you tell us about your role in achieving this ambition? DK: As Vice President, Customer Management Operational Support, my role is to drive greater performance benefits into our Customer Operations division. This may come in the form of improved IT or better knowledge management to empower Customer Service Representatives (CSRs). My team also looks at analytics to identify call drivers and how those can be mitigated. I believe support interactions provide a great opportunity to better understand subscriber behavior and the customer experience. The CEO has put a laser light focus on finding out why consumers are calling, and everyone in the company has an incentive around reducing calls to care.

WDS: So there’s a company-wide appreciation of how customer insight can deliver benefit across the Sprint business? DK: Absolutely. We continually use customer insight to drive improvements. A great example is how we look to understand the typical requirements of a customer in the first 30 days of device ownership. This is a critical period in the customer lifecycle and if we can anticipate likely call drivers we can reduce the support burden and also improve the experience. WDS has been a great partner in helping us to ensure we have the insight and the content we need to drive such improvements. The support content is

WDS: Most carriers are now starting to appreciate the importance of the retail touch point in shaping customer expectations and user behavior. How much do you relay care insight back into the retail environment? DK: Each year we are consistently improving the level of integration with our retail partners and the knowledge we collect from the care channel is distributed across the board to create a consistent customer experience. WDS has been the corner stone for many of these improvements, making key knowledge available across the full spectrum of touch points, including retail, to both our staff and to customers.

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Sprint wants to be the brand that does the right thing for the right reasons. This is one of the reasons why we continue to offer unlimited pricing; it’s hugely valued by our customers who appreciate the transparency and, as a benefit to Sprint, it reduces the volume of calls we take relating to overages and other billing concerns.

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WDS: Can you give us an example of how you’ve improved the retail experience? DK: Our ‘Ready Now’ concept is well known in the industry. As part of the Ready Now initiative, customers are walked through their new device, shown how it works, how to set it up and how to get the most out of it for their everyday needs. Again, the initiative uses key customer insight and knowledge collected from Customer Operations so we can be sure where to focus our efforts. This initiative has been very successful and as such we are now looking to implement a ‘Virtual Ready Now’ for customers purchasing online or at third party retail outlets where the opportunity to provide a one on one discussion with a Sprint representative may not exist. In addition, this content also helps us to deliver ‘Sprint Zone’ which is an app that provides content and information about the customer’s account and device. We believe that this is a key channel for customers.

WDS: What are the key challenges to customer experience and retention anticipated by Sprint within the next couple of years? DK: The market is highly competitive and heavily penetrated, it’s a switchers’ market and as such we really want to continue our focus on churn reduction by delivering a customer experience that is truly consistent across the entire lifecycle and across all touch points. We will continue to focus on the network, not only in terms of upgrading and enhancing the infrastructure through the network program, but also to continue growth and increase our coverage within the US market. Ultimately we want to create value for our customers and offer the right products and services as well as a high performing and reliable network. Sprint wants to be the brand that does the right thing for the right reasons. This is one of the reasons why we continue to offer unlimited pricing; it’s hugely valued by our customers who appreciate the transparency and, as a benefit to Sprint, it reduces the volume of calls we take relating to overages and other billing concerns.

WDS: Churn reduction and loyalty go hand-in-hand. How do you define a loyal customer? DK: If I think back through the history of wireless I would say that the industry was too focused on retaining customers in a way that wasn’t always in the customers’ best interests. At Sprint we want to build a degree of loyalty that inspires brand advocacy. This can only be achieved by delivering on the Sprint promise. It isn’t achieved through simple reward programs.

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At Sprint we want to build a degree of loyalty that inspires brand advocacy. This can only be achieved by delivering on the Sprint promise. It isn’t achieved through simple reward programs.

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WDS has been working with Sprint since 2011 to deliver a business change program called Device Service Experience (DSE). DSE’s goal is to support an increasingly intelligent device portfolio through the application of device knowledge and content across multiple channels and touch points. The result will be a highly consistent customer experience that in turn drives operational cost savings across the Sprint business. This interview took place in July 2012.

Experience Issue 2 – 07

66% INCREASE IN

CUSTOMER

Meet a WDS customer

SATISFACTION

D eeanne King,

Vice President, Customer Management Operational Support

06 – Experience Issue 2

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At Sprint we want to build a degree of loyalty that inspires brand advocacy. This can only be achieved by delivering on the Sprint promise. It isn’t achieved through simple reward programs.

”

Experience Issue 2 – 07

Build it and they will come… right?

The future sustainability of global operators, according to analysts and business commentators, is dependent upon the uptake of new data services and the expectation that data will fill the hole left behind by the downturn of voice revenues. It is this market opportunity that fuelled investment into high speed 3G data networks, and is today what drives the roll-out of 4G infrastructure in the latest multi-million dollar investment on the operator road map. After all, if you build it, they will come, right? Wrong. Of course, once one operator makes this move in any given market, the rest have little choice but to follow, stripping any initial element of network differentiation and competitive advantage. In essence, this relegates the network to the hygiene factor level for consumers comparing operators with one another. Without a richer, more compelling proposition, the consumer will always fall back to price as the primary differentiator.

06 – Experience issue 1

The industry is currently experiencing a challenging and turbulent period of change. Technologies have evolved rapidly, as have consumers’ expectations and behavior. This dynamic environment calls for a level of reactivity that large telco organizations are finding particularly difficult to manage, especially where inter-operational departments remain highly siloed.

There is no doubt that operators played a key role in bridging the chasm and delivering the smartphone into the hands of the masses. Fundamentally it was the operators’ efforts that conceived the thriving digital ecosystem we have today. However in the midst of fresh revenue opportunities, have they been caught sleeping? Having invested in the network infrastructure only for OTT players to come and eat their lunch? After all despite growth in data consumption, are operators really seeing any incremental gains in revenue and loyalty? For many operators, revenue has now become stagnant, or worse still has begun to shrink. Some of the world’s largest operators suffered from falling revenues, in Q2 2012, from -1.9% to -5.2% YoY. Meanwhile, smaller more agile over-thetop (OTT) providers have made opportunist endeavors that leverage the operator’s network infrastructure in the provision of more compelling and lower cost VoIP

and IM services that rival operators’ more traditional voice and text services; not to mention delivering a host of cloud enabled services that consumers are growing thirsty for. As the market fragments, and customers devour a pick’n’mix of services from a multitude of vendors, the customer experience is becoming increasingly dynamic and subsequently the operators’ customer relationships are becoming more fragile as their involvement and influence threatens to fade. Treading Water Network investment is a fundamental requirement in enabling the delivery of customer expectations, however, it’s not this element that will provide the necessary competitive advantage and inspire loyalty in this increasingly commoditized market. Operators have concentrated solely upon building new networks for the explosion of data they expected to replace voice revenues and have thus been stuck treading water.

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Network investment is a fundamental requirement in enabling the delivery of customer expectations, however, it’s not this element that will provide the necessary competitive advantage and inspire loyalty in this increasingly commoditized market.

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Experience Issue 2 – 09

Build it and they will come… right?

06 – Experience issue 1

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Experience Issue 2 – 09

2 Using unlimited tariffs to drive growth was a great customer acquisition strategy; however it’s created a generation of consumers that now associate operator value with price. This leaves little room for growth or generation of new consumers. Operators have struggled to engage properly with consumers and discover what it is they really want. What are consumers willing to pay more for? The answer cannot and should not be network speed. The first to the 4G party have built it and subscribers have come, but will they stay once the playing field levels? The battle for consumer loyalty Competitive and social pressures are causing traditional revenue to shift to other parts of the ecosystem, namely to applications or content providers. The operator community is in need of a more sustainable business model that can successfully leverage its investments and ensure the operators themselves become the beneficiary of revenue streams supported / enabled by their [expensive] infrastructure. According to research from Cisco IBSG, close to 50% of all mobile users viewed mobile operators as their preferred provider of mobile cloud services, dwarfing the less than 20% of respondents who preferred web companies.

Nearly 21% of US households,

The window of opportunity is far from closed here and with the next phase of the industry’s evolution residing within the concept of a connected home, innovative differentiation in this arena may provide a feasible route to rebuilding valued customer relationships. Already, nearly 21% of US households, totaling about 27 million, have either an Internet-ready TV, game console, Blu-ray player, or smart set-top box connected to their home network, according to ABI Research. With increasing price and commercial pressures, in a battle for customer loyalty against the ecosystems being built by companies such as Google, Microsoft and Apple; and against Over The Top (OTT) services that threaten to commoditize the operator’s core offer, operators must reverse the trend and win back customers’ loyalty based not on price, but service and brand value. Optimizing the customer experience to achieve a compelling and sustainable competitive advantage A focus on network speed stands only to further position the carrier as a ‘pipe’, a perception the operators are openly eager to avoid. Instead, their complex infrastructures must be synchronized across interdepartmental operations, to enable

have either an Internetready TV, game console, Blu-ray player, or smart set-top box connected to their home network

a compelling, interlinking proposition that can successfully overcome the key challenges within today’s market landscape. In understanding the frequent interactions that its brand has with subscribers throughout the course of the customer lifecycle, operators can design a customer journey that is able to provide an ‘experience’ that delivers to the brand vision so tightly, business strategy and customer experience become inseparable. It is a well thought-out customer experience program that can ensures the entire organization ‘pulls in the same direction’ to deliver on the brand promise; building customer loyalty when it’s needed most by driving investment into key customer touch points that differentiate the brand. A short term strategy based on continued technological iterations of the network, will not deliver long term value. Users must be able to build a connection with the brand, not the network. It’s the customer experience, knowing the customer, delivering a great service, managing them in the way that’s right for them – that will help achieve a sustainable competitive advantage

According to research from Cisco IBSG, close to 50% of all mobile users viewed mobile operators as their preferred provider of mobile cloud services, dwarfing the less than 20% of respondents who preferred web companies.

10 – Experience Issue 2

illion m 7

THE SMARTPHONE

RACE TO THE BOTTOM It’s not only emerging markets driving the growth of low cost smartphones. Mature markets too are showing keen interest as they look to slash their subsidy investments. But at what cost to brands at the top-end of the smartphone market?

Nearly 21% of US households,

have either an Internetready TV, game console, Blu-ray player, or smart set-top box connected to their home network

10 – Experience Issue 2

illion m 7

THE SMARTPHONE

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e s les om ire bec g w ve for gin a t er ts h rge rs th Em arke e ta ure ow m rim act r gr s t f a p u fo ie as t n f i g a . m kin tun has nt loo por rice he efro op d p e t attl an com ry b be ima pr

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The new breed of smartphone Operating Systems have played a key role in democratizing the smartphone. Allowing manufacturers greater flexibility across reference designs and hardware specifications, platforms such as Android have helped to drive down unit costs and spur smartphone adoption across wider markets. But just how low can prices go? This year, according to analysts, low-cost smartphones will replace high-end (and higher-margin) devices, as the primary growth engine for the industry. This ‘race to the bottom’ offers a welcomed window of opportunity on a number of fronts for manufacturers and operators alike. In particular it opens up a number of emerging markets, where price sensitivity or local market regulation against device subsidies has made it difficult for many manufacturers to build significant market share or migrate featurephone customers onto a smartphone platform. How low can they go? Much of this charge is being led by Android, and more recently Windows Phone with the latest iterations being tuned to work as well as possible on devices with as little as 256MB of RAM. The Microsoft

12 – Experience Issue 2

platform’s wider minimum hardware specifications were dramatically reduced at the beginning of 2012; now minimum processor requirements call for Qualcomm’s MSM7X27A S1 Snapdragon processors that can be clocked as low as 800MHz; this enables Windows Phone manufacturer partners to start competing at the lower-end of the market with devices such as the Nokia 610 which hit Indian shelves at an (unsubsidized) price of US$225. However, some maintain that this still isn’t low enough. According to the “India Smartphone Outlook for 2012” report released by Convergence Catalyst, India is expected to witness 100% growth in 2012. The Indian market has therefore become a prime target for manufacturers looking for growth opportunities and price has fast become the primary battlefront. In a bid to increase its market share, RIM recently implemented a discount strategy and some of its devices are now selling for as little as US$150 (unsubsidized) from online Indian retail outlets. However, to put this into context, local Indian mobile operator ‘Videocon’ is currently selling its own branded V7400 Android device for US$72 (again unsubsidized)! These market pressures are driving profound efficiencies throughout the value chain, lowering price points and ultimately helping manufacturers to nurture new market opportunities and drive the smartphone into the hands of the next billion users.

The race is on worldwide But it’s not just emerging markets who are keenly watching the race to the bottom. For operators in many mature markets the growth of the entry-level smartphone category represents a welcome opportunity to relieve some of the cost pressures associated with heavy subsidy investments. Many Tier One operators routinely spend over US$1.5bn a quarter on devices, recouping less than half of that through sales revenue because of the large subsidy that has to be applied to lower the price point to an acceptable level. As part of an operator’s subscriber acquisition and retention costs it’s a line item that many are looking to control in a bid to improve profit margins. Lower-cost devices offer a fast-track to this, offsetting more expensive products such as the iPhone which typically requires an average subsidy of around US$400 per device. But does this potential reliance on entry-level devices actually threaten the wider value of more established OEM brands looking to maintain their margins on more expensive products? An evolving market place As we move away from the traditional landscape of ‘non-smartphone’ and ‘smartphone’ products, to a monotonous mass of ‘smartphone’ and ‘better smartphone’ products, how are value perceptions at the high-end holding up? Take, for example Motorola, Samsung and HTC. Like many wireless OEMs, each occupies both ends of the smartphone pricing spectrum with product portfolios that span both lower and higher tier market segments. However, on the surface, these devices often look identical, with similar form factors, they run the same (or similar) OS, and they each tick the same boxes for functionality. Frequently the only real difference comes in the form of incremental processor speeds, camera resolution or graphical performance.

price points left consumers defaulting to the price tag when making purchasing decisions? If so, this is bad news for high-end device sales. Consider an average consumer looking to purchase their first smartphone. Established requirements typically include the ability to take photos, access social media sites such as Facebook, send and receive email and perhaps join their friends and family in enjoying gameplay of popular titles such as Angry Birds or DrawSomething. In this instance, providing the device has a camera, a touchscreen and access to the Android Market, Windows Marketplace or Apple’s App Store it will meet all of the customer’s requirements. Overwhelmed with choice, and unable to see the benefits delivered by improved hardware performance, the consumer will frequently default to price. Reliant on subsidies and price points to make their final decision it seems that for a large percentage of consumers, the value of higher end smartphone products is not currently understood nor appreciated.

Interestingly, Apple has managed to avoid this predicament entirely. With only one device in the market place, the iPhone, Apple maintains the perceived high-end value and prestige of the device through its positioning and status. Although there are iPhones available at lower price point, these are older generation iterations; therefore there is a clear difference in value for the consumer. Continued…

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e For a larg e of g percenta s, the r consume her ig h value of tphone end smar not is products nderstood u currently iated c e r nor app

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But are hardware specifications really appreciated by the average consumer and has the lack of clear differentiation across

Experience Issue 2 – 13

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12 – Experience Issue 2

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e For a larg e of g percenta s, the r consume her ig h value of tphone end smar not is products nderstood u currently iated c e r nor app

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But are hardware specifications really appreciated by the average consumer and has the lack of clear differentiation across

Experience Issue 2 – 13

Instead, smartphone hardware has homogenized to form a standard black slab, capable of everything but nothing specifically well, so as not to narrow the target market. For manufacturers looking to add real value that can be both understood and appreciated by the average consumer, perhaps a more likely answer may come at the service level. There is a glimmer of more promising activity on this front.

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OEMs need to deliver clear differential value ith that resonates w er consumers in ord to maintain the ir e higher-end of th s. device portfolio

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Restoring value perceptions for high-end devices Value statements for higher tier devices need to go beyond incremental performance enhancements. While quad-core processing will inevitably deliver a slicker experience, this value can only really be appreciated once ownership and usage of the device has begun; in most cases it’s not going to be on the consumer’s list of established requirements while in store shopping for a new device. OEMs need to deliver clear differential value that resonates with consumers in order to maintain the higher-end of their device portfolios. Walk into any mobile retail outlet and the smartphones on offer will fall into two camps; the anonymous black touchscreen or the Blackberry / ‘looks like a BlackBerry but

14 – Experience Issue 2

isn’t’ Qwerty. The problem is compounded with the screens switched off, devoid of any icons or branding to help in the identification process. While form factor must always consider technical limitations, that shouldn’t stop experimentation in industrial design, should it? Gone are the days where devices were designed around specific demographics and use cases. At one point OEM brands were part built upon specific form factors. Wanted a flip phone, buy a Motorola. A candybar, buy a Nokia. A Qwerty, buy a BlackBerry. Today, hardware is homogenizing, the smartphone parts-bin appears to be shared out across brands, with screens, keys, processors and more becoming interchangeable between manufacturers. There is no doubt that this standardization is helping to drive cost efficiencies in a bid to achieve lower price points and enable manufacturers to capitalize on high growth emerging markets, however, as a result of this trend, there has been a seismic shift in brand loyalty, moving away from hardware and over to software and service providers.

Already we are starting to see Samsung drawing down on its wider product portfolio to offer value in the form of a connected home. In addition, HTC is refocusing its ‘Sense’ UI initiative. Partnership and acquisition activity with music audio brand Beats and music streaming service MOG, alongside Dropbox integration could help evolve ‘Sense’ into a truly differentiated platform of value adding services. The development and momentum of this trend will be intrinsic to the retention of brand value for the industry’s most popular mobile handset OEMs as the race to the bottom really starts to set in. For consumers navigating their way through a market offering an extensive choice of smartphone product, higher end options need to be better differentiated with clear justification of price points

higher end options need to be better differentiated with clear justification of price points through relevant, understood and widely appreciated value adds

The speed of innovation has reached a tipping point, resulting in OEMs increasingly occupying the same ‘all things to all men’ proposition. No longer do consumers turn to a specific OEM to cater to their established requirements, be it design or functionality.

through relevant, understood and widely appreciated value adds. The challenge will be in communicating this value so that it is understood at the point of sale, during the purchasing decision. A device may offer a best in class experience but unless the consumer has used the device or can clearly see a feature-benefit, manufacturers may find it increasingly difficult to build loyalty not only to their high-end, high-margin devices but to the brand itself

The New Customer Care Mandate: Manage all Customer Experience Touchpoints Chris Tranquill Group President / SVP Telecommunications and Technology Group

We’re now in the age of the customer where we’ve seen the balance of power shift from brands to consumers. This means that wireless companies must work harder to engage customers and earn their continued loyalty. To do this, you need to live up to your brand promise by delivering an exceptional customer experience. The challenge for the industry is delivering excellent customer care that ensures that all touchpoints throughout the customer lifecycle meet company goals for the quality of experience. This is a major issue for wireless companies because often the outsourcing model for customer care is focused solely on transactions – how many, how fast, at what cost. Traditional models were not designed around the business process of the total customer experience. Because of this, many customer care outsourcing solutions can’t deliver on today’s customer-centric business objectives. Xerox provides wireless customers with the ability to manage and optimize all the touchpoints that impact the customer experience. This aligns our relationship with our customers’ business goals and results in a mutually beneficial partnership.

For instance, Xerox helped one of its wireless communications customers address low customer satisfaction. Customers were particularly unhappy with care received via social media. With a comprehensive social Customer Relationship Management (CRM) strategy mapped to the wireless providers’ business objectives, Xerox helped the company significantly improve customer satisfaction, turning customers into brand advocates and winning a JD Powers Award for Best Customer Service. Another wireless company was delivering a poor customer experience and looking to improve it. At the same time, a major acquisition meant a dramatic increase in volume and complexity. Xerox helped this customer not only improve customer satisfaction and quality, but process more volume while saving US$28 million annually in support costs. This customer is now number one in the industry for quality of service, as ranked by an independent third party. Rather than resting on its laurels, Xerox is taking their commitment to the wireless industry a step further by adding deeper domain expertise. Our acquisition of WDS adds deep mobility expertise, tools, and

best practice-processes to enhance and scale our customer care outsourcing offering. What does this mean for Xerox and WDS’ current and future wireless customers? First, it delivers unprecedented expertise and breadth of end-user lifecycle consulting and solutions for the mobility market. Customers gain more value from their partnership with WDS and Xerox, as well as a closer alignment to their business requirements and competitive advantage in a highly competitive market. Second, with access to Xerox’s renowned research and development centers, WDS can speed innovation and enhancements to its suite of solutions. Together, our goal is to become the world’s leading wireless-focused solutions provider offering high-value, high-impact solutions and services to our clients across the wireless ecosystem. The bottom line for our customers is the ability to raise the bar on the customer experience, which in turn earns greater loyalty, turns customers into brand advocates, garners a larger share of wallet, and differentiates the brand in the marketplace

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OEMs need to deliver clear differential value ith that resonates w er consumers in ord to maintain the ir e higher-end of th s. device portfolio

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14 – Experience Issue 2

higher end options need to be better differentiated with clear justification of price points through relevant, understood and widely appreciated value adds

The New Customer Care Mandate: Manage all Customer Experience Touchpoints Chris Tranquill Group President / SVP Telecommunications and Technology Group

L O Y SATISFACTION A L T Y

As a Key Performance Indicator (KPI), customer satisfaction has gained global popularity across the wireless industry, with hundreds of thousands of employees now being measured by customer satisfaction or customer retention metrics. This is no bad thing of course. When you witness how the industry struggles to differentiate on its tangible assets, it makes the need to inspire loyalty through the customer experience all the more obvious. But if the end-goal is to improve loyalty, are today’s customer satisfaction methodologies even appropriate and is the industry making a link between satisfaction, loyalty and profitability that simply doesn’t exist?

One and the same? “ ”

Acquire me on price, and you’ll lose me on price

After several years of strategy built around subscriber acquisition, large parts of the wireless industry are now turning their attention to subscriber retention. For many, most notably mobile operators, this is proving difficult. Those same subscriber acquisition strategies typically comprised price promotions, discounted (and often free) devices and flexible contracts and price plans. While proving successful in lowering barriers to entry for consumers looking to benefit from the smartphone revolution, they have seemingly created a generation of consumers that associate service provider value with price. A very clear lesson is being learnt; if you acquire a subscriber on price, chances are you’ll lose him on price. As a result, several markets around the world continue to suffer double digit churn rates. In many cases this has been driven by high levels of pre-paid subscribers, conditioned into shopping for the best deal on a regular basis and continually jumping between networks. In other markets, where contract-based plans still account for more than 50% of subscribers, churn continues to

be driven through price-wars and discounted devices. But regardless of the drivers for churn, one thing remains clear; loyalty to a mobile operator requires breaking the continued cycle of service commoditization and instead, building value-based relationships with consumers. It means evolving the price-driven relationship into something a little less tangible, but much more emotional and, ultimately, valuable. Does tenure indicate loyalty? One of the principle mistakes made by wireless organizations is to correlate satisfaction directly to loyalty. The two are very different.

While a measure of satisfaction may correlate to tenure it doesn’t imply loyalty. Customer segments with high customer satisfaction scores may churn without warning or reason. Satisfaction scores are merely a window in time, often measured immediately after an interaction with customer care or an other front-office function. Satisfaction, after all, is the result of a process. Expose a seemingly satisfied customer to a more compelling deal in the subsequent weeks

Loyalty is expressed through a degree of resistance to competitive price-based offers and of forgiveness towards the brand when service dips below expectations.

Customer satisfaction is just that, a customer’s degree of satisfaction at any given time in the customer lifecycle. Often measured through Net Promoter Score (NPS), customer satisfaction recognizes and measures whether the customer’s expectations have been met. As a key metric measured by nearly every wireless brand on the planet the temptation is to believe that a high NPS leads directly to improved loyalty and profitability per user. While the desire to make this link is understandable, it’s also dangerously ineffective.

(perhaps a lower tariff or a free device) and they may happily churn. This is often because their relationship was developed on the ‘price-based’ expectations set at the time of their acquisition. The wireless brand has been unable to develop the relationship any further; there is no emotional investment or connection to the brand and the consumer continues to associate value with price. Continued…

16 – Experience Issue 2

Experience Issue 2 – 17

L O Y SATISFACTION A L T Y

One and the same? “ ”

Acquire me on price, and you’ll lose me on price

Loyalty is expressed through a degree of resistance to competitive price-based offers and of forgiveness towards the brand when service dips below expectations.

16 – Experience Issue 2

Experience Issue 2 – 17

Loyalty does not occur spontaneously and it cannot be bought. It is built over time and is the result of a multiple interactions between the consumer and service provider. Think, for example, of the famous Apple “Antennagate” controversy. The brand equity, accumulated over time, across a base of highly loyal followers almost certainly helped Apple come out of the affair relatively unscathed; at least to a lesser extent than a rival manufacturer may have fared. Of course, there’s always a tipping point at which loyalty has to concede to convenience, but that point is entirely flexible and a measure of the strength of the relationship. Demonstrations such as this show clearly that unlike satisfaction, loyalty does not occur spontaneously following a process. It is built over time and following multiple consumer interactions with multiple processes; from the retail experience, through quality of service on the network and post-sale care and maintenance. To this end ‘loyal’ customers are highly prized, typically delivering far greater Customer Lifetime Value (CLV). This increase in CLV comes from more than increased tenure (after all, a satisfied customer may stay on the network, even

Satisfaction has become a prerequisite

This is not to say that satisfaction and loyalty are not linked (loyalty absolutely requires a degree of satisfaction). Nor is it to undermine the importance of customer satisfaction. Customer satisfaction has become a prerequisite for doing business and almost all studies agree (as do most mobile operators) that there is a link between customer satisfaction scores and retention rates. The point is, without the associated loyalty, the stability of that retention rate can’t be guaranteed in the event of a compelling competitive offer. Tenure is no indicator of loyalty. Just because a customer has been a customer for five years, it doesn’t necessarily mean he’s loyal or any less likely to be tempted away. It is only true loyalty that protects against this uncertainty. When is a loyalty program not a loyalty program? The problem is exacerbated by the insistence of many wireless brands to fight churn with the very weapon that helped cause the problem; price promotions. So called loyalty programs are often little more than reward programs. Industry Analyst

Helen Karapandžić from Analysis Mason supports this logic, identifying that loyalty is not just about specific programs, but also about basic ‘hygiene’ factors1.

“

Loyalty programs are not a panacea for reducing churn: operators need to make sure the basics, such as customer satisfaction and pricing, are right before loyalty programs will have an impact.

Customer e alu Lifetime V High

This then, marks the value of a truly loyal customer. Loyalty is expressed through a degree of resistance to competitive pricebased offers and of forgiveness towards the brand when service dips below expectations. Loyal customers may even continue to purchase from a brand after a bad experience or go out of their way to continue a relationship.

an unsatisfied customer may stay through inertia). Loyal customers exhibit several additional characteristics beyond a greater resistance to churn, including advocacy levels that can help to drive referrals (helping to reduce subscriber acquisition costs) and a higher propensity to buy additional products and services from the same provider. Anecdotally, many wireless brands have also found their keenest and most loyal advocates actively participating on official self-care forums to support other end-users. Activity such as this, coupled with a more predictable and stable retention rate, can have an immediate impact on the profitability of a brand’s end-user segments.

Risk of chu

The true value of loyalty

Low CLV

Medium CLV

Low

The value-based relationship Wireless brands almost certainly understand the logic of this issue, and the value of creating truly loyal customers. However, realigning the vision and separating customer satisfaction from customer loyalty requires a major business transformation initiative. Internal functions have been built around satisfaction measures and while these remain valid, their limitations must also be acknowledged.

Medium CLV

High CLV

Value

Value must also be better defined. What is value and how is it measured? Should customer segment value be based on revenue per user, margin or even advocacy? Perhaps it’s a blend of all three or perhaps different value metrics should be associated to different customer segments.

High Fig 1.

Helen Karapandžić, Analysis Mason

”

Indeed, in many cases it’s misleading to even associate these programs with loyalty. Often they have more to do with basic retention (through rewards), often achieving little more than financially rewarding established behavior. A study by Nokia Siemens Networks suggesting that 33% of decisions to churn are based on the end-user being exposed to a competitive offer, such reward-based programs often serve a very short-term purpose; acting only as a defense against competing offers. Consider the two principal variables typically used by marketing functions to guide investment in loyalty and retention programs; value and risk of churn. In most cases, budget (in the form of device upgrades, rebates and price concessions) is directed toward high value customers with a high risk of churn (this risk of churn is measured through a combination of NPS, tenure, interaction with care and many other variables). See Fig 1.

One cannot argue with this logic and this is, of course, the most appropriate quadrant for investing in retention; the churn risk must be mitigated quickly. However, retention and reward programs are often homogenized and simply rewarding this quadrant with financial incentives serves only to reward a systemic failure in the customer experience. If the customer is a churn risk, then either the expectations of the customer segment have not been met or the relationship hasn’t been developed sufficiently enough to protect the segment from competitive price-based offers. Can we really be sure that this investment is actually going to move a large part of that segment into the bottom right of the quadrant where churn risk is no longer an issue? Often relied upon as the sole weapon against churn, these programs risk creating a vicious circle that again creates a price-based connection between service provider and end-user that is broken only by a competitive, and more compelling, rewards program.

Unfortunately, and unlike many other industries, loyalty often goes unrewarded. This follows the assumption that the longer a customer has stayed within the network the less likely they are to churn. We know, however, that tenure is no indication of loyalty and that while this assumption may apply to a collective (considering customer inertia), it doesn’t allow for segmentation to dig deep enough to identify those customers who remain within the network through loyalty. Consider the segment defined in the quadrant (Fig 1.) as low-value but low-risk of churn. They too deliver a medium CLV comparable to that delivered by the high-value, high churn-risk segment typically targeted by retention programs. Are they any less valuable? Indeed, perhaps they display the early signs of loyalty that will shift them towards the bottom right of the quadrant (through increased spend) and deliver additional value through advocacy.

Fundamentally, we must acknowledge that loyalty cannot be bought. Unfortunately, understanding the true nature of loyalty has been lost in the semantics of our industry. It is too often confused with satisfaction and too often we see loyalty ‘programs’ are driven not by a desire to engender loyalty but to retain satisfaction. Loyalty is not the product of a single experience, and therefore can’t be measured through single-point methodologies such as NPS alone. While it is convenient to make the immediate association between process-driven NPS and Customer Satisfaction scores with loyalty, the reality is that true loyalty and all of its defining characteristics, is developed over time and is the result of a sustained level of interaction designed to deliver on the original brand promise. It is the customer experience, and how it is controlled, that allows this to happen, ensuring expectations are met (and exceeded) and that the original proposition remains compelling enough to retain the customer as part of a value-based relationship and not just because there’s a free device or a discount on offer

http://www.analysysmason.com/About-Us/News/Insight/Insight_Mobile_loyalty_Oct2011/

18 – Experience Issue 2

Experience Issue 2 – 19

Satisfaction has become a prerequisite

Helen Karapandžić from Analysis Mason supports this logic, identifying that loyalty is not just about specific programs, but also about basic ‘hygiene’ factors1.

“

Loyalty programs are not a panacea for reducing churn: operators need to make sure the basics, such as customer satisfaction and pricing, are right before loyalty programs will have an impact.

Customer e alu Lifetime V High

Risk of chu

The true value of loyalty

Low CLV

Medium CLV

Low

Medium CLV

High CLV

Value

High Fig 1.

Helen Karapandžić, Analysis Mason

”

http://www.analysysmason.com/About-Us/News/Insight/Insight_Mobile_loyalty_Oct2011/

18 – Experience Issue 2

Experience Issue 2 – 19

LA P M ND AT OB SC EN ILE AP TS E

Best from the blog Some of the most viewed blog posts from blog.wds.co

To say that mobile devices have become the remote control of our lives would be an understatement. From waking us up in the morning to keeping us connected and entertained, from speeding up a commerce transaction to being a trusted advisor; mobile has fundamentally changed how we behave and how societies and cultures evolve. As a result, there has been a big influx of investment and innovation over the last decade. This surge of activity has also translated into an increased number of patent filings in the two major patent jurisdictions of the US and Europe.

Consumers powerless to compare battery performance

Smartphone Shipments, Average Selling Prices and Market Share…

Market Shipments Data

For much of the last decade, the US and the European patent trends were similar in nature, both in terms of the total number of patent grants as well as the number of mobile related patents that were granted during the decade. However, around 2004, things started to change drastically. While the European market continued at a steady pace, the US market really took off, so much so that by Q1 2012, the US market was granting mobile patents at x 2.5 the rate of its European counterparts.

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The infographic of this study and a full audit of devices included in the study is available for download at wds.co/enlightened

Covering key data points from Q1 2009 through to the most recent quarterly earnings release, the latest WDS Device Manufacturer: Performance Tracker is available for you to download from wds.co/enlightened and includes:

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20 – Experience Issue 2

A vital aspect of customer experience is setting the right expectation. This is not about the quality of battery technology – no single manufacturer can really overcome the limitations of today’s batteries, but they can take the lead in better-informing customers. And that will not only boost satisfaction, but will also save money for them and their operator partners.

V TI AC

Despite the growing popularity of apps and mobile internet browsing, both of which can be notoriously power-hungry, our study found their impact on battery performance remained noticeably absent from the battery specifications used by consumers to compare battery life. Only two of the 50 devices tested offered consumers an expected battery life for web browsing – the Apple iPhone 4S and the Nokia N9.

That’s why we began compiling the “WDS Device Manufacturer: Performance Tracker” to help our mobile operator customers make more informed and strategic decisions.

Today, we live in a knowledge economy where intellectual property is a key asset of growing importance. Good Patents are one of the essential elements to creating barriers to entry for rivals; building credibility and confidence

US vs. Europe

Understanding the fluctuations of market share, the rise and fall of Average Selling Prices and the evolution of product mixes provides a vital window into performance and device manufacturer strategy.

Of course much of the problem lies with the technical and design limitations of today’s battery technology. However, we had a hunch that a lot of the problem could be better managed if device manufacturers were more transparent in how they reported battery performance. We took 50 of the biggest device launches from the last year (August 2011-August 2012) and audited how they quoted battery performance to consumers. What we discovered is that the industry’s approach to quoting battery performance is significantly out-of-touch with real-world usage.

Taken from his paper ‘Mobile Patents Landscape: An In-Depth Quantitative Analysis’, Chetan Sharma looks at the explosion of mobile patents, the power shift from Europe to the US and identifies the industry’s key patentees.

EU RO PE G

We’ve long been aware that battery performance is the Achilles’ Heel of the smartphone. Not only have we seen the volume of technical support calls relating to battery performance quadruple since 2008 but a recent report from J.D. Power and Associates found a clear link between satisfaction with battery performance and the likelihood to repurchase a device from the same manufacturer.

among investors, customers, partners, and employees; providing clarity as to the property ownership; demanding leverage from the industry; and for generating revenue from licensing and sale.

Market Share Average Selling Prices Year on Year Growth Analysis Feature/Smartphone Product Mixes

Experience Issue 2 – XX

LA P M ND AT OB SC EN ILE AP TS E

Best from the blog Some of the most viewed blog posts from blog.wds.co

Consumers powerless to compare battery performance

Smartphone Shipments, Average Selling Prices and Market Share…

Market Shipments Data

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The infographic of this study and a full audit of devices included in the study is available for download at wds.co/enlightened

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20 – Experience Issue 2

V TI AC

That’s why we began compiling the “WDS Device Manufacturer: Performance Tracker” to help our mobile operator customers make more informed and strategic decisions.

US vs. Europe

EU RO PE G

among investors, customers, partners, and employees; providing clarity as to the property ownership; demanding leverage from the industry; and for generating revenue from licensing and sale.

Market Share Average Selling Prices Year on Year Growth Analysis Feature/Smartphone Product Mixes

Experience Issue 2 – XX

EUROPE A more startling observation is the rise in mobile patent grants as a percentage of total patent grants. This has risen significantly in the US market, indicating the importance that innovators attach to mobile in their business. In the US, one out of every five patents granted in 2011 and in Q1 2012 was related to mobile. Less than a decade ago, this number was less than 10%. In contrast, the European market has seen lower growth, roughly one out of every ten patents granted in Europe is mobile related.

Overall Mobile Patents 1995-2012

Mobile Patents Granted in 2011

Nokia

Samsung

IBM

2011

Alcatel-Lucent

Sony

2010

Ericsson

RIM

2008

Microsoft

2006

IBM

Qualcomm

2004

Sony

Ericsson

2002

NEC

2000

Motorola

Panasonic

Qualcomm

Nokia

Mobile Related Patents Granted

1998

Granted Patents: Mobile Patents as a % of Total Patents

1998 1996

1996 1994

Europe US

1992 0

10000

20000

30000

40000

50000

60000

One key factor in this shift is the wider trend of mobile investment and innovation shifting to the US. By the mid-2000s big (and small) players started taking more notice and started investing more in the US market relative to Europe; and that included the strategy to protect their intellectual property. For example, between 1995 and 2006, Samsung had only 441 mobile patents in the US compared to 1688 in Europe. However, in the US during 2007-2012, Samsung was granted 5651 patents compared to 3615 in Europe. Even Nokia, a European powerhouse, which didn’t compete well in the US market, was granted 10% more patents in the US vs. Europe for the time period 2007-2012 relative to 1995-2006. For Microsoft, which by far has the most number of software patents, the before (1995-2006) and after (2007-2012) numbers were 26% and 81% respectively – meaning they were granted 26% more US patents than Europe during 1995-2006 and this number jumped to 81% in the last 5 years.

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22 – Experience Issue 2

Not surprisingly, companies who have been around for a while, especially in the infrastructure and the platform space, lead the overall mobile patents chart with Nokia and Samsung emerging as the top two players.

Europe US

1992 0

10%

15%

20%

25%

Global Mobile Operators The US mobile operators led by AT&T have a strong showing in the operator rankings primarily due to the strength of their US portfolios.

TeliaSonera SK Telecom Telecom Italia

AT&T

Swisscom 1. AT&T 2. NTT DoCoMo 3. Sprint NTT DoCoMo 4. British Telecom 5. Verizon 6. T-Mobile 7. Swisscom 8. Telecom italia 9.SK Telecom 10. TeliaSonera

T-Mobile Verizon

Samsung 1995-2006 US 441 mobile patents

Samsung 1995-2006 Europe 1688 mobile patents

Sprint

British Telecom

Global Platform Players

Samsung 2007-2012 US 5651 mobile patents

Samsung 2007-2012 Europe 3615 mobile patents

Global Infrastructure Providers Given that Samsung’s interests span infrastructure, devices, and components, its portfolio is more diverse and potent compared to some of its competitors. Samsung

Microsoft

While Apple and Google dominate the mobile platform space, from the patent portfolio perspective, Samsung, Microsoft, and IBM are the top three.

Mobile Patents – the Leaders Chetan Sharma Consulting analyzed patent filings and granted patents from Europe and the US from the last 20 years (1991 – 2012), and specifically looked at the mobile related patents for the 65 top companies in the mobile ecosystem. The research study then analyzed the industry’s sub-segments to determine the top 10 patentees for each category based on the patent grants in both US and Europe. For the purposes of this analysis, only the relevant (active) mobile patents during 1995-2012 were analyzed.

Overall

Samsung

Microsoft

IBM

Qualcomm

RIM

Intel

Oracle

Apple

Google

Amazon

IBM

Qualcomm

RIM Intel Oracle Apple Google Amazon

Overall Mobile Patents 1995-2012

Mobile Patents Granted in 2011

Nokia

Samsung

IBM

2011

Alcatel-Lucent

Sony

2010

Ericsson

RIM

2008

Microsoft

2006

IBM

Qualcomm

2004

Sony

Ericsson

2002

NEC

2000

Motorola

Panasonic

Qualcomm

Nokia

Mobile Related Patents Granted

1998

Granted Patents: Mobile Patents as a % of Total Patents

1998 1996

1996 1994

Europe US

1992 0

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22 – Experience Issue 2

Europe US

1992 0

10%

15%

20%

25%

Global Mobile Operators The US mobile operators led by AT&T have a strong showing in the operator rankings primarily due to the strength of their US portfolios.

TeliaSonera SK Telecom Telecom Italia

AT&T

Swisscom 1. AT&T 2. NTT DoCoMo 3. Sprint NTT DoCoMo 4. British Telecom 5. Verizon 6. T-Mobile 7. Swisscom 8. Telecom italia 9.SK Telecom 10. TeliaSonera

T-Mobile Verizon

Samsung 1995-2006 US 441 mobile patents

Samsung 1995-2006 Europe 1688 mobile patents

Sprint

British Telecom

Global Platform Players

Samsung 2007-2012 US 5651 mobile patents

Samsung 2007-2012 Europe 3615 mobile patents

Global Infrastructure Providers Given that Samsung’s interests span infrastructure, devices, and components, its portfolio is more diverse and potent compared to some of its competitors. Samsung

Microsoft

While Apple and Google dominate the mobile platform space, from the patent portfolio perspective, Samsung, Microsoft, and IBM are the top three.

Overall

Samsung

Microsoft

IBM

Qualcomm

RIM

Intel

Oracle

Apple

Google

Amazon

IBM

Qualcomm

RIM Intel Oracle Apple Google Amazon

Hitachi

Fujitsu

Siemens

RIM

Motorola

NEC

Sony

Samsung

Nokia Overall Mobile Patents

Global OEMs Nokia might be losing its overall device market share, but its patent portfolio is strong as ever. Samsung, Sony, NEC, and Motorola wrap up the top five listings.

STR ON

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Mobile Patent Position of Major Players in US and Europe

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Alcatel-Lucent

6000

Sony

5000

Nokia

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Ericsson RIM

4000

NEC NTT DoCoMo

3000

ST R

Siemens

G IN ON

Qualcomm

Fujitsu

Huawei

2000

Philips Panasonic 1000

Ricoh SAP Apple 0

Interdigital

IBM

Broadcom Cisco

Oracle

Sprint 1000

Microsoft

Motorola

Hitachi

2000

3000

Number of Mobile Patents in Europe

Samsung

Intel

AT&T

4000

5000

6000

7000

8000

9000

10000

Cutting through the noise of wireless.

Number of Mobile Patents in US

The value of patents While the value of good patents is universally accepted, only a handful of companies have active programs that are embedded within their organizations to capture and enforce IP and patent rights. Even some of the most innovative companies with the broadest patent portfolios fail to recognize the value of their IP assets. While they amass a significant number of valuable patents over time, they remain oblivious to their value in the market place and their ability to extract revenue. This results from the mindset of treating corporate legal and IP departments as cost centers rather than groups of strategic importance for the company that can produce significant value to the company. Mobile is becoming the most critical tool to drive human ingenuity and technological growth. It is therefore useful to understand the mobile patent landscape, the companies that are shaping up the ecosystem, their

24 – Experience Issue 2

respective strengths and weaknesses, and how their strategies are evolving in the key jurisdictions of the US and European markets. The increasing mobile to total patents ratio demonstrates that mobile patents are not just important for the mobile ecosystem but to the technology industry at large. Current trends suggest that by 2013, a quarter of all patents filed in the US will be mobile related. Mobile will continue to be the engine of the knowledge economy and the companies who understand the value of the Intellectual Property will continue to protect and benefit from their investments for years to come. This article is extracted from the paper, ‘Mobile Patents Landscape’ by Chetan Sharma Consulting. To read the full document, please visit www.chetansharma.com

About Chetan Sharma Consulting Chetan Sharma Consulting is one of the most respected management consulting and strategic advisory firms in the mobile industry. It is focused on evolving trends, emerging challenges and opportunities, new business models and technology advances that will take the mobile communications industry to the next level. Its expertise is in developing innovation-driven product and IP strategy. Its clients range from small startups with disruptive ideas to multinational conglomerates looking for an edge. It helps major brands formulate winning, profitable, and sustainable strategies. The firm’s intellectual property practice provides unique 360 degree advisory services. More information about the practice is available at www.chetansharma.com About the Author Chetan Sharma is President of Chetan Sharma Consulting and is one of the leading strategists in the mobile industry. Executives from wireless companies around the world seek his accurate predictions, independent insights, and actionable recommendations. He has served as an advisor to senior executive management of several Fortune 100 companies in the wireless space and is probably the only industry strategist who has advised each of the top six global mobile data operators.

Listen in at: wds-podcast.blogspot.com

Hitachi

Fujitsu

Siemens

RIM

Motorola

NEC

Sony

Samsung

Nokia Overall Mobile Patents

Global OEMs Nokia might be losing its overall device market share, but its patent portfolio is strong as ever. Samsung, Sony, NEC, and Motorola wrap up the top five listings.

STR ON

7000

Mobile Patent Position of Major Players in US and Europe

PE EURO IN

Alcatel-Lucent

6000

Sony

5000

Nokia

Experience

Podcast

Ericsson RIM

4000

NEC NTT DoCoMo

3000

ST R

Siemens

G IN ON

Qualcomm

Fujitsu

Huawei

2000

Philips Panasonic 1000

Ricoh SAP Apple 0

Interdigital

IBM

Broadcom Cisco

Oracle

Sprint 1000

Microsoft

Motorola

Hitachi

2000

3000

Number of Mobile Patents in Europe

Samsung

Intel

AT&T

4000

5000

6000

7000

8000

9000

10000

Cutting through the noise of wireless.

Number of Mobile Patents in US

24 – Experience Issue 2

Listen in at: wds-podcast.blogspot.com

IS THREE A CROWD?

CAN WINDOWS PHONE BREAK THE

VIRTUOUS CIRCLE CREATED BY ANDROID?

Free markets don’t like two dominant players. Instead, the rule of three, whereby mature markets (from grocery to airline) thrive with three dominant players, the rule of three is one of those unwritten laws of economics that seems to drive the greatest competition and innovation.

(iOS and Android) accounted for 85% of all smartphone shipments in Q2 2012.

In many cases, the wireless industry is no exception. In the 40 major markets studied by Chetan Sharma Consulting, the top three mobile operators controlled an average of 93% of their respective markets. But one area where the balance needs to be addressed is the battle for smartphone OS market share. In Q2 2012, according to industry analyst IDC, sales of the top two platforms (iOS and Android) accounted for 85% of all new smartphone shipments.1

device manufacturers US$10-US$20 per unit for licensing Windows Phone; revenue from licensing is pocket change for a company earning more than US$15bn a year selling copies of Microsoft Office alone. In fact licensing revenue probably just about covers its Windows Phone marketing costs and incentives programs. Instead, the importance of Windows Phone goes far deeper and it’s paramount to Microsoft’s wider software strategy.

With RIM still striving to maintain its legacy share, attention is increasingly being directed to Windows Phone to break the duopoly. But can Microsoft really build a credible third ecosystem?

Microsoft’s cash cow is the enterprise market. Both desktop and server-side software such as Exchange and SharePoint have historically been protected thanks to the company’s dominance in the PC market. But in a post-PC era of multi-platform computing, Microsoft can no longer take this market for granted. The interface into an enterprise’s back-end infrastructure is no longer just the desktop PC; it’s an Android smartphone and tablet too. Over time this is undoubtedly going to have an impact on how IT Managers look at building and investing in their backend infrastructures, and Microsoft knows it.

Microsoft can’t afford to let this fail With only two years under its belt, Windows Phone has some work to do to reach doubledigit market share. However, for anyone that’s had the opportunity to walk around Microsoft’s Redmond campus and seen Windows Phone branding adorning almost every available wall, or had the chance to listen to members of the Windows Phone team talk passionately about their product, you’ll know that Microsoft is in this for the long game. This is a company with deep pockets, and it’s not going to admit defeat anytime soon. To understand Microsoft’s persistence, one must first look at the company’s wider business. Windows Phone is by no means about making money directly from the smartphone market. The company charges

The consumer market isn’t without risk either. For those consumers buying into the Apple ecosystem; spending money in iTunes and building content libraries that they are accessing through multiple portable devices, is their next desktop purchase going to be a PC or will they get a better experience by adding an additional Apple-interface into the equation in the form of a Mac?

Continued…

Experience Issue 2 – 27

IS THREE A CROWD?

CAN WINDOWS PHONE BREAK THE

VIRTUOUS CIRCLE CREATED BY ANDROID?

(iOS and Android) accounted for 85% of all smartphone shipments in Q2 2012.

With RIM still striving to maintain its legacy share, attention is increasingly being directed to Windows Phone to break the duopoly. But can Microsoft really build a credible third ecosystem?

Continued…

Experience Issue 2 – 27

Markets are shifting. The way both enterprise and consumer users are creating, consuming and sharing content is being cut free of the desktop and Microsoft’s historical backyard. Google understands this too. Android now offers the company one of the world’s most ubiquitous computing platforms through which to deliver access to its applications (apps), services and, ultimately, advertising inventory. In 2010, sales of smartphones beat sales of PCs for the first time. For Google, the platform through which consumers access its services and through which advertisers can promote their products and services is largely irrelevant; be it a PC, smartphone or tablet the goal is to drive search traffic. For Microsoft however, the shift has an impact not only on short-term revenue from existing PC licensing (a Windows license averages about US$55 per unit) but also

from emerging markets that were once seen as the source of long-term revenue opportunities and explosive PC growth. In many of these emerging markets, reliance on fixed network infrastructure is being replaced by reliance on high-speed cellular networks. Little wonder then that sales of smartphones in these emerging markets often outpaces that of the traditional PC. Quite simply, Microsoft needs Windows Phone to succeed if it is to maintain leadership across its wider software portfolio. Remembering Windows Mobile Of course, Windows Phone isn’t Microsoft’s first foray into the smartphone OS market. The current platform replaces Windows Mobile which, in 2007 and 2008, saw its license sales peak at around 15m, putting it ahead of RIM. There was a strong third-party ecosystem of developers and, with a focus on the enterprise user, Microsoft appeared well positioned to control the wireless smartphone ecosystem in the same way that it had done in the PC market. But this very comparison to the PC industry is one of the reasons many believe the Windows Mobile platform failed to gain further traction

“

Quite simply, Microsoft needs Windows Phone to succeed if it is to maintain leadership across its wider software portfolio.

” 28 – Experience Issue 2

and was so quickly replaced by Android. Many hardware manufacturers had seen firsthand what Microsoft’s dominance in the PC market had done to brand names such as Dell and Toshiba. It had become almost impossible to differentiate on anything other than price, and control [and loyalty] of the end-user was managed at a software level by Microsoft. Many smartphone manufacturers feared history would repeat itself. From the end of 2008 onwards, Windows Mobile licenses began to decline. When Android entered the market in 2008 it answered a very specific need. Smartphones were starting to capture market share, but remained very much the preserve of the early-adopter. They were generally expensive to procure and so required heavy mobile operator subsidies to reduce their retail price. A year earlier, Apple had already signaled a change, demystifying the smartphone platform and focusing attention not on hardware specs and technical competence but on features and use-cases. But the Apple iPhone was positioned at the high-end of the market; with an average selling price of over US$600 it was expensive and remained limited to selected partner networks for

several years. Android was the antithesis of this and its gamble came in the form of openness. The operating system was free for use under an open-source license and the manufacturer and developer communities were granted free access over the development, testing and acceptance of apps. Its use exploded and today Android is deployed by more than 35 OEMs globally. The smartphone had gone mass market.

minimum hardware specifications and a tightly controlled UI (user interface). Its view was that by doing this it could assure a more controlled experience for end-users and a more predictable cost of ownership for mobile operators.

Android took the smartphone experience mainstream and managed to do it in a way that allowed mobile operators enormous customization options and a lower price point than had previously been achievable.

At the end of Q1 2012 Android passed 50% market share in the US. With such a critical mass the platform has succeeded in shifting mobile operator thinking and creating a virtuous circle. As an open-source, customizable platform, the OS had given the mobile operator, developer, manufacturer and end-user communities exactly what they’d wanted. All sides of the Android ecosystem saw value and quickly the platform gained momentum. Today, mobile operators benefit from a broad inventory of Android product that, thanks to manufacturer adoption, spans multiple price points; from entry-level devices that require little, to no subsidies to high-end, premium product.

However, the approach has not been without its critics. Where Apple maintains tight control over both the OS and hardware, Android is subjected to multiple reference designs, hardware types and customization layers. Android deployments can never compete with the hardware consistency (or software integration) of some of its competitors; but nor does it want to. Google executives have repeatedly argued against clamping down on hardware standardization, claiming that the company does not believe in a ‘one size fits all’ solution.2 Microsoft, however, saw a gap. An OS available across multiple hardware brands yet controlled by

The theory is sound; but did it come too late? Breaking the virtuous circle

many unknown outside of their native South East Asia suddenly found themselves able to compete on a global scale, leveraging their existing expertise in producing low-cost product on a massive scale to produce products that competed favorably [on a software level] with those of the more established manufacturer brands. Before Android, names like ZTE and Huawei were relatively unknown in western markets. Today ZTE is the world’s fourth largest device manufacturer with growing focus on the higher-margin smartphone segment. But it’s not just the large-scale manufacturers benefiting. The influence of smaller players

In its thinking, the company has quite obviously put the end-user first, valuing consistency in the user experience above all else.

The Android approach is thus one of low-friction. Manufacturer adoption was rapid thanks both to Android’s licensing model and its refusal to mandate minimum hardware specifications. A new wave of manufacturers,

can be seen in the rise of the handset ‘long-tail’; the hundreds of smaller manufacturers that remain too small to register on the shipment league-tables compiled by industry analysts. In 2009, these ‘others’ accounted for 12.3% of all handset shipments globally. By the end of H2 2012, they controlled a quarter.

Continued…

In 2009, ‘others’ accounted for 12.3% of all handset shipments globally. By the end of H2 2012 they controlled a quarter.

Experience Issue 2 – 29

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Quite simply, Microsoft needs Windows Phone to succeed if it is to maintain leadership across its wider software portfolio.

” 28 – Experience Issue 2

The theory is sound; but did it come too late? Breaking the virtuous circle

In its thinking, the company has quite obviously put the end-user first, valuing consistency in the user experience above all else.

Continued…

In 2009, ‘others’ accounted for 12.3% of all handset shipments globally. By the end of H2 2012 they controlled a quarter.

Experience Issue 2 – 29

The sheer volume, and breadth, of Android devices allowed mobile operators to quickly feed consumer appetite for smartphone product at a lower cost than many alternatives (and in a way that allowed them to customize the UI) and finally, the growing base of end-users fuelled developer interest, swelling the Android Market. Looking to avoid the fragmentation concerns, Microsoft took a more forceful approach with Windows Phone. Alongside minimum hardware specifications for all Windows Phone builds, Microsoft doesn’t allow the UI to be customized and maintains control over software updates. In its thinking, the company has quite obviously put the end-user first, valuing consistency in the user experience above all else.

The move certainly adds a degree of flexibility to manufacturer partners, allowing them to improve their margins and tailor their builds to cater for lower-cost markets. However, while the move was positioned to support entry into new markets, it also has the secondary benefit of allowing hardware manufacturers to better differentiate on the hardware level and compete on raw specifications as many Android manufacturers are starting to do.

update having to undergo hundreds of tests to ensure new code didn’t negatively impact legacy customizations. Not only did it tie-up development resource at Microsoft but the fragmentation alienated and confused mobile operator partners looking to range Windows Mobile devices. Ensuring this happens is largely in the control of the software and it’s unlikely that Microsoft will cede greater customization to manufacturers of software update control to operators. Competitive OS updates often have to pass through further customization layers and testing cycles. This can sometimes delay the availability of a software update by several months depending on the device build, manufacturer and network. Microsoft will want to avoid these layers and delays by maintaining control of the software and insisting on cumulative updates by the carriers (carriers can veto a Windows Phone update but they must deliver all historical updates when they do proceed with an update) as they did in April 2012 by forcing an upgrade to Windows Phone 7.5 for eligible devices by stopping updateable Windows Phone 7 devices from downloading apps.

The company insists that it is continually Unfortunately, many mobile operators see working to optimize the Windows Phone this focus as detrimental to their own level experience for lower-powered devices of control. Threatened by Apple’s tightening and to maintain a consistent experience relationship with its own subscribers, in keeping with the principles behind stagnating ARPU and the fear of relegation its original hardware specifications. It is to dumb-pipe status, many mobile operators however, a move that will require careful want nothing more than device breadth to management in order to succeed. Coming to capture a wider demographic, customization market as an antidote to supposed hardware options to build brand loyalty, control over fragmentation, Microsoft will have to work software updates to manage their network hard to ensure it doesn’t break one of and support resources and low-cost product its key differentiators. to reduce their subsidy burdens. Android delivers this and breaking this virtuous circle remains On the Windows Phone blog, Terry Myerson, Microsoft’s biggest challenge. At the beginning of 2012 Microsoft made a move that may help to counter some of the device manufacturer friction; it lowered the minimum hardware specifications.3 Requiring a less powerful processor, only 256mb RAM and even removing the need for a camera, the goal was to increase the potential market for Windows Phone (7.5) devices by 60% by making lower-cost product available to fast-growing markets across Asia and Latin America.

corporate vice president of Windows Phone explained. “People who have opted for other lowcost or “free” smartphones have found out the hard way that some of those smartphones won’t run all their apps or do everything they want. It’s not a given that your lower-cost phone can do what the phone in the commercial can. With Windows Phone, we’ve done the engineering so that nearly all of the current apps will just work on these new phones. Those apps that do need more power are flagged in the Marketplace so if you have one of these new phones with less memory you won’t unknowingly download an app that won’t run well.” 4

Lessons learnt While some view the legacy of Windows Mobile as a negative, with Microsoft having to work doubly hard to win back the hearts and minds of mobile operators, there are clear benefits. Importantly, it seems Microsoft has learnt from its mistakes. In the days of Windows Mobile, if a manufacturer wanted to add an extra feature Microsoft complied. But while it fed the manufacturers’ desire for differentiation it added to an increasingly unmanageable portfolio of Windows Mobile customizations, with each new

This isn’t the PC industry where direct selling, corporate accounts and retail sales sit alongside each other to provide Microsoft multiple ways to reach the end-user. In the wireless world, the mobile operator is sole gate-keeper. It decides what hardware (and software) to attach to its network, in turn driving the focus of the handset manufacturer and developer communities. Windows Phone is very much Microsoft’s last chance to get it right and deliver something that meets operators’ needs. Fortunately it seems that their approach, sitting between Apple’s tightly controlled ecosystem and Android’s low-friction, open approach is having a positive impact. Certainly its innovative approach to the UI has won praise from the highest echelons of the industry; even Apple co-founder Steve Wozniak has proclaimed “every screen is much more beautiful than the same apps on Android and iPhone.” 5

Operators too are welcoming a third ecosystem. On its Q1 2012 earnings call, Verizon Communications Inc’s chief financial officer said.

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It is important that there is a third ecosystem that’s brought into the mix here, and we are fully supportive of that with Microsoft. Android is an incredible platform today that we helped create. And we’re looking to do the same thing with a third ecosystem.6

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The next 12 months will be critical in establishing a foothold in key markets and of key importance will be the ability to clearly define the uniqueness of the platform over rivals. Yes, the UI looks great. Yes, the Nokia partnership has delivered some truly compelling devices, but these still remain subjective views. Instead the key to turning mobile operators into advocates will be demonstrating a proposition that alleviates some of the cost pressures being felt. Helping to reduce subsidy investments by increasing the lifespan of the device, reducing instances of product returns, offering a product that doesn’t adversely load support traffic and creating a proposition that remains compelling enough for the consumer not to churn; these are all areas of true value to a mobile operator and ones that Microsoft must look to leverage. http://www.idc.com/getdoc.jsp?containerId=prUS23638712

http://www.androidcentral.com/andy-rubin-no-one-size-fitsall-solution

http://mymicrosoftlife.com/2012/02/27/microsoft-outlineslower-specs-for-windows-phone/

http://windowsteamblog.com/windows_phone/b/windowsphone/ archive/2012/02/27/windows-phone-at-mobile-worldcongress-2012.aspx

http://anewdomain.net/2012/04/26/apple-founder-inventorsteve-wozniak-why-i-love-my-windows-phone-7-5-fan/

http://www.businessweek.com/news/2012-04-24/apple-sdominance-has-carriers-cheering-for-nokia-windows-phone

Windows Phone must maintain a consistent experience

30 – Experience Issue 2

Experience Issue 2 – 31

Operators too are welcoming a third ecosystem. On its Q1 2012 earnings call, Verizon Communications Inc’s chief financial officer said.

“

”

http://www.androidcentral.com/andy-rubin-no-one-size-fitsall-solution

http://mymicrosoftlife.com/2012/02/27/microsoft-outlineslower-specs-for-windows-phone/

http://windowsteamblog.com/windows_phone/b/windowsphone/ archive/2012/02/27/windows-phone-at-mobile-worldcongress-2012.aspx

http://anewdomain.net/2012/04/26/apple-founder-inventorsteve-wozniak-why-i-love-my-windows-phone-7-5-fan/

http://www.businessweek.com/news/2012-04-24/apple-sdominance-has-carriers-cheering-for-nokia-windows-phone

Windows Phone must maintain a consistent experience

30 – Experience Issue 2

Experience Issue 2 – 31