The Russian market for VAS in 2006-2007
Alongside the web universe, the Russian mobile world is rapidly emerging. In 2006, Russia’s value-added services (VAS) market grew steadily and continued to grow in the first quarter of 2007, reaching $615 million, a year-on-year growth of 34 percent, ComNews Research reported. The three major players in the VAS market, operators, content providers (CP) and aggregators, as well as subscribers are growing with it. Major Russian mobile operators have introduced more aggressive and assertive policies on the VAS scene, launching new WAP portals and services and drastically reducing the number of content partners. The share of VAS in the overall structure of operators’ revenues reached 14% in the 1st quarter of 2007. With the launch of the first 3G networks in 2007-2008, Russian operators will only increase their content offer. Consolidation and stricter carrier policy have reduced the number of core content providers to 80-100 companies. Last year, PCs honed their skills in providing IVR and RBT services, pushing for more video content, mobile games and community services.
Major PCs pushed for higher quality content offerings, new product introductions, and global market expansion. Today, the winning formula of the Russian VAS market is to ensure the quality of content and the diversification of products and services. IVR, SMS TV lotteries, RBT and mobile games were in the most popular and successful content services section. IVR services grabbed the “Lady Luck” of revenue in 2006. In addition, continued growth in WAP penetration, mobile community services and user-generated content all promise that this year will be positive.
However, the otherwise resurgent market has its pinch of salt. Piracy is on the rise, while low content quality and SMS spam remained a significant impediment to faster market development. Finally, the still high WAP traffic rates and the high revenue shares of the operators constitute an additional burden for the evolution of the market.
What is the name of the game?
Pavel Roitberg, Head of Products and Services, MTS, noted at the last Mobile Content Forum held in Moscow in June 2007 that “we have changed the rules of the game.” While before MTS, Russia’s largest mobile operator, had 250-300 content partners, analysis showed that 70% of all revenue came from 15 major partners, 20% from 20 CPs and 10% from 35 partners. . As a result, MTS terminated contracts with inefficient partners, reducing their total number of partners to approximately 100 companies. And it is much the same situation for its rivals, VimpelCom and MegaFon.
Low quality content, along with an abundance of fraudulent offers, diminished subscriber confidence in CPs and led to a sharp drop in content sales in 2005. Learning from this negative experience, major operators and content providers rushed to provide better quality mobile content. For example, MTS has created a content quality control program that makes its partners directly responsible for content quality. At the same time, the main Russian PCs have created an association to control mobile content offers.
In 2006, sales of “heavy” and expensive content increased further as subscribers became more familiar with video, games, software applications and full mp3 tracks. The purchasing power of subscribers in large urban areas has increased and they are happy to pay more money for “heavy” content. A notable trend in 2006 is the resurgence of operator activity in the VAS niche. Several Russian mobile operators have created and promoted their own portals, and participated in joint promotion with some of the biggest content providers. In addition, operators have launched new billing methods, such as the WAP tariff: MT-charge and WAP-click.
WAP networks are growing further
iKS-Consulting estimated the average monthly WAP audience in Russia at 14 million users. An average user is male (65%) in the age range 17-23 (60%), according to WAPStart research. The highest new subscriber growth rates are in outlying regions. 71% of subscribers browse the WAP via pre-installed mobile browsers. As of April 2006, there were over 80,000 Cyrillic WAP sites. However, only about 20 WAP sites have a large daily audience.
Below are the TOP-5 WAP searches in May 2007:
1. Porn – 42.00%
2. Free Stuff — 29.49%
3. Software (ICQ, jimm, Opera, audiovisual programs) – 7.23%
4. Homosexuals – 2.75%
5.Mail.ru – 2.65%
MTS has been among the most active mobile operators in developing the VAS niche. It launched a new, well-designed WAP portal and streamlined its cooperation with content providers, thereby facilitating the content aggregation market. The direct competitor of MTS and the second Russian operator, VimpelCom (“BeeLine”), successfully launched Voice-CPA and WAP-CPA programs.
In 2006, major mobile content providers significantly diversified their services and continued to expand into the neighboring CIS market, as well as globally, such as INFON (Belarus), InformMobil (Tajikistan, Georgia and Kazakhstan), i-Free (Brazil and India) and PlayFon (South Africa, Germany, Latvia, Lithuania, Estonia). Other content providers, such as A1 and Interactivi, have honed their skills in mobile marketing and branded intellectual services. For example, A1 actively upgraded the main FMCG brands in Russia and launched its new Java-based mobile community services “Ogloblya”. Similarly, Interactivi reported that in 2006 the company worked with some 1 million subscribers in Russia and held more than 60 successful promotional activities.
There have also been changes in promotion strategies. Many CPs have admitted that the effectiveness of TV advertising is decreasing, while the prices for placing an ad are skyrocketing. As a result, many CPs have shifted their advertising budgets to the WAP domain and the development of B2B partnerships. Yet, some CPs still rely on TV advertising, for example, Nikita Mobile ranked 13th in the Top 100 Advertisers list in 2006.
Despite the steady growth of the mobile content market, several challenges remained to be resolved. One of the most prevalent was the lack of creative content and services. Overall, low content quality and lack of subscriber education have significantly reduced faster market adoption. For example, television contests based on low-quality text messages undermined subscriber trust: in many cases, subscribers received a large amount of SMS spam. In addition, many market analysts have noted that the revenue share of mobile operators is too high, which has led to an increase in the price of content. In addition, the high costs of WAP traffic have increased the burden of increasingly expensive “heavy” content for mobile subscribers.
All About XXX: Mobile Game Sales Set to Rise
Some 15 million copies of mobile games were sold in 2006, estimates Playmobile. Mobile games are seen by many analysts and market players as one of the future revenue-generating giants. Adult and branded games generated the most profits and will remain popular in 2007, DDM said in its mobile games research. Erotic games generated nearly 50% of revenue, while branded games accounted for 20% to 40% of revenue, followed by casual games. Other potentially interesting products include multiplayer games, ad games, and PC games.
TOP 3 mobile game developers:
TOP-3 Russian mobile game publishers:
Mobile Content Factory
TOP-5 Russian distributors of mobile games:
Mobile Games — Key Sectors:
Source: MDD, #1 2007
Dynamic VAS Quarter
In the first quarter of 2007, the market continued its dynamic growth. According to ComNews Research, during this period, the Russian VAS market totaled $615 million, an increase of 3% from Q4 2006 and growth of 34% year-on-year. The share of VAS in the overall structure of operators’ revenues reached 14%.
ComNews Research highlighted the growing popularity of WAP services, as well as the continued price growth for end users. Both sides have blamed each other for the price hike: carriers believe the problem lies with PCs’ inability to produce meaningful, quality content, while PCs believe carriers have an inflated revenue share .
20% of operator revenue came from the VAS segment. The overall SVA revenue structure (gross) was as follows:
Basic services – 6% (36 million USD)
Content – 20% (124 million USD)
M-Internet – 20% (123 million USD)
Messaging – 54% (332 million USD)
Source: ComNews Research
In the 1st quarter of 2007, mobile Internet generated some 123 million USD for operators, almost equal to mobile content revenues (124 million USD). The main trends of the first quarter of 2007 are practically similar to those of the first quarter of 2006. Revenues from personalization services are down, while IVR and RBT continue to be in demand. Other new segments are community services and m-commerce. For example, i-Free reported the successful launch of its Jamango, a mobile community portal, in a number of global markets, such as India and Singapore. Other trends include personalization of the mobile phone at the production stage and the popularity of SMS contest technology.
Yet content operators can no longer ignore the new trend: the active promotion of operators’ own portals. Their sales have increased dramatically to almost 35%.
The average revenue share structure between CP and the operator in the first quarter of 2007 was 61% and 39% respectively, ComNews Research said.
Mobile content revenue structure:
Personalization – 34%
Mobile commerce – 3%
Games – 14%
Infotainment – 16%
Chat/Community – 9%
M-Marketing – 6%
Media projects – 18%
Off-portal sales prevailed over the portal, with 65% and 35% market share respectively.
What does the future look like? According to Playmobile, the growth in sales of the brand and of erotic games will continue in 2007. The company estimates that approximately 25 million copies will be sold this year. Multiple role-playing games and PC title games will increase. Yet, ComNews Research predicts that in 2007, the mobile content market will grow only 16% to $520 million. To sustain their income, the CPs will have to think about diversifying their activity, by moving towards the company’s trades.