Today we are excited to publish a new case study. Kinguin is one of the most popular marketplaces in the world for digital games with thousands of products available and more than 3 million satisfied customers.
In this case study, we take a look at why Kinguin decided to integrate Fortumo’s carrier billing solution, how they have increased revenue by adding one of the most widely available payment methods to their checkout and what are the benefits to Kinguin’s customers.
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Fortumo’s latest market report gives an overview of the carrier billing ecosystem in India. India is home to the world’s second largest smartphone user base after China, having overtaken the US in the beginning of 2016.
India is a mobile-first market with the primary device for online access being a mobile device. Today, a majority of these devices are still primarily feature phones but thanks to low-cost Android phones, smartphone ownership is growing rapidly. GSMA Intelligence estimates that emerging markets like India will reach 70% smartphone penetration by 2020. In fact, while internet growth in the rest of the world is slowing down, for India it is accelerating.
The large growth in smartphones presents a significant opportunity for digital content merchants. As a low income economy, smartphones are one of the key channels of entertainment for a majority of the population. This is also evident in the fact that people cut back on spending in other consumer goods segments at the expense of entertainment on smartphones. Despite lower income, Indians spend as much money on mobile games as the global average.
With 1.3 billion people, most digital content merchants now have expansion in India part of their core strategy. But India is a very different market from say the US or Germany. Lower user income and access to payment methods, cultural differences and lack of access to mobile data are the key differentiators which require merchants to create an alternative strategy to growing in India.
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Jio’s launch two weeks ago has caused a stir in the telecommunications industry. Calls and messages on the new network are free while mobile data is 3 to 5 times cheaper compared to competitors. For Jio as a disruptor this is a reasonable strategy: Silicon Valley’s leading VCPeter Thiel has said that “[start-ups] have to be 10 times better than second best”.
But in addition to rattling up the stock market, Jio’s strategy is likely to have a longer and beneficial impact on India’s digital ecosystem.
Jio has thrown a glove to other mobile operators by slashing service costs for consumers. While Jio’s offering is only available to LTE customers, that is not relevant: consumers on 2G or 3G will ask their carrier, why do they need to pay 3x to 5x more for slower internet speeds? This is likely to create a pricing war between India’s mobile operators. Such price wars have been commonplace across the world, latest example being Singapore just a few months ago.
As prices go down, more people will switch on their mobile data services for the first time. GSMA Intelligence estimates only 15% of people in India used mobile broadband in Q4 2015, while smartphone ownership would allow much higher rates already today. Cheaper data increases the share of smartphone users who use mobile data but also incentivizes feature phone owners to upgrade to a smartphone as the main benefit (online access) becomes affordable.
It wouldn’t be an exaggeration to say that this would accelerate the progress of digital democracy or the vision of digital India by breaking the perception barrier among the bottom of the pyramid. “Data is for everybody” would be the new mantra.
This will also spur the growth of affordable 4G devices and a multi-SIM environment; further reducing the customer loyalty towards the network. Customers will keep on switching for better price or data bandwidth.
This in turn helps the digital ecosystem grow. While India’s own services like Ditto TV, Hooq and Gaana are already present in the market, a majority of global digital merchants do not have India in their sights yet. Beside few smartphone owners and lack of access to online payment methods, low mobile data penetration has been one of the key roadblocks.
Globally, average Netflix users watch 133 hours of video per month which translates into roughly 133 gigabytes (GB) of data consumed. The average Spotify user listens to 28 hours of music (34-35 GB data) per month. In Western markets a large portion of this content is consumed through landline internet, so such data volumes are not an issue. But for a mobile-first market like India, they have so far made such digital services inaccessible to a large part of the population.
Reduced cost of data will then result in a bigger uptake of digital content services as users can consume more for less. Local providers will be able to increase their audience while international merchants like Netflix, Spotify, Apple and Amazon are going to reconsider their strategy for India in light of the changing ecosystem.
With the challenges of mobile data considerably reduced, all other factors point to growth and make India one of the most attractive markets for global merchants.
Another consequence of the data revolution is voice over IP services like Skype, Viber, and others will get more acceptance in the eco-system from the telecom operators; while this will create more opportunities for them we can see many home-grown companies ready to challenge their hegemonies. Obviously, for customers the more means the merrier.
While the pricing war will create a temporary setback for carriers, in the long run everyone will benefit. Consumers get affordable internet and access to more digital content. Carriers will be able to increase user stickiness (by negotiating and offering exclusive deals and co-promotions with digital service providers) and average revenue per user (from both increased data consumption and from providing carrier billing for these services).
As evident from our monthly industry overviews, the streaming industry is booming and especially so in Asia. Revenue for record labels from streaming grew an estimated 31% last year. This growth can at least in part be attributed to the growing mobile audience in Asia, due to the fact that the region has skipped several technological steps (i.e. desktop devices) and content consumption is driven primarily thanks to mobile devices.
But there are also challenges ahead to the growth of the streaming industry due to demographic differences in the region as compared to Western markets. Technology adoption (both smartphones and streaming services) follows the classic Roger’s bell curve:
In Western markets almost everyone has a smartphone and expendable income which means “innovators” are the ones who are simply more interested in new technologies. But in Asia the adoption of new technologies is heavily dependent on income.
Most people do not have money to buy a smartphone so they cannot simply be an “innovator”, even if they wanted to. As smartphone prices go down, people with less income start buying smartphones and consuming digital services as well. With lower income hindering growth, how can streaming services continue to grow?
#1: Using localized pricing and payment methods
The key reason in Asia for why people cancel their music or video streaming service is high pricing. If local pricing is not applied to services, price sensitivity of users with lower income leads to either not trying out the service in the first place or cancelling it after the first invoice arrives. User spending is very different across the world. For example, we can take a look at two merchants using Fortumo:
- Social network: average payment size in Germany is €3.99; in India €2.1
- Game developer: average payment size in Germany €11.4; in Poland €2.3
Furthermore, access to payment methods is different across the world. In Europe and North America most people have a credit card. This is in contrast with India, the world’s fastest growing smartphone market. Here, only 4% people and 20% of smartphone owners have access to a credit card.
#2: Offering free trials
Giving away the first period of access to a streaming service greatly helps with user acquisition significantly. This is especially the case in more price-sensitive emerging markets where users are less reluctant to give away their money. Free trials simply work: an estimated 93% of Netflix trial users convert to paying users. Whether it’s with credit card payments or carrier billing, trials help grow the paying user base in the long run.
#3: Adapting the proposal
In several markets, the classical monthly subscription might not be the most suitable option for the local users and therefore also for the streaming service providers. Considering that royalties need to be evaluated, adjusting the proposal for example to also offer weekly subscription packages or a la carte content can strongly grow revenue, reduce churn and increase user acquisition.
#4: Localizing and personalizing content
People are more willing to pay for digital content that is familiar to them. Understanding what is being streamed is an obvious presumption for asking users to pay for the service. In a majority of emerging markets, people simply won’t understand the content without localization: only 0.8% of Chinese, 5% of Brazilians and Russians and 10% of Indians speak English. Localizing content and personalizing it to match user preferences gives people more incentive to pay for a streaming services.
#5: Partnerships and promotions with mobile operators
In emerging markets, carriers are very often the biggest consumer companies with the best marketing channels to access mobile users. As streaming services in mobile-first markets are primarily delivered through smartphones, it makes perfect sense for streaming companies to seek out partnerships with mobile operators, whether it’s free access to the service or free data for the users. For the mobile operator, such partnerships are beneficial as well as they increase the value for subscribers from staying on that network, thus reducing churn.
Another month has passed by so it’s time to take a look at what happened in the mobile industry in August. Arguably the biggest news story came out of China, with Uber selling off its operations in the country to competitor Didi. While Uber gave up on the biggest market of Asia, other companies are putting more focus on the region. Did we miss any major stories? Let us know in the comments below.
- Campaign Asia: Google – APAC the new global epicentre of digital media
- Wall Street Journal: Indians Spurn Snacks, Shampoo to Load Their Smartphones
- Asia One: Singtel CEO on Thai, Indian telcos and tapping high-performing markets
- Medianama: 98% of connected rural users men; 79% from the city
- Medianama: Android fails to reach out of court settlement with FAS over antitrust case
- CNBC: Apple brings mobile billing to Japanese iPhone users
- Payments Industry Intelligence: Why Japan is ahead of Europe in Direct Carrier Billing penetration
- ZDNet: Flipkart and Paytm become instant rivals, setting stage for ecommerce battle
- Medianama: It looks like PayU is buying Citrus Pay to take on PayPal
- Mobile World Live: Xiaomi set for payment debut
- Forbes: The Netflix Effect In Asia – Consumers Are More Willing To Pay For Content And Steal Less
- Music Business Worldwide: Apple Music now in 60 countries Spotify is not, as it launches in South Korea
- Mashable: Why QQ Music, China’s Spotify, is profitable while other streaming music providers aren’t
- Midia Research: UFC’s sale and the world’s foremost digitally optimised sport
- TechCrunch: India’s WhatsApp rival Hike raises $175M led by Tencent at a $1.4B valuation
- Business Insider: The Netflix of mobile gaming has launched
- Billboard: Spotify Presses Play on Dedicated Gaming Section
- PocketGamer: Cultural clashes are still holding back Chinese developers overseas
- Korea Times: Netmarble CEO says China’s mobile games ‘threatening’
Our latest market report gives an overview of the mobile payments landscape of Asia. It covers markets where Fortumo has coverage. These markets are Indonesia, Pakistan, Bangladesh, Philippines, Vietnam, Thailand, Myanmar, South Korea, Malaysia, Taiwan, Cambodia, Hong Kong and Singapore.
The growth of the mobile audience in Western markets is slowing down. But in Asia, the mobile audience is growing at an increasing rate. This can be attributed to availability of cheap Android smartphones (the global average price of Android smartphones is 3 times lower than iPhones) which are also affordable by people with a lower income.
Entering the rapidly growing markets in Asia is a significant opportunity for digital content merchants, but also involves additional work in terms of localization. The key aspects that should be considered by merchants expanding are: language (few people speak English), pricing (lower income), access to payment methods (lack of credit cards), social networks (local networks are often more popular than Facebook and Twitter), devices (cheaper phones means less technological capability) and lack of access to mobile data (need to make apps available offline).
Fortumo’s Asian market report gives a high-level overview of the biggest markets in the region as well as insights on user spending behavior, localization and platform preferences. Data presented in the white paper has been taken from public sources of information as well as anonymized, aggregated data on payments processed by merchants using Fortumo’s cross-platform mobile payments product.
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In 2016, there will be less new people coming online than in 2015 or in the years before that. Almost everyone in Europe and North America is already online and there’s simply not much room to grow.
For digital service companies that’s bad news. Getting attention is becoming more expensive as there are less new users to acquire and everyone else is targeting them as well. According to VentureBeat user acquisition costs jumped from $2 in December 2014 to $4 in December 2015. In a shrinking mobile economy, growing your audience is difficult. But fortunately, the economy is not shrinking everywhere.
India’s internet adoption is accelerating. Last year it was 40%, compared to the global average of 10%. India and other emerging markets still have room to grow. Smartphone penetration in countries like India, Nigeria and Russia is around 30% today. According to GSMA Intelligence, that number will grow to 70% by 2020. China and India are already ahead of the US by the number of smartphone owners.
Growth in these markets is beginning to ramp up because people’s income is low and smartphones have been expensive. But cheap smartphones are changing this. Globally, the price of an iPhone is around $700 while the price of an Android phone is around $200. There are even cheaper phones available at sub $100 prices and these will be driving growth of the mobile ecosystem in the few next years.
If you need proof on the importance of emerging markets, take a look at what companies like Apple, Facebook, Google, Spotify, Netflix and Uber have been doing recently. Entering emerging markets should be a key priority for all digital content merchants.
If you don’t launch early enough, someone else will. Facebook initially focused on growth in Western markets and in the meantime VK became dominant in the Russian market. Similar examples are found in several other industry segments. Netflix competes with iFlix in Asia, Spotify has local competitors in China (QQ Music), Japan and Taiwan (KKBox). Uber is facing competition in China (Didi Kuaidi), India (Ola), and South-East Asia (GrabTaxi).
When entering emerging markets, localization should be a key priority. The same strategies that have been in use for Western audiences will most likely not work there. Facebook was available in Russia from the beginning but VK knew the local users better and won the market. So what are aspects of your service that you should localize?
Most people in the world don’t speak English. There are 230 languages in Europe but more than 2200 in Asia. A majority of consumers will not understand a digital service that is only available in English. The cost of translating a few pages into another language is only a few hundred dollars while being the most efficient marketing initiative out there.
Spotify has understood this and translated their Indonesian homepage into the local language. This makes sense, because only 15% of people in the country speak English. Another example is Netflix in Japan. If you look at their local landing page, you will see content translated into Japanese. This gives audience the understanding that they don’t need to speak English to enjoy shows and movies:
Even a slight touch of localization on the landing page will help make a better connection with the local audience. If your service is built on content aggregation and you are able to deliver local content, that’s even better.
The Big Mac Index is published by The Economist as a method of measuring purchasing power parity between two currencies. By looking at how much burgers cost in different countries, we can evaluate how big are the users’ spending capabilities. Burgers are cheaper in India than in the US because in India people’s income is significantly smaller. If a burger costs a different price globally, does it make sense to have blanket pricing for digital content?
Avast is one of the biggest anti-virus providers globally. Their local pricing (the same products are 2x cheaper in India compared to Europe) is due to an understanding that optimized pricing for emerging markets helps sell more products. A lower price helps you sell more because more people are willing to buy from you as the price they are paying is similar to what they are paying for other things online.
In addition to pricing services differently, differences in user’s purchasing behavior can be accounted for as well. Fortumo’s internal payments data shows that even if users end up spending the same amount of money during a month, the average transaction size can vary 2-3x times between countries.
This means that pricing for each transaction can be localized as well. In some markets you might see that users are not willing to pay at all, so an ad-based revenue strategy would the best way to go. In another market, it might make sense to offer a subscription service. In a third market, you may have to add a free trial to get users to pay. Measuring and analyzing payment data, keeping in mind that people’s spending habits are different and tweaking pricing helps make more money.
People also have different access to payment methods. In Western Europe and North America, almost everyone has a bank card; most people also have a credit card. But not all of them want to pay online. The fear of getting your credit data stolen online in the US is bigger than the fear of getting mugged on the street. In emerging markets, most people don’t have the luxury of having such a fear as they don’t own a credit card.
There is a stronger tendency towards informal, cash-based economies and people do not need bank cards to live their everyday lives. Since income is lower, banks cannot issue cards to people and the banking infrastructure in these countries is lagging behind compared to the growth of the internet ecosystem. So what are the alternative options for people in case they do not have or do not want to pay with a credit card?
Fortunately there is a vast amount of alternative payment methods out there. Riot Games develops a game called League of Legends. League of Legends is the #1 grossing F2P MMO across the world so they are pretty certain to know what they are doing in terms of local payment methods:
The list of local payment methods is entirely dependent on the country that is being targeted but as we can see, for Brazil and Turkey several local payment methods are present alongside bank-based payments.
Not everyone in the world has a Facebook account. The Chinese social network Qzone has almost 600 million users; the Russian social network VK has almost 400 million accounts. While these social networks are smaller than Facebook with 1.6 billion monthly active users, they are dominant in their respective regions. Many other regional social networks exist as well, for example Renren, Mixi and WeChat.
When entering emerging markets, being present in these social networks and running ads there instead of Facebook is key to growing your community. In China, Facebook is banned and can only be accessed through VPN. Fan pages and advertising can be done on alternative networks instead.
Not everyone has the latest, greatest smartphone. While the average price of an iPhone is around $700, an Android phone costs on average $200. Android has globally 80% market share and $200 devices will have less technical capability. For emerging markets, digital service providers should consider the following:
- Is there enough room on smartphones to install their app?
- Is the phone powerful enough to display high-quality graphics?
- On smaller resolutions and screen sizes, is the service still usable?
- Can the service support older versions of operating systems?
Beside lower technological capability of cheaper phones, mobile data is not as widespread as it is for someone in Europe or the US. In India only 15% and in Nigeria 24% of people have mobile broadband access. People in these countries turn off mobile data and use Wi-Fi whenever possible. That means that if possible, services should also be accessible when users are offline.
Timing of promotional campaigns
From the marketing side, every online merchant wants to run their campaigns when people are already more likely to be seeking for things to buy. Generally, this happens around major holidays. Major holidays do not take place at the same time everywhere and we recently published a blog post highlighting the key differences geographically.
The best place to start when starting localization is by looking at your existing traffic. What markets are your users coming from? How well do people in those countries speak English? Can you localize your service, digital assets and campaigns for those countries?
The second step is to take a look at pricing. The simplest approach to pricing localization is to divide the items you sell into various tiers, e.g. one for high-income, one for mid-income and one for low-income economies. For each country based on its purchasing power, display the appropriate pricing tier.
With 10 times more languages being spoken in Asia than Europe, with a 25x income gap between US and India, with 9x less credit cards in India than China, using the same strategy for emerging markets as for Western markets is ineffective. Local customer research and understanding payment behavior significantly increases likelihood of success in emerging markets.
In the beginning of the year, we published a white paper describing the future of carrier billing. The audience in emerging markets now makes up a majority of the digital population. Most of them don’t have access to bank-based payments, meaning online companies need to adopt carrier billing to collect payments from them.
Gaming, social networking and streaming merchants are already doing this. But improvements in commercial terms and technical conditions will allow new segments to adopt carrier billing. In the next few years, we for example might see ridesharing companies and mobile commerce businesses start collecting payments through the mobile operators’ infrastructure.
This presents an interesting co-operation opportunity to mobile operators (who have the audience in emerging markets) and financial technology companies (who are currently serving companies with bank-based payments in Western markets). How come?
Fortumo’s CEO Martin Koppel recently took the stage at Money20/20 Europe and explained how financial technology companies and mobile operators could work together to solve the emerging markets payments challenge.
Check out the video of the presentation below:
Another month has come to an end, so let’s take a look back at the biggest events of the industry. Several major acquisitions took place, so check these and other news stories out below!
- Mobile World Live: Mobile operators “sitting on goldmine” – Baidu head
- TechCrunch: Emerging markets’ challenge to Silicon Valley
- Mashable: 8 biggest digital entertainment trends in 2016 (so far)
- Jollyboss: Smartphone shipments in India grew 15% in Q2
- OperaMediaworks: APAC Mobile First Insights Report
- Medianama: GSMA’s login API will replace passwords with mobile number logins
- PocketGamer: Apple drops to fifth place in China’s mobile market as local competitors thrive
- TechCrunch: Verizon buys Yahoo for $4.83 billion
- The Fast Mode: Digital Content Payments by Carrier Billing to Increase 4 Folds to Reach $47 billion by 2020
- Business Insider: Apple and Google want to control your wallet — but PayPal has a secret weapon
- PYMNTS: MasterCard Powers Vodafone Egypt’s Mobile Wallets
- Mobile World Live: China’s Alipay in talks with Wirecard – report
- Medianama: MasterCard invests in RazorPay ; international expansion in 6-8 months
- Medianama: Xiaomi ties up with MobiKwik to launch instant DTH and mobile recharges
- VentureBeat: Avast acquires rival AVG for $1.3 billion to create a security software giant
- Indian Express: Amazon Prime comes to India: Here is everything you need to know
- Yahoo: iflix aims for international expansion with 3 senior appointments
- WSJ: Apple in Talks to Acquire Jay Z’s Tidal Music Service
- BBC: Ask.fm changes hands once again
- Medianama: Gaana launches its first original audio series; episodes to be aired fortnightly
- Business Insider: Look how many people forgot to cancel Tidal after signing up for the Beyonce free trial
- Reuters: Tencent in deal with China’s leading music streaming firm to combine music services
- DNA India: Wynk Music is the most downloaded Android music app in India
- PocketGamer: India’s paying mobile consumers spend almost as much on IAPs as global average
- Gamasutra: Big discounts on bulk IAP buys in mobile games barely affect earnings
- VentureBeat: China’s Giant leads consortium to buy Playtika for $4.4 billion
Our latest market report gives an overview of the mobile payments landscape of Western Europe. It covers 12 markets where Fortumo has coverage. These markets are Germany, France, United Kingdom, Italy, Spain, Netherlands, Belgium, Greece, Portugal, Austria, Switzerland and Ireland.
Even though Western Europe is a region with high income and good access to bank-based payment services, many people still prefer to use alternative payment methods such as carrier billing. This is illustrated by the fact that carrier billing is among the top 3 payment methods for digital gaming in most of the countries profiled.
Carrier billing is popular in Western Europe primarily due to two reasons. As carrier billing does not require users to sign up for any accounts, payments can be completed with one step. This creates an improved checkout experience over bank-based payment solutions, especially on mobile devices. Furthermore, high awareness of card-not-present fraud has increased the usage of carrier billing as a safe, alternative payment method. This is because with carrier billing, no personal or sensitive data is transmitted during the checkout process.
It’s important to note that Western Europe is a primarily postpaid market, e.g. users have a contract with their mobile operator and pay for items purchased through carrier billing at the end of each month. This creates a higher risk of friendly fraud (chargebacks) compared to emerging markets where most users have a prepaid SIM card. To find out how to mitigate friendly fraud, please read our white paper on risk management with carrier billing.
Fortumo’s Western European market report gives a high-level overview of the biggest markets in the region:
- Demographic data, mobile coverage and banking access of each market
- Carrier billing spend behavior of users in each market (quarterly revenue per paying user, average transaction size)
- Overview of mobile operators and their market shares
- Overview of traffic sources by platform and recommendations for localization