In my first eSIM blog post I discussed the revenue growth use cases we’ve explored. My colleague Cristina Pandrea, Researcher at Ericsson Consumerlab, followed up with two blog posts discussing the results from a consumer survey we did on these use cases.
Now, let’s talk business. Getting into the hard facts, is there any money here?
We are moving into an all-digital world, still in Mobile Communications we rely on a physical card for identification and encryption handling. For device manufacturers and for Service Providers the business case from a cost perspective has been clear, removing a physical slot and reader in the device as well as going away from distribution of SIM cards get clear financial impact for both industries.
But, will it rock the market? Probably not, what rocks a market is when consumers can find a new meaning for their devices. So, will these use cases that we have discussed in the previous 3 blog posts rock the market? Yes, the consumers are ready, but is there money for the Service Povider here? Let’s talk business, lets quantify the value, quantify for the Service Provider.
Firstly, let’s have a look at the use cases again:
How will these be sold? And, how much is the users willing to pay?
When developing a business model, Cristina and I looked on three different types of models and after discussing with Service Providers we think this could be a way forward.
- Fixed fee per device
- Double sided business model where payment would come from other companies
- Free of charge where the intention is to get consumers to subscribe to another package
Fixed fee per device
Here we find the cases Excel in Connectivity, Travel Specials and Connected Consumer Devices. If we start with Excel in Connectivity, the Smartphone consumers interviewed, representing more than 200 million Smartphone users, gave a clear answer. 75% would activate a reasonable priced plan on top of their existing one in order to ensure connectivity. Now the question is of course, how much is a reasonable priced plan? We believe a “connectivity insurance” service at around 5% of the average ARPU is a good ballpark. So, if the ARPU is 30 Euro, then a “connectivity insurance” service at 1,5 Euro per month should be possible. In addition, per call or per minute extra charge will be billed when using the service.
The problem, or rather the challenge, here is that all Service Providers in a country need to provide the service. But the good news is, it will be a gain for all of them. A monthly insurance service with very small cost associated with it will result in a significant bottom line contribution. So, if you today have say 3 million subscribers and 75% would activate the service you are looking on an additional revenue of 40,5 million euro. And, most of that revenue will travel all the way down to the bottom line. That is not bad.
For Travel Specials we have a similar type of business model. The travel specials target primarily the 51% of all roamers that fall into the category “silent roamers”. One can argue that this kind of service might cannibalize on the income from some high spending roamers. However, when it comes to travel around 80% is leisure travel and only some 20% is for business. So, the volume increase should compensate. One should also have in mind that for any high margin business, volumes are low and it is just a matter of time before you get bypassed (CD:s, DVD:s, EU Roaming, Flight Tickets the list is long).
The service that we tried out here was a combination of local tariffs and service charge. The service charge here relates to that the home operator would charge the consumer, so there is no need to hand out credit card information to the visited operator. So effectively, a local eSIM is downloaded and valid for entire stay. This local SIM card give you a local tariff on all Mobile Data and you will be charged by your home operator. The visited operator gets all the revenues from the traffic charges and the home operator gets the service charge, say 1 euro per day.
If we for example look at Norway. In 2018 Norway had some 11,3 million visitor days from tourists and 56 million tourist days that were outbound (source). To compare, in Norway there are some 6,1 million subscribers today having an ARPU of around 30 Euro.
If we assume that 50% are silent roamers (both inbound and outbound) the potential upside is (11,3+56)*51%=34 million Euro which is like 1,5% revenue increase for the Norwegian Service Providers.
The last of the fixed fee per device use cases is the Connected Consumer Device case. Here we see today that eSIM enabled Apple Watch is generating some 3-10 USD in monthly fee. Clearly the target here is the high-end segment of the market. If we look on a penetration pricing as well as look on the interest from consumers that we discussed in Survey results shows that consumers are ready for eSIM were we showed this chart we come down to something interesting.
The result was that roughly 50% wanted to connect 1 additional device and 45% wanted to connect 2 additional or more. Clearly, this is an undeserved market opportunity. If we take an assumption that an add on subscription would have a penetration price point at 5% of the ARPU and assume a cap of 10% of the ARPU when several secondary devices are connected and that the ARPU is 30 Euro we get the following result for a Service Provider with 3 million subscribers: 3*30*12*(5%*50%+10%*45%)=76 million Euro, corresponding to 7% revenue increase.
In addition (not quantified) the consumer will need to buy a bigger bundle… and that will just be a nice upside.
Double sided business model where payment would come from other companies
Here we find two use cases, Marketing Campaign and Events. These two use cases were described in an earlier blog post. With these two use cases we see a new channel for companies to increase the customer experience and target their offerings. So, what could be the financial impact for Service Providers?
Cristina and I took the assumption that Service Providers will sell availability to their channel for the same price as they get from the consumers. The question then is, how many campaigns/events would a consumer be able to activate per year? Or? Is that really the question…I don’t think so. I think they questions rather is:
- how fast the Consumer industry will adapt to this new channel?
- how fast will consumers upgrade to eSIM devices?
- How fast will the event organizers make use of eSIMs in order to increase customer experience?
Again, the first movers (Service Providers, Consumer goods companies, Sports/Music labels etc.) will get the bulk of the top line growth here. Adopting a wait and see strategy will not suffice.
But let’s get back to money here, if we moderately expect consumers signing up for a campaign/event just once every 2nd month and the length of a campaign is one week and an event 2 weeks. Then the result, with an assumption that we have 4 campaigns and 2 events that 30% of the users sign up for, is a revenue increase of 2% for the Service Provider.
So, what is in it for the consumer industry? Let me take one example, which could work directly on your smartphone. A company, The company YouCam MakeUp have an app today with Augmented Reality, giving the consumers the possibility to try different MakeUp’s. The company found that the app’s AR try-ons drove two times more cosmetic sales — and with some brands drove conversions six times more— than those seen among non-users. When looking on targeted segments, the outcome was that AR apps are a key player in cosmetic sales among Gen Z shoppers, who are 10 times more likely to make purchase decisions after using the app, and millennials, who are two times more likely to buy something after using the app.
Here, some argue that providing an app might be enough. The main difference is that in the eSIM case, the company will get additional information like what other content the consumer is looking on, sharing content with and add on services like providing new images on the home screen every day/hour, special games targeting interactivity to become more familiar with the new offerings. All this of course with the consent of the consumer. In some countries with small bundles the fact that everything is out of bundle will also be attractive.
Free of charge where the intention is to get consumers to subscribe to another package
This part has no direct revenue impact associated with it. During the Try&Buy period there will be costs associated with providing the wanted service. The question here is to estimate the upsell possibilities from using Try&Buy and when coming out with new packages targeted to specific segments, how much positive churn I can get.
From eCommerce we have seen conversion rates increasing with more than 20%, average order increases with more than 40% and a more than 100% increase in bottom line. The cons here have been primarily around cashflow impact with a lot of returns. Now, in the mobile arena we are primarily SW focused so cashflow impact should be moderate when looking on returns.
I started off by saying “Let’s talk business”. So, did I get there? Let’s summarize:
- Excel in connectivity, with a sing-up of 75% we get a 4% top line increase
- For travel specials we are looking on a 1,5% revenue increase
- Connected devices, the number one here, we have a possible increase of 7%
- Marketing campaigns and events, 2% revenue increase
In addition, we have the financial impact from Try&Buy as well as selling bigger bundels. Now, one might argue that this might have an impact on Churn. Yes, I agree, and this impact will be positive for the players that are proactive.
And the numbers above, summing up to some 14% (I think it will be more) well, if I am 50% wrong, then we are still talking big money!
The next blog post and webinar will focus on what is important to think on when joining the eSIM race from timing, functionality, eco-system and operational point of view.