O2’s mobile data strategy takes shape
Eden Zoller, Research Director
O2’s plans for mobile data services have always been ambitious, but not always well thought through.
It was the first operator to launch WAP and GPRS in the UK but did so without securing exciting applications, or terminals, to take advantage of them. The proposition for GPRS was unclear and in the case of WAP completely off the mark – remember “surf the net, surf the BT Cellnet”?
However, the past 18 months have seen O2 launch a string of innovative data services and other initiatives that appear to be paying off – literally. Data services accounted for 17.3% of total service revenues in the year to the end of March 2003, which was ahead of expectations.
It claims to carry about one-third of the UK’s SMS traffic, and about one-half of all WAP page impressions. The picture looks encouraging going forward. The talk from directors at a strategy briefing last week was sensible stuff about improving the user experience, building on SMS, using GPRS to seed multimedia services and kicking 3G services into the long grass until next year. Could it be that O2’s data strategy is finally taking on shape after a messy few years in the wilderness?
O2 is pushing SMS hard, taking what we believe is the correct view that SMS has not yet reached its full potential. Person to person text messaging has been performing strongly – O2 says around 60% of its customers now use SMS and that it handled on average 30 million messages a day for the year ending 31st March 2003.
This texting group is now being targeted with higher value data services, notably premium SMS. A core driver for premium SMS has been the services offered through the high profile sponsorship deals with UK football club Arsenal and Channel 4’s Big Brother reality TV show in the UK. O2 is also the only UK mobile operator to offer broadcasters and advertisers cross-network premium SMS services, in the form of O2 Broker.
O2 has been careful not to neglect fostering data usage among its pre-paid users and has been targeting them through the Bolt On messaging services. Around half a million pre-paid customers have bought a Bolt On service and 19% of new pe-paid customers take it, making it a good source of incremental data revenues from pre-paid customers.
O2 is focusing its “next generation” data efforts firmly on GPRS rather than 3G. This is sensible and O2 has launched applications such as Java games, MMS and mobile e-mail to boost GPRS usage. Progress is slow but steady – as it is for most operators – and at the end of March 2003 O2 had around half a million active GPRS subscribers.
But usage is growing fast. The company reports that traffic on its GPRS network increased by 25% between January and June. It is now hoping to stimulate demand further with a new range of music and video services, which have just finished trialling in the UK and Germany and should be launched in the run up to Christmas. O2 claims the services proved very popular in the trial.
O2 admits frankly that its aggressive drive to be first to market with WAP and GPRS was mistaken. It says its data strategy is no longer about being first to market, but about being a ‘leader’ in the provision of innovative data services. This could be seen as justification for the fact that it has fallen behind rivals such as Vodafone since its launch of Vodafone live! and T-Mobile, which was the first to market with picture messaging in the UK and Germany and more recently, launched the T Zones service.
To be fair to O2, it has launched a number of data initiatives that chime with its goal of being an innovation leader. The line up includes Java Games Arcade, MMS services, Revolution, the Source O2 developers programme and in June, O2 Active.
O2 Active is strategically important – although you would not think this by the low-key launch. One of the company’s strategic objectives, and a commendable one, is to improve the user experience of data services and by doing so, drive up usage. The O2 Active user interface has been designed to do just this.
Active is a consumer service brand that inevitably draws comparisons with the successful Vodafone Live!, which has around 1.5 million users. In common with Vodafone Live!, Active features a branded colour icon menu system which gives customers access to a range of content.
But unlike Vodafone Live! there are no specified handsets for use with the service. Instead it is available on more than 15 existing handsets, that should increase to around 20 by August 2003. We think O2 is sensible not to tie Active to a few proprietary devices. Active is meant to be an umbrella brand, and also O2 is not big enough to influence handset production and volumes in the way that Vodafone can.
O2’s data services are without doubt performing well and it has a strategy in place that should enable it to continue performing strongly over the next year. Active should play an important role in driving consumer usage but we think O2 needs to put some meaningful marketing behind it, as at the moment it is almost invisible. The current advertising campaign features people in hooded anoraks fiddling with their phones, which is an odd image that does not get the O2 Active message across. One of the reasons Vodafone Live! has done so well is because it is supported by high profile, prolific advertising that says what it does on the tin.
My main reservation is working out how O2’s various data initiatives fit together. It is not entirely clear how the various service strands relate and who they are aimed at. This could confuse customers and frustrate developers. Being a leader in data innovation can only be a worthwhile goal if based on a coherent strategy. Otherwise it looks as though an operator is simply covering all the bases.
Contact Eden Zoller on ELZ@Ovum.com
See Messaging Services: the Engine of Growth for Wireless Data for the latest Ovum analysis of MMS, wireless instant messaging and wireless e-mail. 
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