The British mobile operator EE and Apple entered a partnership to bundle Apple Music with EE services in August. While OTT bundling is commonplace for carriers, this partnership is notable because EE has a differentiated offering for its prepaid & postpaid subscribers. Postpaid subscribers get Apple Music but the prepaid subscribers can listen to music through MTV Trax instead. Such a segmented approach to bundling includes significant advantages for mobile operators, both in reducing churn and increasing revenue.
How so? Today, mobile accounts for 42% of e-commerce traffic but only 21% of revenue. This means a lot of people are window shopping on their mobile devices but then making purchases somewhere else, i.e. desktop. Since a majority of new people are coming online in emerging markets where smartphone growth is the biggest, the amount of low income “window shoppers” with only access to smartphones but no way to make payments online will grow.
For carriers in emerging markets the subscriber base growth will also primarily come from window shoppers, i.e. users choosing prepaid SIM cards over postpaid accounts. The purchasing behavior for these users is likely to be similar to the e-commerce window shoppers. They will try out telco bundled services but once the free trial runs out, lower income prevents them from becoming paying users and they are again more likely to churn over to a competitor.
This is where segmented bundling comes in: offering different digital services of the same category to users based on their profile. While almost everyone might want an Apple Music subscription, not everyone will be able to afford it. Adding a regional, cheaper streaming provider for prepaid subscribers allows increasing the amount of people who take up a bundle offer and continue paying for it after the free trial runs out.
Segmented bundling is not just something to think about in terms of existing and commonplace services, such as video and music streaming. The online audience is very fragmented and many different tastes need to be catered to. There are no “soccer moms” or “teenager” segments any longer; there are “house moms who listen to death metal and blog about vegetarianism” and “teenagers who write code for Raspberry PI at home” segments.
While people in these new, niche segments are the same regardless of whether they have a prepaid or postpaid account, their spending capabilities are different. Thus different merchants can be chosen to partner with whose business logic matches that of the subscribers’ spending capability.
Thinking about the custom audiences and what people care about opens up many new bundling opportunities. For example, for postpaid office workers a bundle can be created offering free access to Office365, Evernote or Slack. For hardcore tech geeks there can be a bundle with free VPN, a launcher or anti-virus app. For students, free access can be given to an e-learning platform. For news addicts, premium access to a newspaper can be offered. For individuals selling physical goods online, free credits on a classified portal are an attractive proposition. The amount of online service providers is vast, yet carriers have so far focused on very specific segments for partnerships. Those who expand their bundle offering will be able to create more stickiness with the growing prepaid subscriber audience.
When thinking about such new partnerships, the key is to take into account the user spending behavior and spending ability. Prepaid users are easier to acquire but they also churn more readily and are difficult to upsell to. Such users need to be engaged more often to spend, for example by sending promotional messages after they have topped up their account and have the money to spend on third party services. Reminders before their subscription to a service runs out or when a charge has failed help ensure they do not churn from the OTT service and eventually from the network.
For postpaid users with higher ARPU and money on their account, existing profiles on who they are can be used to create customized offerings. For example, if it is known that a subscriber spends most of their data on browsing news sites, they would be a perfect target to upsell a newspaper subscription to. Demographic information can be used here as well: on a user’s birthday, why not offer them a free trial to Evernote?
The key question for both existing bundles as well as new services is how carriers are actually going to make money off of it. While Apple Music is big, Spotify is even bigger, in part thanks to their numerous bundling partnerships with mobile operators. Carriers offer powerful user acquisition channels to such service providers in hopes that giving the service to their users for free will make them stay with the network.
But the growing prepaid subscriber base means many users (those without credit cards who can’t be monetized through regular “pay on the bill” channels) will be unable to continue paying for the service once their trial runs out. This means carriers simply end up paying the OTT services to keep churn lower. Instead, enabling carrier billing for the services would give prepaid audiences a seamless way to transition from a free user to a paying user - thus not just reducing churn, but also creating an opportunity for the carrier to make money as well.
Carriers stand to gain significantly by thinking through their bundling strategy. First, by looking beyond existing segments to cater for “niche” audiences with “niche” services. And second, by adding a payments relationship with the merchant on top of the marketing relationship. This creates a stronger link with both the service providers as well as the users who will then rely on their carrier to access premium content online.
