Predictions

2013 Mobility Predictions:

Time To Place Your Bets
by Yankee Group

The Bottom Line

The volatility marking the mobile industry is finally beginning to ease, and
as the dust begins to settle, mobilitys true winnersand loserswill slowly
emerge across the entire ecosystem, from devices, to applications, networks
and more. Now that many players know the hand theyve been dealt, we see
2013 as the year when smart players place their bets and position themselves
for long-term success.

Highlights
With voice and messaging revenue on the decline, the only bright spot for
operators is demand for mobile data services. Globally, data revenue will increase
from U.S.$319 billion in 2011 to U.S.$550 billion by 2016, and total mobile service
revenue will increase from U.S.$1 trillion in 2011 to U.S.$1.15 trillion by 2016.
Consumers wantand demandanytime, anywhere connectivity. Sixty-three
percent of respondents to Yankee Groups 2012 US Consumer Survey, September
state that mobile data speeds are important to them and the same number (63
percent) want to be connected all the time.
Mobile payments are due for a security setback. A perfect storm of ubiquitous
smartphone usage, 24/7 connected devices and consumer naivet are destined to
culminate in at least one of the major cloud-based mobile payment schemes falling
prey to a successful hack.
Enterprises are experiencing their own mobile app gold rush. The proportion of
companies increasing their budgets for mobile applications has almost doubled in
the past year, from 28 percent to 51 percent of all companies spending more, with
many looking at different use cases, both internal and customer-facing.
The iPhone continues to thrive. Today, iPhones are owned by almost 30 percent
of U.S. consumers surveyed, and 42 percent of U.S. consumers who intend to buy a
smartphone intend to buy an iPhone.
M2Ms potential is starting to be realized. Yankee Group forecasts the number
of M2M cellular connections to grow by over 22 percent between 2012 and 2013,
spurred by falling M2M device costs, ubiquitous and affordable wireless connectivity,
increasing enterprise awareness and business case viability and government
mandates driving areas such as smart metering and e-Call services.

December 2012
Table of Contents
2013: A Make or Break Year
for Mobility

Predictions

Further Reading

15

Companies Mentioned
Accenture, Aeris Communications,
Alcatel-Lucent, Amdocs, Amrica Mvil,
Apple, AT&T, Bechtel, China Mobile,
Cricket, CrossBridge Solutions, Deutsche
Telekom, EE, Ericsson, Facebook,
FatFractal, FeedHenry, Google,
Huawei, ip.access, Isis, Kaspersky,
Kii, Kinvey, Kore Telematics, LevelUp,
M2M DataSmart, MasterCard, Medio
Systems, Microsoft, Mozilla, Nokia,
Nokia Siemens Networks, Numerex,
Openet, Opera, Oracle, Orange, PayPal,
PureWave, Research In Motion (RIM),
RSA, Salesforce, SAP, Samsung, Skype,
Softbank, Square, Sprint, Symantec,
Telefnica O2, Teradata, TIM, T-Mobile
USA, Verizon, Viber, Visa, Vodafone,
WhatsApp, Workday, Wyless

2013 Mobility Predictions: Time To Place Your Bets

December 2012

2013: A Make or Break Year for Mobility

Last year, we predicted all mobility playersfrom device and OS makers to application
developers, app store purveyors, network operators and morewould face
unprecedented uncertainty and volatility as the world recovered from the economic
downturn and new winners and losers emerged (see the December 2011 Yankee Group
report 2012 Mobility Predictions: A Year of Living Dangerously). And we werent
wrong. We saw players such as Huawei and Samsung in fast-growing regions like AsiaPacific emerge as mobility powerhouses, while players across Europe and in the old G7
economies struggled to maintain the status quo. While those in the U.S. faced volatile
market shifts as 4G networks came into their own and top operators flexed their M&A
muscles, cash-rich players such as Mexicos Amrica Mvil traveled across the pond to
plant stakes in Europe (see the June 2012 Mobile Broadband Strategies Daily Insight
Slims America Movil Makes Another Move into Europe).
But as the year draws to a close, there are indications that the mobility dust is
beginning to settle. Most regions (Europe is a noticeable exception) are showing signs
of a firmer economic recovery. North Americas M&A frenzy seems to be played out for
now, and virtually all players know the hand theyve been dealt. Thus, we see 2013 as
the year when they must leverage that knowledge and place their mobility bets for the
long term.
For example, next year will mark the arrival of several trends that until now had been
only anticipated. While its been expected for years, operators in 2013 will lose billions
in voice and messaging revenue, only to be faced with ever-increasing demand for
mobile data. Nows the time to decide what to do about itand we see operators
stepping up and making hard decisions about their business models, infrastructure
plans and customer experience investments. The initial device and OS maker battles
are just about over, as Apple and Google work to cement their dominance. This leaves
players including Microsoft, Nokia and Research In Motion (RIM) with a stark choice:
Devise new and creative ways to unseat the market leaders or go down in defeat.
When the dust settles, we believe the Big 2 will remain atop the heap, but theyll finally
see some real competition in the marketplace.
With this solidifying landscape in mind, Yankee Group presents its mobility predictions
for 2013. For each prediction, we offer our take on industry winners and losers
(see Exhibit 1 on the next page), as well as recommendations for players looking
to capitalize on the changes we expect. Read on to see what organizations and
technologies are best positioned to become leaders in 2013 and beyond.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

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2013 Mobility Predictions: Time To Place Your Bets

December 2012

Exhibit 1: Yankee Groups 2013 Predictions

Source: Yankee Group, 2012

Operators Will Lose US$1 Billion

per Month in Voice/Messaging
Revenue in 2013

By Year End, All Mobile Operators

Will Be Either Digital Lifestyle
Providers or Value Bit Providers

Small Cells Will Stumble

Winners

Losers

Facebook Messenger, Skype and

WhatsApp, and operators such as
Telefnica O2, T-Mobile USA and Orange

Operators that are late to market or fail to launch their

own communications apps, and IP communications
app providers that struggle to differentiate themselves

Digital lifestyle providers that dont carve out new

business units and executive leadership and instead
Big global players such as AT&T and
try to build new businesses on the back of old ideas
Telefnica on the digital lifestyle side, plus
and legacy strategies; value bit operators that kill their
creative value bit providers
margins with high marketing and device subsidy costs
and below-market pricing
Alcatel-Lucent, Ericsson, Huawei and
Nokia Siemens Networks, plus professional
services companies such as Ericsson,
Accenture and Bechtel

Service providers such as Nokia Systems

At Least One Operator Will Launch a
Networks, Openet, Medio Systems and
Turbo-Boosting Service in 2013
Amdocs as well as operators such as AT&T,
Verizon and Orange

Smaller suppliers such as ip.access and PureWave

that lack scale, and consumers attempting to get a
satisfying mobile broadband data experience
Solution providers with little real-time expertise
such as Teradata, Oracle and SAP, plus operators that
fail to understand how real-time analytics improve
subscriber experience and monetization strategies

By Year End, Google Will Start

Subsidizing Mobile Payments
Credit/Debit Card Transaction Fees

Google, card networks, NFC and

merchants

Other mobile payment players

A Mobile Payment System Will

See a Significant Data Breach in 2013

Criminals, in the short term

Consumers, merchants and the mobile

payments industry overall

2013 Will Be the First Year When

More Than 50 Percent of Companies
Look to the Cloud for Their Mobile
App Deployments

Companies with a mobile strategy in place,

cloud application providers such as
Salesforce, mobile backend-as-a-service
providers, and mobile cloud platform
providers and developers

Enterprises and vendors without a cloud strategy

Microsofts Windows Store Will

Abandon the 70-30 Split and
Registration Fees in 2013

Microsoft and games developers

Google, independent app stores and RIM

2013 Will Mark the First Year That

Android Smartphone Market Share
Will Decline in the US

Apple, Microsoft and RIM

Google

In 2013, MVNOs Will Feel

the Squeeze as Operators Get
Serious About M2M

AT&T, Verizon, Deutsche Telekom,

Sprint, Orange, Vodafone, China
Mobile and Telefnica

Aeris Communications, M2M DataSmart, CrossBridge

Solutions, Numerex, Wyless and Kore Telematics, due
to having to face more significant competition

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

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2013 Mobility Predictions: Time To Place Your Bets

Prediction 1: Operators Will Lose US$1 Billion per Month

in Voice/Messaging Revenue in 2013
The Upshot: Changes in customer behavior and the mobile
industry in general will culminate in a precipitous drop in
voice/messaging revenue; fortunately, the loss will be offset
by a boost in data.
The global mobile voice and messaging market will decline
from U.S.$758 billion in 2012 to U.S.$746 billion in 2013,
representing a reduction of almost U.S.$1 billion per
month throughout the year. This will be driven by two
primary factors:
Customer behavior is changing. A fundamental shift
is occurring in individuals mobile communications
behavior. IP-based communications appssometimes
referred to as over-the-top (OTT) servicesare becoming
increasingly popular. Yankee Groups 2012 European
Mobile User Study finds 44 percent of respondents
are already using an app such as Facebook Messenger,
WhatsApp, Viber or Skype as a low-cost alternative to
traditional mobile voice and SMS. Adoption is being
fueled by increased penetration of smartphones. By the
end of 2012, there will be 1.2 billion smartphones in use
globally, up from just 419 million in 2010.
The mobile industry is changing. Operators core voice
and messaging business is under increased pressure. In
advanced mobile markets, usage levels for these services
are showing signs of saturation. For example according
to Ofcoms July 2012 Communications Market Report,
the volume of mobile calls made in the U.K. declined for
the first time ever. Revenue from these core services
are also subject to constant downward pressure due
to price competition between operators and mobile
virtual network operators (MVNOs), as well as regulatory
measures such as lower mobile termination rates.
The only bright spot for operators in all this is demand for
mobile data services continues to grow at an impressive
rate. Globally, data revenue will increase from U.S.$319
billion in 2011 to U.S.$550 billion by 2016. There will be
regional differences, but on a global basis, this growth
in data will be sufficient to compensate for the decline
in voice and messaging. As a result, total mobile service
revenue will increase from U.S.$1 trillion in 2011 to
U.S.$1.15 trillion by 2016.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

Recommendations
Embrace IP communications. One step operators can
take to cope with the OTT threat is to introduce their own
communications apps. For example, Telefnica O2 (see
the May 2012 Mobile Leadership Strategies Daily Insight
Telefnica Offers Its Own Free Messaging Tool), T-Mobile
USA (with its Bobsled app) and more recently Orange with
the November launch of its Libon app are all taking this
approach. Success with these apps will help operators
remain central to customers communications activities.
These apps also provide a platform on which operators can
innovate, for example, by introducing advanced messaging
features based on the Rich Communications Suite (RCS).
Beef up voice and messaging propositions. Operators
can reduce the threat of customers fleeing their services
for cost-based reasons by creating 4G propositions that
incorporate unlimited voice and SMS within a flat-rate
monthly fee structure. Some operators such as TIM and EE
in Europe, as well as the leading U.S. players, are already
taking this approach.
Winners: Best-in-class IP communications providers like
Facebook Messenger, Skype and WhatsApp, as well as
operators that improve their brand appeal by launching
their own superior apps, e.g., Telefnica O2, T-Mobile USA
and Orange.
Losers: Operators that are late to market or fail completely
to launch their own communications apps, and IP
communications app providers that struggle to demonstrate
a unique selling point for their particular app in this
increasingly crowded marketplace.

Prediction 2: By Year End, All Mobile Operators Will Be

Either Digital Lifestyle Providers or Value Bit Providers
The Upshot: Both strategies are valid but ruled by different
dynamics; thus both will feature winners and losers.
One of the requirements in becoming a mobile leader is the
need to place a clear bet on a mobile-optimized business
model. Leaders must understand the impact of mobility
and adjust how they do business to both meet and take
advantage of its core attributes: anytime, anywhere access;
increasing mobile bandwidth; and a more personalized
experience driven by increased context around a customers
location, presence, behavior and needs.

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2013 Mobility Predictions: Time To Place Your Bets

Mobile operators laid the foundation for mobile business

model innovation over the past few years. Smartphone
penetration is above 50 percent for most operators, and 3G
networks are giving way to 4G deployments that not only will
boost bandwidth but will support tomorrows smarter, all-IP
networks. In 2013, mobile operators must choose one of two
paths forward. Their futures will be on the line, determined
by how well they choose and execute one of the following
distinct mobile business models:
Digital lifestyle provider. Characterized by a focus on
delivering a collection of ARPU-enhancing mobile services
built on top of simple, yet premium-priced (in some cases
shared) data plans, this path is also sometimes termed
smart pipes. A group of mobile operatorsprimarily
large, global players with multi-play networksare
pursuing a clear strategy that positions the mobile network
as table stakes to enter an even more profitable game of
offering a suite of lucrative mobile services such as home
automation/security, e-health, multiscreen entertainment,
connected cars, big-data-fueled marketing services and
more. This isnt a new idea, but it is a concept whose
time has come, with operators including AT&T, Verizon,
Telefnica, Orange and Softbank making clear investments
in and bets on digital lifestyle businesses they expect to
become billion-dollar stand-alone entities in a matter of
years. Such operators wont spend time squeezing out
every last cent via complex mobile data pricing; instead
theyll build premium-priced shared data platforms
(much like those already offered by AT&T and Verizon in
the U.S.) that not only encourage new devices, but also
provide a platform for supporting new revenue streams.
Value bit provider. Centered on offering customers
value-oriented mobile data services, these operators
offer plans priced affordably and by the bit, via a full
spectrum of prepaid, postpaid and on-demand offers.
In addition, some consumers will preferand some
operators will choose to servea more value-focused
monetization model. T-Mobile USA may be the best
example, with its growing focus on prepaid (see the
October 2012 Yankee Group report New T-Mobile
Must Move From Challenger to Disruptor), its so-called
value plans that replace device subsidies with device
financing, and its low-cost pricing, including a new lowcost unlimited plan. Such operators will target consumers
looking for the lowest total cost of ownership for their

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

devices and plans and absolutely no bill shock. To wring

more revenue out of such cost-conscious users, value
bit movers must constantly make real-time, interactive
offers that are so compelling customers choose to bite,
such as turbo-boost (see Prediction 4), time-of-daypasses or one-time access to specific content or services.

Recommendations
Operators should pick one approach and build a strategy
around it. Dont straddle the two; make a choice and
optimize your network, service offers, marketing plans
and business model around it. Compete only with others
taking a similar approachyou cant be all things to all
people. That said, some larger operators will likely create
sub-brandsmuch as they did in prepaidto attack both
opportunities. Some may applaud that approach, but wed
argue its better to excel in one market.
At the same time, keep an open mind about your target
demographic. Digital lifestyle doesnt just mean high-end
or premium. Certainly, wealthy households represent a
strong target for digital lifestyle services. But other types
of households will embrace mobile services centered
around their lifestyles as well. For instance, U.S. prepaid
operator Cricketknowing its smartphones may be
its customers main Internet connectionis offering
streaming music services and considering features such as
mobile money transfers and bill-pay services in a bid to fit
into its customers unique digital lifestyle. Other possible
lifestyle niches include teens, seniors and families.
Winners: Big global players such as AT&T and Telefnica
are poised to become successful digital lifestyle providers,
but only if they are aggressive in business development
and flawless in execution. The best value bit providers will
be those that develop the most creative approaches to
generating incremental revenue; even a few dollars of extra
ARPU makes a difference in this business.
Losers: Providers that dont carve out new business units and
executive leadership and instead try to build new businesses
on the back of old ideas and legacy strategies will lose big. On
the value bit provider side of the equation, operators that kill
their margins with high marketing and device subsidy costs
and below-market pricing may see an initial boost but lose
big in the long run.

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2013 Mobility Predictions: Time To Place Your Bets

December 2012

Prediction 3: Small Cells Will Stumble

Recommendations

The Upshot: Tariffs influencing end-users to avoid mobile

broadband for video will strip much of the economic rationale
for extensive small cell deployment in the near term, calling
into question expectations for rapid market uptake.

Suppliers need to expand the range of multi-standard

small cell solutions. As important as LTE is for expanding
high-speed mobile broadband services, todays 3G
solutions are widely deployed on end-user devices.
Operators going to the trouble of securing new sites for
small cells must be able to support both 3G and 4G traffic.

Small cell technology is shaping up to be one of the most

important infrastructure developments in recent times.
With data traffic continuing sustained growth since the
introduction of the iPhone and limited access to additional
spectrum, operators must turn to densificationthe
creation of smaller cell coverage areas through addition of
many lower-power sitesas the primary means of ensuring
high-quality services. But, that said, 2013 is not the year
of the small cell. Several factors remain in the way of rapid
small cell deployment:
Technology is still maturing. Small cells have been around
for a while. However, the femtocell approach is largely
irrelevant as operators struggle to deliver high-quality data
services in congested public locations (see the March 2012
Mobile Broadband Strategies Perspective Small Cells in 4G
Promise Big Gainsand Big Costs). Cost-effective, multistandard nodes remain out of operators reach.
Operators are still figuring out the business process.
Securing a vast set of new site locations, regardless of how
small a footprint, presents dramatic business implications
for operators. Project management processes must be
honed for support of site acquisition and build. For small
cells, the difference is scale and operator organizations are
in early days of dealing with this new set of challenges.
Tariffs have consequences. Pricing and data cap
strategies significantly influence consumer behavior.
Operators with popular services and unsustainable data
demand have already adjusted both pricing and data
traffic policing to ensure traffic demand does not outstrip
resources. For 2013, these moves can attenuate growing
demand by steering consumers away from video and
toward Wi-Fi hotspots.
Ultimately, failing to fully serve end-users with a satisfying
product will have a consequence as well. Operators must
aggressively work to establish ample capacity by increasing
network density and supplementing existing radio resources
with added licensed and unlicensed spectrum resources.
Only then will the ramp-up of small cell deployment begin
in earnest.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

Operators must actively gain experience with select small

cell deployments. Small cell deployment challenges will be
different than the challenge of expanding a macro cellular
layer. Operators must iterate existing processes and tools
to meet the new challenge. Limited early deployments will
deliver key insights into what works and what does not.
Operators must use 2013 to gain this vital experience.
Winners: Large network equipment suppliers such as AlcatelLucent, Ericsson, Huawei and Nokia Siemens Networks with
existing capability to support scaled deployments, plus
professional services companies, such as Ericsson, Accenture
and Bechtel, that can help operators with the project
management, processes and tools needed for creating scaled
small cell deployment efforts.
Losers: Smaller suppliers such as ip.access and PureWave
that lack scale; their success rides on partnerships with
system integrators.
Also, consumers attempting to get a satisfying mobile
broadband data experience that matches the price tag of
their fancy new smartphone and tablet. Until operators
figure out how to densify the network with a cost structure
supporting profitable data traffic growth, end-users will
remain frustrated with data-constraining tariffs, inferior
services or both.

Prediction 4: At Least One Operator Will Launch a TurboBoosting Service in 2013

The Upshot: As more operators look to real-time analytics
tied to network data to speed the creation, delivery and
monetization of unique product and service bundles, they
will begin to learn from customer expectations and be able
to track, monitor and respond to any change. As a result,
they will embark on new servicessuch as turbo-boosting
enabled by this new insight.
Todays consumers are increasingly demanding not only
always-on connectivity, but better service quality and
overall experiences. In fact, nearly two-thirds (62 percent) of
respondents to Yankee Groups 2012 US Consumer Survey,
December, state that mobile data speeds are important to
them and almost the same number (63 percent) want to be
connected all the time (see Exhibit 2 on the next page).

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2013 Mobility Predictions: Time To Place Your Bets

December 2012

Exhibit 2: Consumers Demand High-Quality Connectivity

Source: Yankee Groups 2012 US Consumer Survey, December

63%

63% say its important to

be connected at all times

62%

58%

62% say mobile data speeds

are very important

58% say always-on connectivity is

important to their social lives

31%

31% of heavy users of advanced

services (versus just 13% of average
users) are willing to pay for higher
speeds on demand

13%

Operators need to adapt to these new consumer demands with better tracking/
monitoring aimed at creating and delivering new services. In 2013, they will begin
to realize:
Current satisfaction trackers such as Net Promoter Score (NPS), social monitoring
and big data analytics are no longer enough. While indicators such as NPS, likelihood
to churn and others can be a great start, they dont get to the heart of exactly what
a customer is experiencing at any given time. Operators in 2013 will begin leveraging
more real-time insight to deliver the services users want and expect.
The intersection of network data, customer data and policy will drive
monetization. Its critically important to relate these emotional factors to key
network events such as usage and quality of service for improved upsell success.
Increasingly, users want the flexibility to augment their data limits or bandwidth
levels either through newer family share plans or on-demand turbo-boosting.
Price doesnt trump all. Our same survey finds that while advanced users are 13
percent more likely to churn than average users, they are also 10 percent more
satisfied with their service providers price. And 63 percent will choose a provider
that can guarantee better customer care, even if it means paying more. Another
65 percent say they would choose a service provider with retail stores that offer
personalized service and support, even if its more expensive. Operators will respond
to the wants and needs of consumers by tailoring their services more granularly and
delivering on the promise of real-time personalized service.
Turbo-boosting is an especially lucrative opportunity, since it can provide operators
with incremental revenue by extending customers existing service plans with real-time
usage top-ups and application-based bandwidth boosts. Once operators begin tying
analytics into the mix, they will also gain the ability to ensure the right value-added
service is sold to the right customer at the right time, further driving revenue. The
challenge will be applying this knowledge across the company to enhance the user
experience while still retaining profitability for the operator.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

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2013 Mobility Predictions: Time To Place Your Bets

Recommendations
Understand the role that real-time usage data can
have on churn reduction and monetization strategies.
Targeted and personalized strategies must collect
relevant data, analyze it using algorithms and models,
and then act on the information to improve the lift rate
for churn and/or revenue. Its not just about predicting
which subscribers will churn, but also determining what
will motivate them to stay.
Deliver new services based on real-time insight. In 2013,
operators should focus on exploring and offering new
services such as turbo-boosting. When matched with the
right user at the right time, they will not only deliver on
the promise of optimal customer service, but add a muchneeded boost to operators bottom lines.
Winners: Service providers such as Nokia Siemens Networks,
Openet, Medio Systems and Amdocs that help operators
successfully combine network usage data and subscriber data
to automate actions in near real time to upsell value-added
services, as well as operators such as AT&T, Verizon and
Orange that offer tiered services (instead of all-you-can-eat
plans) that target heavy users of advanced services who want
on-demand services for video or speed.
Losers: Solution providers such as Teradata, Oracle and
SAP that specialize in reporting and offline analysis versus
real-time predictive analytics, plus operators that fail to
understand and use newer forms of real-time analytics to
improve subscriber experience and monetization strategies.

Prediction 5: By Year End, Google Will Start Subsidizing

Mobile Payments Credit/Debit Card Transaction Fees
The Upshot: Google needs to entice merchants to accept its
mobile wallet solution. Paying merchant transaction fees
could prove very persuasive.
While Google Wallet has been live since 2011 (see the May
2012 Yankee Group report Google Opens NFC Payments
to Lock Up Location-Based Advertising), it has yet to gain
significant traction. Some of this stems from the choice
of a pure near field communications (NFC) route from the
start, as the technology lacks both merchant and consumer
adoption at levels that would create a tipping point. However,
merchants also have concerns about Googles motives
specifically what it intends to do with consumer information.
Approximately 97 percent of Googles revenue comes from
advertising, and it has yet to adapt to a rapidly changing
world in which the primary source of connectivity comes
from a mobile device rather than a tethered PC.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

In a strategy similar to PayPals, Google is reportedly shifting

gears and is soon to launch a physical payment card that
is linked to existing credit or debit cards in the cloud (see
the November 2012 Mobile Money Strategies Perspective
Googles Expensive Card-Not-Present Conundrum). While
this may help it gain consumer adoption since it means
Wallet will no longer require NFC support at the merchant
point of sale, it does little to convince merchants to support
the initiative.
It is no secret that retailers in the U.S. are dissatisfied
with current fees for credit card transactions, but they
are somewhat hamstrung by the sheer volume of card
transactions they handle. Even if the MCX consortium of
retailers launches an alternative payment network to the
Visa/MasterCard duopoly (see the October 2012 Mobile
Money Strategies Perspective MCXs Viability: The Devil Is
in the Details), it is highly unlikely they will reach a point
of adoption where these merchants could stop accepting
current credit cards. We see this presenting something
of an opportunity for Google to barter information for
transaction fees.
The concept of Interchange Zero, using advertising dollars
to pay for the cost of merchant card transactions, has been
pioneered by LevelUp (see the July 2012 Mobile Money
Strategies Daily Insight LevelUp Eliminates Interchange
Fees). We see this concept being adopted by Google in 2013
to solve two main problems. It will encourage merchant
adoption of its Wallet-based payments, since merchants will
save on fees. And it will support Googles mobile advertising
plans, since in return for having their transactions paid for
by Google, merchants will divulge consumer SKU-level data
to Google that can be used to deliver mobile ads. Google
could possibly extend the idea to consumers as well, offering
to subsidize airtime and/or data rates as a reward for using
Google Wallet.

Recommendations
Google should execute and stand firm. Google has the
clout to make this happen, but it will mean a significant
investment in terms of subsidizing merchant and
consumers to alter entrenched behaviors. However, if
Google really wants to acquire consumer transaction data,
this may be the price it must pay.
Other players should consider similar moves. Might
another large mobile payments firm (e.g., PayPal) try this
route as well? While Google is the 800-pound gorilla in
online advertising, mobile is a new green-field opportunity.
The mobile payments firm with the best execution will win.

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2013 Mobility Predictions: Time To Place Your Bets

December 2012

Winners: Google, since it will open the door to a trove of

consumer data and advertising opportunities for decades
to come, and card networks, since they will still receive
transaction revenues from card-based payments. NFC could
also win, since Googles adherence could prove catalytic for
the technology, ensuring adoption on both the merchant and
consumer sides. And finally merchants, which will benefit
from free credit card transactions. Whats not to like?
Losers: Googles mobile payment competitors, such as
PayPal, LevelUp, Square and Isis, which will have a very hard
time competing unless they replicate the model. Without the
advertising expertise and scale of Google, however, this will
be tough.

Prediction 6: A Cloud-Based Mobile Payment System Will

See a Significant Data Breach in 2013
The Upshot: Fraudsters are not naive to the opportunities
presented via mobile and thus far attacks have been muted
only due to the lack of scale. But in 2013, we will see the
perfect storm of ubiquitous smartphone usage, 24/7
connected devices and consumer naivet culminate in at least
one of the major mobile payment schemes falling prey to a
successful hack. All things equal, we expect the victim will
be a cloud player, since it presents criminals with the most
lucrative risk/reward ratio.

Mobile payment attacks most likely will mimic those

experienced online. For example, social engineering attacks
such as phishing could prove effective, particularly since
many of the cues that make a fake e-mail distinguishable on
a PC are difficult to detect on a mobile device. Further, the
wide range of variation in mobile OSs and Web browsers
will also compound the problem, making it unlikely mobile
end-users can successfully determine the legitimacy of an
attack. For example, fraudulent apps designed to mimic
a bank or mobile payment solution but actually designed
to capture card data and personal information might be
placed in an app store undetected and then unwittingly
downloaded. However, we believe the most likely route for
fraudsters is to target cloud-based wallet vulnerabilities and
attack a point of aggregation to access very large amounts
of sensitive information that can then be used to commit
payment fraud directly (credit card data) or indirectly
(identity theft). Such an attack provides the maximum
reward for the risk (see the March 2012 Mobile Money
Strategies Perspective Cloud-Based Wallets: Hackers
Billion-Dollar Bullseye and Exhibit 3).
Device-based wallets, by comparison, offer a higher level of
security via the secure element approach and would cause
too much friction for fraudsters. As we all know, fraud takes
the path of least resistance.

Exhibit 3: Cloud-Based Wallets Provide the Biggest Bang for the Buck
Source: Yankee Group, 2012

Cloud-Based Mobile Wallets

Are Far More Vulnerable Than
Distributed Initiatives
Heartland Payment Systems
100 million
$145 million in damages
due to breach

Apple iTunes
Distributed

200 million

Google Wallet
5,000

$100 billion

$100,000

Centralized or Cloud-Based
Key

Name
Users

Estimated Total Vulnerability

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

Page 9

2013 Mobility Predictions: Time To Place Your Bets

Depending on how this attack is handled, the growth of

mobile payments could hit a roadblock. If it is handled quickly
with full disclosure and appropriate steps are taken to shut
down the vulnerability, then the damage will be limited. If
it is handled slowly and incoherently, the nascent mobile
payments industry overall could take a major hit, pushing
consumers and merchants back to more arcane forms of
payment such as cards and cash.

Recommendations
Maintain standards. Mobile payment vendors need to
have contingency plans in place for the inevitable fraud
attempts. Maybe 2013 will be a lucky year for them and
they wont get attacked, but maybe they will. If existing
credit/debit card schemes are a component of their
payment system, then compliance with the PCI DSS
standards must be maintained.
Staff up on security. Staying abreast of current-generation
attacks requires both dedicated staff and relationships
with recognized security platform vendors such as RSA,
Symantec and Kaspersky.
Educate consumers. Consumers are the weakest link,
and a little consumer education about potential threats
will go a long way in preventing attacks. However, players
will need to walk a fine line so as not to frighten already
dubious consumers away from mobile.
Winners: Criminals, at least in the short term.
Losers: Consumers, merchants and the payments
industry overall.

Prediction 7: 2013 Will Be the First Year When More Than

50 Percent of Companies Look to the Cloud for Their
Mobile App Deployments
The Upshot: Demand-side pressures and supply-side
innovations are accelerating enterprise deployments of
mobile applications in the cloud. Next year, the majority of
enterprises will be deploying their applications using software
as a service (SaaS), as opposed to on-premises software.
Companies are on the precipice of a mobile applications
gold rush (see the September 2012 Yankee Group report
Whats Next for Mobile Apps and Cloud). The spread
of smart mobile devices among consumers and the
consequent growth in the mobile workforce through
the bring-your-own-device (BYOD) trend are spurring
enterprises to look increasingly at purchasingand
developingmobile apps. The proportion of companies

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

increasing their budgets for mobile applications has almost

doubled in the past year, from 29 percent to 52 percent
of all companies spending more, with companies looking
at many different internal and customer-facing use cases,
according to our 2012 US Enterprise Mobility: IT DecisionMaker Survey, December. A growing number of companies
are looking to the cloud to handle the development and
hosting of their application portfolios. The main demandand supply-side dynamics driving companies mobile
applications to the cloud are as follows:
Demand-side dynamics:
More apps mean greater complexity. The proliferation
of mobile apps in the enterprise is posing some real
challenges. For example, the same survey finds the
proportion of companies finding it very difficult to
distribute mobile applications to users handsets increasing
from 26 percent to 42 percent in the past year, while the
proportion finding it very difficult to manage software
upgrades (e.g., upgrades, patches, policy) on mobile
handsets increased from 30 percent to 50 percent.
Companies are looking to make mobility strategic.
As lines of business and project teams deploy more
applications, companies want and need to be more
strategic about their wider application portfolios.
They not only need a way of managing the associated
complexity but are also beginning to look much more
at longevity in the ROI of their mobile investments.
They also want increased and easier scalability of their
mobile applicationsnot just in terms of encompassing
more workers or customers in deployments, but in
terms of scaling mechanisms such as policy, security and
compliance frameworks across those applications.
Companies are prioritizing mobile and cloud services.
Yankee Groups 2012 US Enterprise Mobility: IT DecisionMaker Survey, December clearly demonstrates the
significance of the cloud, with 88 percent of all companies
saying cloud computing will play a significant role in
their IT infrastructure within the next year. Similarly,
respondents say mobile and cloud services top the list of
ITs technological priorities over the coming year.
Supply-side dynamics:
ISVs are moving to the cloud. Legacy enterprise software
providers such as SAP and cloud vendors such as Workday
are both realizing the necessity of the mobile cloud, building
out the capabilities to cater to the mobile explosion.

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2013 Mobility Predictions: Time To Place Your Bets

As are application management platforms. Enterprise

application platforms and device and application
management services are moving to the cloud. With SaaS
applications, companies can negate the capex investment
of an otherwise on-premises installation and expect easier
user onboarding and scalability, along with more flexible
pricing options.
And application services. Application developer
environments and back-end supporting infrastructures
are also evolving a new model for how mobile applications
store, secure, push and synchronize data in the cloud,
as exemplified by mobile backend-as-a-service (MBaaS)
providers such as FeedHenry, Kii, Kinvey and FatFractal.
As companies begin to look beyond the deployment
of lightweight applications to more complex ones that
require greater integration with their backend systems,
there is renewed focus on the server-side infrastructure.
Data storage, security, preconfigured mobile services,
user management, social media integration, over the-air
updates and analytics are all finding a home in the cloud,
compressing the time to market for developers and the
integration complexity for businesses.

Recommendations
Enterprises should be choosy about their deployments.
The options for mobile application development, platform
hosting and managed service deployments are widening
with cloud innovation accelerating. Companies should
evaluate carefully the options to decide which provides
the greatest scalability, flexibility and stability while giving
them the most visibility into usage of the applications
being deployed.
Vendors must focus on simplification. While companies
are on the precipice of a mobile applications gold rush, the
complexity around deploying and managing all those apps is
growing. They should leverage the cloud to help solve their
challenges, principally around scalability and the need for
greater measurable ROI from mobile service investments.
Winners: Forward-looking companies with a mobile
strategy in place, cloud application providers such as
Salesforce, MBaaS providers, and mobile cloud platform
providers and developers.
Losers: Enterprises and vendors without a cloud strategy.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

Prediction 8: Microsofts Windows Store Will Abandon

70-30 Split and Registration Fees in 2013
The Upshot: In 2013, competition between app storefronts will
turn red hot. Microsoft will entice developers to its store by
breaking with standard app store-to-developer business terms.
App distribution is now solidly in the hands of Apples App
Store and Google Play. And while Microsofts bid to make
Windows 8 the third ecosystem comes with a new Windows
Store and Windows Phone Store, Yankee Groups 2012 US
Consumer Survey, December, shows Microsoft in a distant
fifth position in downloads. That gap will not close without a
convincing app catalog, but the developers Microsoft needs
have two key doubts about the new storefronts:
Potential to drive 10-million-plus downloads. Microsoft
talks up the size of the Windows 8 installed base, but
questions remain over how efficiently this converts
to app downloads. Microsoft must bring on board
the games developers that make the casual titles that
generate 10-million-plus downloads and keep users
under 25 years old happy.
Time to market for Windows 8 projects. Business
planning for developers is calculated in days and weeks.
A new generation of mobile app developers has grown
up with little or no experience of Microsoft tools such as
Visual Studio. Developers will demand high commercial
incentives to justify the learning curve.
In 2013, app fans will get more stores to visit. The year
starts with the debut of RIMs revamped BlackBerry World
storefront. Operators are partnering with Mozilla and Opera
to launch storefronts in high-growth markets. The resulting
noise threatens to drown out Microsofts Windows 8 appeals
to developers. As a result, we see Microsoft making one or
both of the following moves:
Scrapping registration fees. Microsoft dabbled with
free developer registration codes for the Windows Store
during the launch phase. A bold step such as abolishing
registration fees will trigger media coverage and tweak
developer interest.
Rethinking revenue splits. Microsoft sweetened the
standard 70-30 revenue split a little by offering an extra
10 percent for apps making more than U.S.$25,000. That
split will be slashed to a rate that simply covers Microsofts
costs. All revenue on in-app commerce will stay in the
pocket of developers.

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2013 Mobility Predictions: Time To Place Your Bets

December 2012

Recommendations
Microsoft needs to maintain developer evangelism.
Even after changing up developer terms, Microsoft must
work hard to gain on leaders Apple and Google. Beyond
tweaking developer fees, it should sustain investment in
developer evangelism, focusing especially on midsize game
developers and local partners.
Apple and Google should avoid complacency in their
stores. Both companies can boast of enormous app
catalogs. Developers, however, cite Apples arduous
certification process as a motivation for favoring other
stores, while security concerns and low monetization
continue to hamper Google Play.

Prediction 9: 2013 Will Mark the First Year That Android

Smartphone Market Share Will Decline in the US
The Upshot: Stronger competition from Apple, Microsoft and
even RIM will put further pressure on already inexpensive
Android smartphones and their makers, forcing them to
differentiate and add more value.
Smartphones have been flying off the shelves in the U.S.
in 2012. Yankee Group forecasts that at year end, U.S.
smartphones in use will exceed 178 million, making them
more than half of all mobile lines in use. We further expect
the number of smartphones to grow past 200 million in 2013.
However, the growth of this market does not necessarily
imply that Android, the current leading OS ecosystem, will
continue to grow as well. Based on data from Yankee Groups
2012 US Consumer Survey, December, we predict a first-ever
drop in Android ownership (see Exhibit 4).

Winners: Microsoft, which stands to gain leadership status

in app distribution, and games developers, who get another
commercially viable channel.
Losers: Google, which is the prime target for an aggressive
Microsoft, as well as independent app stores and RIMs
BlackBerry World, which will have to match terms.

Exhibit 4: Consumer Buying Intent Indicates iOS and Windows Are Likely To Gain Share Against Android
Source: Yankee Groups 2012 US Consumer Survey, December

Smartphone OS Landscape
50

iOS

Android
Percent who bought in
the last 6 months
< 5%
5-9%
10-24%
50-100%

40

Percent planning to buy

Gaining share

30

20

Losing share

10

Windows Phone
BlackBerry

HP/Palm webOS

0
0

10

20

30

40

50

60

Percent who own

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

Page 12

2013 Mobility Predictions: Time To Place Your Bets

This change in fortune will be the result of several

factors, including:
iPhones sales will eat into Androids market share.
iPhones today are owned by almost 30 percent of
consumers surveyed, but 42 percent of consumers who
intend to buy a smartphone intend to buy an iPhone.
Consumer demand for Android phones, on the other hand,
is less than the percentage of consumers who own them.
This imbalance can have only one result: Apple gaining
share at Androids expense (see the September 2012
Yankee Group report, Apples New iPhone: Big Screen,
Bigger Sales).
Microsofts Windows Phone 8 handsets will also
gain ground. While only 8 percent of consumers own
Windows Phone handsets, including Windows Mobile and
Windows Phone 7 as well as Windows Phone 8, another 8
percent intend to buy them in the future. This one-to-one
ratio of intent to ownership indicates that sales of Nokia
Lumias and HTC Windows Phones will eat into more
generic Android devices that have a proportionally lower
intent to buy (see the September 2012 Yankee Group
report, Nokias Lumia 920 and 820: Nice Phones, But
Where Do I Buy One?).
Even suffering RIM will capture share based on its BB10
launch. Our landscape doesnt show RIM gaining share
directly, but thats because RIM has not announced new
products to generate buying intent yet. This will change
in January 2013, when RIM launches its new BlackBerry
10 platform phones. Yankee Group believes a fresh,
differentiated mobile OS targeted specifically at business
use combined with mobile operators that are eager for a
third ecosystem will raise RIMs buying intent and market
share significantly in 2013 (see the September 2012 Yankee
Group report, The New RIM Boots Up For Early 2013).
These shifts in U.S. smartphone market share will create
economic shifts, too. Yankee Group predicts U.S. consumers
will buy more than 132 million smartphones in 2013,
resulting in revenue of more than U.S.$42 billion before
carrier subsidies. Each point of market share that shifts from
Android manufacturers to other smartphone companies will
carry with it more than a million smartphones and more than
U.S.$400 million dollars in revenue. Further, based on our
landscape data, Yankee Group predicts the majority of that
market share shift will go to the smartphone maker with the
highest-priced phones: Apple.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

Recommendations
Smartphone companies can amplify or diminish the
effects of this shift in consumer buying sentiment. Yankee
Group recommends:
Google demand better customer experiences from
its Android licensees. Google was able to build out
its Android market share by making it the obvious,
free alternative to Apples tightly controlled iPhone
ecosystem. However, that freedom has resulted in hardto-decipher user experiences and mobile operator-loaded
crapware that turns off consumers and reduces its
smartphone platform loyalty, especially when Windows
Phone and RIMs BB10 will offer more beautifully
managed alternatives. Google needs to start putting
limits on how much customization Android licensees can
do or see further defections to the competing, controlled
OS environments.
Apple, Microsoft and RIM develop Android migration
tools. The smartphone market is no longer a green-field
opportunity; many consumers will be coming to nonAndroid platforms from previous Android handsets.
Instead of just letting consumers remain within the Google
service ecosystem, these three main competitors should
offer services to transplant consumer address books and
calendars from Google into Apples iCloud, Microsofts
SkyDrive and RIMs BlackBerry Cloud services. Getting
consumers to go native on these platforms will ensure
that once customers are won over, they stay there.
Winners: Apple, Microsoft and RIM
Losers: Google

Prediction 10: In 2013, M2M MVNOs Will Feel the

Squeeze as Operators Get Serious About M2M
The Upshot:As Tier 1 operators ratchet up their attention
on machine-to-machine (M2M) networks to help drive new
revenue, specialist MVNOs will feel the heat as they evolve
from friend into foe.
M2M cellular communications networks latent potential is
starting to be realized. Yankee Group forecasts the number of
M2M cellular connections to grow by more than 22 percent
between 2012 and 2013, spurred by falling M2M device costs,
ubiquitous and affordable wireless connectivity, increasing
enterprise awareness and business case viability, and
government mandates driving areas such as smart metering
and e-Call services (see the April 2012 Yankee Group report
2012 Global Cellular M2M Forecast: Connected Energy, Fleet
and Industrial Drive Accelerated Growth).

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2013 Mobility Predictions: Time To Place Your Bets

As would be expected with any growing market

opportunity, the ecosystem of service providers, cellular
network operators, application developers, enabling
equipment manufacturers, professional service and
IT integrators and specialists are forming strategies to
maximize the potential for long-term profit across what has
become a complex value chain.
Operators are central actors in the M2M value chain. To
date, their role has been predominately that of connectivity
provider of direct or backhauled cellular last-mile network
transport of M2M data between connected devices
and specialized application servers. In addition to direct
enterprise sales, their path to market has been one of
partnership, often via specialized MVNOs that couple their
network connectivity with additional platform, application
and integration services.
As discussed in Prediction 2, in 2013 most Tier 1 operators
will look in the mirror and see a much greater role for
themselves as they move up the value stack and provide
more of an end-to-end solution. In reality, operators will
work to bring additional home-grown assets and partnerships
to the table to better serve enterprises, which are seeking
to make money, differentiate or save money by embracing
M2M as part of their business operations. And operators will
look to do this all while increasing their overall share of M2M
project revenue.
For the past several years, operators have peacefully
coexisted with their specialist MVNO partners such as
Wyless, M2M DataSmart, Numerex, Aeris Communications
and Kore Telematics. We predict 2013 will see operators
more willing to compete for the business they were
once happy to let their partners secure. While this is not
necessarily an MVNO death sentence, it does anticipate
the need for continued vertical specialization to maintain
competitive differentiation and/or additional investment in
value-added services and pricing flexibility. Lastly, in 2013
and beyond, M2M MVNOs will become attractive M&A
targets for operators or other actors seeking the customer
footprint, expertise and intellectual property required to
propel market share during what are still early days in the
M2M and Internet of Things (IOT) market.

Copyright 1997-2012, Yankee Group Research, Inc. All rights reserved.

December 2012

Recommendations
Specialist MVNOs must outpace the innovation of their
wholesale connectivity suppliers M2M groups. The
name of the game for M2M MVNOs is vertical expertise,
network value-add and business model flexibility. Those
that can maintain a competitive edge will be able to
survive but will find growth more difficult as competition
increases from their traditional wholesale partners and
increasingly non-traditional competition from cloud
providers and/or IT integrators.
Operators should target specialists for M&A. M2M
specialists are attractive M&A targets for operators
seeking inorganic growth and M2M experience, expertise
and platforms. These companies have the battle scars of
early market entry and many boast attractive revenue/
employee, /growth and /margin KPIs. Examples include
M2M DataSmart, which has expertise targeting smaller
installations, and MVNOs such as Aeris Communications
that are well-established in a particular geography.
Winners:AT&T, Verizon, Deutsche Telekom, Sprint, Orange,
Vodafone, China Mobile and Telefnica
Losers:Aeris Communications, CrossBridge Solutions, M2M
DataSmart, Numerex, Wyless and Kore Telematics, but only in
the context of their facing stiffer competition for enterprise
M2M deals. Shareholders of these companies will win as part
of larger industry consolidation at attractive multiples.

Page 14

Further Reading
Yankee Group Research
2012 Mobility Predictions: A Year of Living Dangerously, December 2012
2012 Global Cellular M2M Forecast: Connected Energy, Fleet and Industrial Drive
Accelerated Growth, April 2012
Google Opens NFC Payments to Lock Up Location-Based Advertising, May 2012
Whats Next for Mobile Apps and Cloud, September 2012
Apples New iPhone: Big Screen, Bigger Sales, September 2012
Nokias Lumia 920 and 820: Nice Phones, But Where Do I Buy One? September 2012
The New RIM Boots Up For Early 2013, September 2012
New T-Mobile Must Move From Challenger to Disruptor, October 2012
Yankee Group Perspectives and Daily Insights
Small Cells in 4G Promise Big Gainsand Big Costs, March 2012
Cloud-Based Wallets: Hackers Billion-Dollar Bullseye, March 2012
Telefonica Offers Its Own Free Messaging Tool, May 2012
Slims America Movil Makes Another Move into Europe, June 2012
LevelUp Eliminates Interchange Fees, July 2012
MCXs Viability: The Devil Is in the Details, October 2012
Googles Expensive Card-Not-Present Conundrum, November 2012
Yankee Group Data
2012 US Consumer Survey, December
2012 US Enterprise Mobility: IT Decision-Maker Survey, December
2012 US Consumer Survey, September
2012 European Mobile User Study

About the Authors

The following Yankee Group analysts contributed to this report: Declan Lonergan,
Brian Partridge, Carl Howe, Chris Marsh, Jason Armitage, Ken Rehbehn, Nick
Holland, Rich Karpinski and Sheryl Kingstone.

Copyright 2012. Yankee Group Research, Inc. Yankee Group published this content for the sole use of Yankee Group subscribers.
It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of Yankee Group,
One Liberty Square, 6th Floor, Boston, MA 02109. All rights reserved. All opinions and estimates herein constitute our judgment
as of this date and are subject to change without notice.

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