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					Teknillinen korkeakoulu
Tietoliikenteen ja multimedian laboratorio
Tik-109.501 Telealan liiketoiminnan tutkimusseminaari I
14.11.2000




                           B-to-B Case: Iobox




                                 Petrus Koskinen          48598T
                                 Kari Rouhola             50461U
Tik-109.501 Telealan liiketoiminnan tutkimusseminaari I
14.11.2000




1     INTRODUCTION ..................................................................................................................................................... 1

2     COMPANY ................................................................................................................................................................ 1
    2.1        IOBOX HISTORY ................................................................................................................................................... 1
    2.2        TERRA MOBILE ................................................................................................................................................... 2
    2.3        BUSINESS IDEA .................................................................................................................................................... 2
    2.4        OPERATIONS (LOCATIONS) ................................................................................................................................. 3
    2.5        CORE COMPETENCIES .......................................................................................................................................... 3
       2.5.1      Technology .................................................................................................................................................... 3
       2.5.2      Understanding of business plans ................................................................................................................... 3
       2.5.3      Managing....................................................................................................................................................... 3
3     INTERNAL ENVIRONMENT................................................................................................................................. 4
    3.1        PERSONNEL ......................................................................................................................................................... 4
    3.2        ORGANIZATION ................................................................................................................................................... 4
    3.3        FINANCE ............................................................................................................................................................. 4
    3.4        PROFITABILITY.................................................................................................................................................... 5
    3.5        REPUTATION ....................................................................................................................................................... 5
    3.6        INNOVATIVENESS ................................................................................................................................................ 5
    3.7        RESEARCH AND DEVELOPMENT .......................................................................................................................... 6
4     EXTERNAL ENVIRONMENT ............................................................................................................................... 6
    4.1        GENERAL ENVIRONMENT .................................................................................................................................... 6
       4.1.1      Demographic Segment................................................................................................................................... 6
       4.1.2      Economic Segment......................................................................................................................................... 6
       4.1.3      Political/Legal Segment................................................................................................................................. 6
       4.1.4      Socio/Cultural Segment ................................................................................................................................. 7
       4.1.5      Technological Segment .................................................................................................................................. 7
    4.2        INDUSTRY ENVIRONMENT ................................................................................................................................... 7
    4.3        COMPETITORS ..................................................................................................................................................... 8
       4.3.1      Red Message .................................................................................................................................................. 8
       4.3.2      Myalert .......................................................................................................................................................... 9
       4.3.3      Akumiitti ........................................................................................................................................................ 9
       4.3.4      2ndhead ....................................................................................................................................................... 10
       4.3.5      Sonera ZED ................................................................................................................................................. 10
    4.4        COMPETITOR CONCLUSION CHART .................................................................................................................... 11
    4.5        COMPETITOR CONCLUSION................................................................................................................................ 11
5     SERVICES AND CUSTOMERS............................................................................................................................ 12
    5.1        MOBILE MESSAGING ......................................................................................................................................... 12
    5.2        MOBILE FUN ...................................................................................................................................................... 12
    5.3        MOBILE MANAGER ............................................................................................................................................ 13
    5.4        MOBILE NEWS ................................................................................................................................................... 13
    5.5        MCOMMERCE .................................................................................................................................................... 13
    5.6        CUSTOMERS ...................................................................................................................................................... 14
6     VALUE CHAIN ....................................................................................................................................................... 15

7     DELIVERY CHANNELS ....................................................................................................................................... 16

8     EARNING LOGIC .................................................................................................................................................. 16

9     ANALYSIS ............................................................................................................................................................... 16
    9.1        SWOT .............................................................................................................................................................. 16



 Koskinen, Rouhola
Tik-109.501 Telealan liiketoiminnan tutkimusseminaari I
14.11.2000



10      SCENARIO PLANNING ........................................................................................................................................ 20
     10.1       SCENARIO BUILDING ......................................................................................................................................... 20
     10.2       SCENARIO SELECTION ....................................................................................................................................... 20
11      RECOMMENDATIONS FOR ACTION .............................................................................................................. 21
     11.1       CUSTOMER LOCK-IN .......................................................................................................................................... 21
     11.2       IMPROVE EARNING LOGIC ................................................................................................................................. 21
     11.3       DON’T FORGET SCANDINAVIA .......................................................................................................................... 21
     11.4       REAL CHALLENGE IS TO KEEP THEIR POSITION .................................................................................................. 22
12      CONCLUSION ........................................................................................................................................................ 22




Summary


Authors:                            Petrus Koskinen, Kari Rouhola

Title                               B-to-B Case: Iobox

Date:                               12.11.2000                                                                               Pages: 25



In this study we have researched company called Iobox, which is a Finnish

wireless application service provider. It was founded in 1999. In the age

of just 19 months it was acquired by Terra mobile. The deal has great

impacts on Iobox' future. Our opinion is that if Iobox is able to keep

its position in the new company it has a great possibility to become a

truly global player in the wireless world. Terra Mobile is a good partner

for it.




Key words:                     Mobile Internet, B-to-B, Mobile Entertainment




 Koskinen, Rouhola
TU 91.109 Markkinatutkimusseminaari
21.2.2000




1     Introduction


This study is conducted for the Helsinki University of Technology Tik-109.501 Telealan
liiketoiminnan tutkimusseminaari I, course was held fall term 2000. Goals of the study are; analyze
Iobox current business environment, find out possibilities and threads and finally give
recommendations for future action.



2     Company



Iobox is wireless application service provider (WASP), which means a company that produces
different kind of applications for mobile phones and other wireless terminal equipment. Until
recently Iobox has been operating in both business-to-consumer and business-to-business areas. The
Terra Mobile, deal explained in the next chapter, has changed Iobox’ focus mainly to btoc area.
Iobox’ slogan is “we bring the Internet to your mobile”, which describes the target of the company:
to create services which are provided in Internet also to mobile phones. They were the first operator-
independent service provider in the market and their faith in mobile phone services is strong. Iobox is
trying to create pan-European brand, which provides strongly localized services to each country.
Iobox has presence in Sweden, Germany, Spain, UK and Finland. They service offering includes
ringing tones, icons, e-mail to mobile phone, WAP portal and text message news to mobile phone. In
July 2000 Iobox had 1,6 million registered users (in UK, Finland, Sweden and Germany) and number
is growing by 7000 every day.



2.1    Iobox history


Iobox was founded in January 1999. Original founders were Jari Ovaskainen and Henry Nilert. Jari
Ovaskainen worked in the USA for Andersen Consulting before returning to Finland. He sold his car
and used all his savings (total of $120 000) to start Iobox. Henry Nilert is former investment banker.




 Koskinen, Rouhola                               1
TU 91.109 Markkinatutkimusseminaari
21.2.2000



He worked for Credit Suisse First Boston in New York. Nilert is a Swede who was born in New
York but has been raised in France. Since the founding of company Iobox has been growing rapidly.
Helsinki office was opened in February 1999 followed by London office November 2000. First the
company had two headquarters (in London and in Helsinki), but in January 2000 they moved it
completely to London. In January 2000 Munich and Stockholm offices were opened and same year
in March company extended also to Oulu. At the same time Iobox acquired Futuron Wireless
Solutions in order to get research and development capacity. Futuron was specialized in XML and
java based wireless software.
Terra Mobile, which is a joint venture 51% owned by Telefonica Moviles (a spanish operator) and
49% by Terra Networks, acquired 100% of Iobox in July 2000.



2.2   Terra Mobile

Telefonica Moviles and Terra Networks founded Terra Mobile in July 2000 with the aim of
becoming the world’s leading mobile Internet portal. Terra Mobile will operate internationally in
Europe and in Latin America. The parent firms already hold the market leading position in those
areas with Telefonica Moviles over 11 million subscribers in Spain and more than 23 million
worldwide. Terra Networks is the leading provider of Internet access in the Spain and Portuguese
speaking world. Telefonica Moviles is a wholly owned subsidiary of Telefonica S.A. and Terra
Networks is 67% owned by Telefonica S.A.




2.3   Business idea


Originally Iobox was trying to create pan-European brand, which provides strongly localized
services to each country. The idea was to create an image that when people think of mobile they
think of Iobox. The markets have been very interested in different mobile services and Iobox has
been racing against the clock to be the first in market. Because of the new owner the idea has been
changed a little bit. As Terra Mobile has a very strong position in the Spanish and Portuguese
speaking markets in it quite obvious that they want Iobox to provide their services to those markets.
The negotiations are still underway and no official statement of the position of Iobox has not been



 Koskinen, Rouhola                              2
TU 91.109 Markkinatutkimusseminaari
21.2.2000



given. The btob business of Iobox has mainly been the development and selling of their wireless
platform which enables a company to start offering different kinds of services to customers. The
platform has thus in part been a “sales opener” to get more sales for the services developed by Iobox.
Iobox is of course taking care of their existing btob customer but acquisition of new customers is
now Terra Mobile’s responsibility.



2.4   Operations (Locations)


Iobox has offices Finland (Oulu and Helsinki), Germany, Spain, Sweden and London (HQ). Iobox’
R&D activities are located in Spain, Oulu and Helsinki.



2.5   Core competencies


In the discussions with Iobox Helsinki office manager he mentioned three core competencies Iobox
has.


2.5.1 Technology

Personnel of company are very technology oriented. The technological skills are very high and the
proof of that is the wireless platform which is developed of regular components but the building of it
lasts at least 18 months. Many competitors have said that they have similar platforms but none of
them have them have it in use.



2.5.2 Understanding of business plans

When things have to be organized there has to be understanding of which business plan fits to certain
occasions. The personnel of company come from different

2.5.3 Managing

All the at least vice president level managers have in minimum 10 year experience in working life.
That gives them enough preconditions to reach the targets set to them. The company is also very




 Koskinen, Rouhola                              3
TU 91.109 Markkinatutkimusseminaari
21.2.2000



young and the employees don’t have a common history. That kind of situation controls politicking
which can be very damaging to the work environment.




3     Internal environment

3.1    Personnel


Iobox has 200 employees in five different countries, Finland, UK, Spain, Germany and Sweden.
Management Jari Ovaskainen and Henry Nilert are introduced in chapter 2.1. Iobox has one principle
when they hire employees “class B people attract class C people to join company, that’s why Iobox
hires only class A people.



3.2    Organization


Iobox has been growing very rapidly which means that organization is chancing constantly. In spring
2000 Iobox had les than 70 employees and now autumn 2000 they have 200 employees.



3.3    Finance


First round of finance was 3.1 million euros (January 1999). Financiers were SFK Finance, Eqvitec
Partners, Alto Berkeley Investments and Capman Capital Management.


Second round was 13 million euros (December 1999). Largest investor was Morgan Stanley Dean
Witter Capital Partners. Original investors Eqvitec Partners, SKF Finance and BancBoston Capital
added their investment at same time.


Terra Mobile acquired Iobox in July 2000. Terra Mobile paid 230 million euros in cash. That time
Iobox had about 100 employees, which means that Terra Mobile paid more than 2.3 million euros
per employee. Time when acquisition took place Iobox was only 19 months old, which means that




 Koskinen, Rouhola                             4
TU 91.109 Markkinatutkimusseminaari
21.2.2000



Iobox has gained value more than 12 million euros per month. In Iobox point of view couldn’t be
better, right after sale whole technology sector valuation has gone down. Especially valuations of
non-profitable companies have dropped dramatically.




3.4   Profitability


Iobox is not profitable. Venture capitalists have been financing company since Iobox founding. This
is common way of doing business for Internet and mobile Internet companies. Normally firms rise
from two to four rounds of finance from venture capitals, and change for money venture capitalists
get share of the company. It had announced IPO plans just before acquisition took place. Due the
Internet companies market value fluctuation end of summer 2000, Iobox IPO wouldn’t have changes
to succeed.

3.5   Reputation


Red Herring has chosen Iobox on, The Red Herring 100 50 private companies list, in June 19991.
Only other Finnish company in this list was Nokia. This was quite a remarkable achievement for the
company, which was only 10 months old.


3.6   Innovativeness


During whole existence of Iobox it has been very innovative company, in both technological side and
service side. Iobox has been able to introduce new innovative services to attract customers. In
technological side they have been able to develop truly scalable system, which can serve over one
million customers.




1
 Red Herring, The Red Herring 100 50 private companies, June 2000,
http://www.redherring.com/about/release043000.html



 Koskinen, Rouhola                                    5
TU 91.109 Markkinatutkimusseminaari
21.2.2000



3.7    Research and Development


Iobox R&D centers are located in Finland and Spain. In Finland Iobox have two R&D centers in
Oulu and in Helsinki.



4     External environment

4.1    General environment
In the changing global environment the firm must monitor five major forces: demographic,
economic, political/legal, social/cultural and technological.



4.1.1 Demographic Segment


Iobox’s services are closely connected to mobile phones and for their part complement the phone.
Their possibilities depend because of that quite closely on the demand and global sales of the mobile
phones. At the moment Iobox has in addition to Finnish services also localized sites in French and
Swedish and an English site for international customers. Services can be used by people of all ages
and especially in Nordic countries the social status or education doesn’t effect to the use.



4.1.2 Economic Segment


In Nordic countries the prices of mobile phones and their services are relatively low. In Finland we
have the highest mobile phone penetration in the world. These reasons make practically every person
in Finland and in Sweden a possible customer for Iobox. In other countries the prices of phones are
also quite low but the calls are more expensive than in Finland.



4.1.3 Political/Legal Segment


Finland has very differing telemarkets when comparing with the other EU countries; the competition
is extremely free and we have many competing firms. This is only good thing for Iobox as its



 Koskinen, Rouhola                                6
TU 91.109 Markkinatutkimusseminaari
21.2.2000



services can be used despite which network the customer is using. In many other countries the
markets are much more regulated and the customers don’t have many choices to choose from. There
are currently no laws forbidding the technologies or services Iobox is using so the future looks
bright.



4.1.4 Socio/Cultural Segment


The society in Nordic countries raise technology oriented children. The Internet is hype, the latest
mobile phone model is hype and almost everything is someway connected with technology. The
schools are teaching ADP and children learn to play games and surf in Internet at very young age.
Many kids have mobile phones even when they are first graders. H



4.1.5 Technological Segment


People in Scandinavia are very eager to buy every kind of new gadget so the markets for mobile
phones and thus for services for them are very big. Also home of the firms as Nokia and Ericsson are
here. The companies are visioning that in the future people will have more than one mobile phone.
The technology connecting the Internet and mobile phone is very interesting to service providers too.
The technological development of the mobile phones is very fast and Iobox can keep up the pace
only by developing their services.



4.2   Industry environment


Growth


Mobile phone penetration has been going up very fast in all European countries, here in Finland we
have exceeded 70% penetration rate and other Scandinavian countries are not far behind. In Finland
penetration rate is expected to be over 100% in few years time. Internet penetration rate is far behind
mobile phone penetration rate, which is one reason why mobile Internet companies are loaded with
such a high expectations.



 Koskinen, Rouhola                               7
TU 91.109 Markkinatutkimusseminaari
21.2.2000



WAP enabled mobile phone penetration is far behind forecasts and it is possible that mass markets
will never adopt WAP. Many mobile Internet firms who has been betting on WAP has faced
problems because market for their technology is still small even in Scandinavian countries.
SMS message traffic in GSM networks has been growing a lot and it is expected to continue this
rapid growth. We can see in figure 1. That in May 2000 total 8 billion SMS messages was send per
month and by end of year there will be more than 12 billion send messages.




         Figure 1. SMS growth2
There are two reasons for this growth another is that there is a lot more value added services (e.g.
Iobox services) and another is subscriber base growth.



4.3      Competitors

4.3.1 Red Message


Red Message is Swedish Start-up Company founded in 1999. Red Message management: Frederic
Landahl is CEO, Steven Yurisich is CMO and Michael Wallenius is CTO. Red Message is WASP
Company, delivering different mobile internet services. Company has strong focus in Business-to-
Business market. They have presence in Sweden, UK, Germany, France and Italy. Red Message has



2
    GSM Association, SMS Forecast May 2000 http://www.gsmworld.com/membership/graph_sms.html



 Koskinen, Rouhola                                   8
TU 91.109 Markkinatutkimusseminaari
21.2.2000



completed two rounds of finance, and they have received total $23 million. Company has plans to
have IPO in 2001, probably London. Red Message has 80 employees currently.


Red Message has wide range of clients, but most clients are one-way SMS clients. qxl.com and
Iobox announced agreement in spring 2000 in order to develop mobile interface to qxl’s auction site.
But today autumn 2000, qxl has simple SMS notification service, which is powered by Red Message.
If qxl’s acquisition over Rikardo works out qxl will be largest Internet auction site in Europe.



4.3.2 Myalert


Myalert is Spanish company, founded in May 1999. Founder and CEO of the company is Jorge
Mata. Myalert has offices in Spain, UK, France, Italy, Germany and US. Company is wireless/ m-
commerce company and they claim to be leader in one-to-one alert-driven mobile commerce.


Myalert has completed two rounds of finance, they have raised total $50 million. Second round was
$45 million lead investors were Nomura International and Brokat. Myalert’s 2nd round was largest in
Spain’s Internet history. Myalert bought 23% stake of Future 121 (October 2000), and they have
option to buy another 26%. Myalert monthly burn rate is $400 000 currently. Myalert has 90
employees. MyAlert offers many of the services typical of a mobile portal, including stock quotes
and news updates delivered free to users' handsets.




4.3.3 Akumiitti


Akumiitti is Finnish start-up company founded 1993. They were in Internet business, but they
changed their strategy to mobile Internet. Company has strong focus on mobile entertainment
(ringing tones and icons). Akumiitti owns 30% share of Wireless Entertainment Services. WES is
content provider (ringing tones etc.).




 Koskinen, Rouhola                                9
TU 91.109 Markkinatutkimusseminaari
21.2.2000



Akumiitti has one product The Akumiitti Entertainment Service Center (ESC) enables the delivery of
mobile entertainment content and services, facilitates easy deployment and supports the entire value
chain from the entertainment industry to the mobile phone users. Akumiitti’s first round of finance
was 20 million euros, TecCapital, Part.Com, EDB Ventures and Arctic Ventures were investors.
Akumiitti clients are DaimlerChrysler, Nokia, Sonera, StarMedia Mobile, Winbox, 123Internet,
NetCom and Mobyson.

4.3.4   2ndhead


2ndhead is part of SanomaWSOY Corporation. Company was founded in March 2000. Currently
they operate only in Finnish market, they have plans to expand to other European countries.
Company has mobile portal and they have very similar service offering than Iobox. 2ndhead services
are ringing tones, icons, news to mobile and mobile games.



4.3.5 Sonera ZED


Sonera Zed is mobile operator Sonera 100% owned subsidiary. Company produces services allowing
consumers use Internet via their mobile phone. They say, “Company produces personalized wireless
information services for consumers”.
CEO of company is Juha Varelius, COO Turkka Oksanen and Klaas Wagenaar is CFO. Sonera ZED
has offices in UK, Finland and US.
Sonera Zed service concept is very similar to iobox’ concept; ringing tones, icons, email, news and
sports results. They will launch Sonera Zed services in more than five countries by end of year 2000.
It is very obvious that countries will be same countries, which are main markets for Iobox. Sonera
Zed has over 700 000 monthly registered users at end of June 2000. Looks like Sonera Zed has really
scalable platform, it might be that is has been tested with even higher traffic loads than Iobox
services. Other companies have similar financial recourses; both are totally owned by mobile
operators. So far Sonera Zed has entered to following markets: Finland, Germany, Netherlands,
Philippines, Singapore, Turkey and USA.
Our opinion is that Sonera Zed is closest competitor to Iobox.




 Koskinen, Rouhola                              10
TU 91.109 Markkinatutkimusseminaari
21.2.2000



4.4   Competitor conclusion chart


Figure 2 shows how we see competitive situation, closest and most serious competitor is Sonera Zed.




       Same                                                     Sonera Zed         iobox
       markets                               Myalert


                                    Red Message
       Markets

                                                                                  2ndhead



                                           Akumiitti
       Not on
       same market


                            Not close             Service closeness          Very close


                           Figure 2 competitor chart




4.5   Competitor conclusion


Until today WASP’s have faced very little competition, if any. Toughest competition has been in
financial market, large number of start-ups has been looking for venture capital for their
globalization and research and development. But situation is slowly changing for example in Finland
companies like 2ndhead, Jippii, Sonera and Radiolinja has entered to ringing tone and icon business.
And other European markets will follow, Saunalahti’s Jippii has already presence in Switzerland,
Poland, UK, Norway, Holland, France, Estonia and Germany. So far companies haven’t been
competing with price, growth of the market has taken care of it, but now companies like 2ndhead has
started to sell ringing tones and icons with much lower price than Iobox. Of course Finnish market,
where this competition has started plays a minor role in Iobox’es business, but still Iobox should be
aware of it.




 Koskinen, Rouhola                               11
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21.2.2000



Now when Iobox is part of Terra Mobile, it might face internal competition other Terra Mobile
subsidiaries will do same things. At the moment Iobox has clear technological advantage, but other
Terra Mobile subsidiaries might catch up surprisingly fast.
Conclusion is that toughest competition has been in venture capital market and Terra Mobile
acquisition solved this problem. But competition is slowly rising in business-to-consumer market,
Iobox should be aware of it things like price erosion will take place in near future.



5     Services and customers
Iobox’ business to customer services can be divided to five different categories: mobile messaging,
mobile fun, mobile manager, mobile news, and m-commerce. The business-to-business service has
been mostly developing and selling their wireless platform, which partly complements their service
provisioning as business-to-customer services, can be sold to customers who have bought the
platform.



5.1       Mobile Messaging

Mobile messaging includes three different services: e-Mail, SMS messages and SMS chat.
          With E-mail service the user gets a free email account and the company delivers users emails
           to his mobile/WAP phone.
          With the SMS messaging service user can write SMS messages to a person or a group with
           the phone or a computer.
          SMS Chat enables to keep contact with many persons at the same time using mobile phone or
           a computer.



5.2       Mobile fun

Mobile fun includes Iobox’ icons and ring tones and SMS postcards.
          With icons the user can show pictures on his mobile. Iobox has a library where can be
           downloaded different icons or the user can draw one himself with company’s icon Designer
           and iconMaker.




 Koskinen, Rouhola                                12
TU 91.109 Markkinatutkimusseminaari
21.2.2000



          Ring tone service enables the user to download new ring tones from company’s library or
           create new ones on their toneComposer.
          User can select pictures from the company’s library or create new pictures with
           postcardMaker and send them together with an SMS-message.



5.3       Mobile manager

Mobile manager includes contacts, bookmarks and calendar.
          Contacts keep user’s e-mail addresses and mobile phone numbers online. The user can set
           aliases and create groups to speed up and simplify sending messages from the mobile phone.
          User’s favorite websites can be saved at Iobox so user can access them no matter which
           computer he uses. Also WAP-links can be stored there for fast and easy mobile surfing with
           the mobile phone.
          Calendar can be used to organizing day with Iobox’ online calendar and keeping track of
           meetings, events and to-dos. Company will send reminders straight to user’s mobile phone.



5.4       Mobile news

Depending of the country the mobile news service has a different amount of news to choose from. In
Finland Iobox is delivering sports news, two different kinds of Formula 1 news, weather information,
joke of the day and news from the Finnish National Hockey League to mobile phones.



5.5       m-commerce

The m-commerce service is a growing area. In the near future customers can buy different items
through mobile phones. At the moment this is however impossible since the only partner company in
Finland Boxman, has been closed. There have been negotiations of several other partners though.




 Koskinen, Rouhola                                 13
TU 91.109 Markkinatutkimusseminaari
21.2.2000



5.6   Customers


Iobox has currently about 2 million customers in four different countries: Finland, Sweden, UK and
Germany. The growth rate has been phenomenal. It took a year to get 1 million customers, 4 months
to get 2 million customers and the three million mark is about to break in next few weeks. The
customers can be easily divided to two different groups. Only 30% of all customers are active that is
visiting the company’s web page more than once and really use the services. The rest are people who
just register for curiosity or to get the free credits. This is real problem for the company. Another
problem is the spamming meaning customers who exploit the weaknesses in these kinds of free
credit systems by coding and using scripts which create instantly hundreds or even thousands of
“customers” all of which “give” their free credits to the person who used or wrote the script. Because
of spamming Iobox has been forced to implement more effective security measures to avoid it. The
new security system is based on icon or picture login, which is extremely hard to implement, by a
piece of code.
On the other hand Iobox’ customers include the European operators and the different companies the
operators have founded to act in the mobile business. As stated before Iobox no longer operates in
the business-to-business field but it still has many companies it is willing to serve in that area too. Its
biggest customers are Telia Finland and Sweden but the Terra Mobile deal has opened many new
opportunities for it. The smaller customers include operators from Germany, Portugal and Poland.




 Koskinen, Rouhola                                14
TU 91.109 Markkinatutkimusseminaari
21.2.2000




6      Value chain


m-commerce value chain




                             Basic Enabling        Transaction                 Presentation
 Transport                         Services        Support                     Services
 - communication                 - hosting,        -mobile                     -protocols
 between mobile           data        backup payment
 users and                and systems
 application              integration
 providers
Mobile Operators                ICL                     Sonera Smart Trust   HTML
                                                                             WML
                                                        Phone.com            Light HTML



               Personalization          User                                  Content
               support                  Applications                          Aggregators
               -not same content          - old services: email               -portal designers
                than in Internet             -new services:                    and operators
               -based on name, location
              address, device…



                                                                         Hotmail, Airflash
                                                                         Iobox


Figure 1. m-commerce value chain3

In figure 1 is m-commerce value chain. Final link in value chain is content aggregator link and iobox
is in this link. This function is particularly important for m-commerce because mobile phones have
smaller screens and limited input mechanisms (no mouse, small key pad).




3
    McKinsey Quarterly: M-commerce An operator’s manual, 2000 number 3



 Koskinen, Rouhola                                   15
TU 91.109 Markkinatutkimusseminaari
21.2.2000



7     Delivery channels


The services are provided to end users via localized web sites. Iobox is founding country
organizations to the most attractive markets. The use of existing services in Terra Mobiles web sites
in Latin America and Spain is not decided yet but it is very likely.



8     Earning logic


The earning logic of Iobox is based on credits. When a customer registrants he gets 30 free credits (1
credit=0,69 FIM). With the credits the customer can buy services. The credits are used as a carrot to
attract new customers. If the customer wants more credits he has to pay them with credit card,
collect on delivery or with Internet bank access. In short, customers buy special “money” with which
they can buy services.


      There are few limitations in this kind of credit system.
             The most promising customers being young people aged 10-15 are not able to get credit
              card or Internet bank access.
             The Internet bank access is very popular in Nordic countries but in other European
              countries people are not used to them.
             Free credits attract new customers but always a part of the customers will only use the
              free credits. The amount of active customers in Iobox is about 30%.




9     Analysis

9.1       SWOT

Strengths

         Technological know how
         Terra has strong position in Spanish speaking markets, terra’s strategy suits Iobox well
         Pioneers with their wireless platform  standard components but not easy to build



 Koskinen, Rouhola                                 16
TU 91.109 Markkinatutkimusseminaari
21.2.2000



         Personnel pretty young, management experienced
         Financial resources
         Terra’s global brand




Weaknesses

         Business not profitable at the moment
         Top management in Spain, other executives in Finland
         Not independent anymore
         Only 30% of customers are active
         How to maintain Iobox’ position in Terra Mobile
         Dependent on BtoB business (BtoC is more profitable)
         Ringing tones and icons work only in Nokia mobile phones
         You can make your own ringing tones and icons with a certain software
         Most of the services become obsolete in a year or two because the development in technology




Opportunities
         The current trend in mobile communications continues
         Pioneers, a good chance to become global wireless portal
         “Old” services can be offered to not so developed markets where Terra has already a position
          and new services can be developed to advanced markets like Finland and Sweden
         SMS services remain as a complementary services even till the GPRS or UMTS era




Threats
         the phones become so “intelligent” that they have all the services/applications already when
          bought
         Competition forces prices too low to make profitable business
         Free riders find a brilliant way to cheat to get credits



 Koskinen, Rouhola                                   17
TU 91.109 Markkinatutkimusseminaari
21.2.2000



      The hype about mobile business and internet in phones stops
      When true mobility with internet is achieved all the services available now are available in
       mobile phones
      All that Terra wanted was the technological platform
      Terra’s focus to Spanish speaking markets can diminish Iobox’ technological and competitive
       advantage




Strengths


Technological know how is very high in Iobox. Employees’ skill level is adequate to develop
complex services for mobile phones. With the help of Terra Iobox can enter pretty easily to many
Spanish-speaking markets and also they receive the Terra brand recognition and image. Iobox has
been a pioneer with their wireless platform: many rivals have announced that they have similar
platform but the implementation of such a platform takes at least 18 months. Personnel of company
is quite young but enthusiastic and on the other hand all management level persons have in minimum
10 years experience in business. Like described in the finance chapter before the financial situation
of Iobox is very good and the future looks bright.


Weaknesses


The biggest problem in Iobox of course is the profitability or in this case the lack of it. While Terra
Mobile is a strength for Iobox it is also a weakness: the top management is in Spain and the big
decisions are made there. Iobox is not anymore independent but it belongs to a huge telecom operator
Telefonica, which is the world leader in the Spanish and Portuguese speaking countries. Another
quite concerning issue for Iobox is the customer base, of which only 30% is active that is using the
services and visiting the web site more than once. A big challenge for Iobox is try to maintain their
position as a part of a new company. Iobox is currently very dependent on the service business,
selling different kind of services i.e. icons to customers although the business-to-business is
considered to be more profitable. Ringing tones and icons work only in Nokia mobile phones which
despite their leading position in markets are not the only brand and thus a certain part of mobile


 Koskinen, Rouhola                              18
TU 91.109 Markkinatutkimusseminaari
21.2.2000



phone owners can not use all of the services provided by Iobox. Everyone can make their own
ringing tones and icons with certain software, which is even provided with certain phones. The
enormous speed of technology development makes most of the services obsolete in a year or two as
the mobile phones become more like personal digital assistants, which include calendars, games and
email just to mention few features.


Opportunities


The company has been a kind of pioneer in its business and the time frame is there so it has a true
possibility to become a global wireless portal. The current trend in wireless communications of
course has to continue in order that to be even close to happening. The current services could be
offered to the less advanced markets where Terra mobile already has a strong position and a the same
time more sophisticated services could be developed to for example Nordic markets where customers
require very advanced services. If SMS services remain as a complementary services even till the
GPRS or UMTS era Iobox has a good chance to become important player on the market even if
Terra Mobile doesn’t allow it to develop services for the latest technology.


Threats


The development of mobile phones may make services useless if the phones already have all the
necessary services in them. The people after the free credits are a clear danger for Iobox’ business. If
they find a way to “cheat” the registration software it could mean major losses for Iobox. Of course
competition is always a threat but also the trend were the mobile business is going could change. If
people lose interest in it, there is no money in it. The technology can be threat too. If someone makes
a revolutionary invention either in technology or in services Iobox could lose the game. We consider
the Terra Mobile deal as a threat too because it could turn out that all that Terra wanted was the
wireless platform and after it got it Iobox is no longer needed. Terra’s focus to Spanish and
Portuguese speaking markets can diminish Iobox’ competitive advantage.




 Koskinen, Rouhola                               19
TU 91.109 Markkinatutkimusseminaari
21.2.2000



10 Scenario planning


    In this chapter we develop few scenarios for future strategy, then we evaluate scenarios and at
    last we select most promising one.



10.1 Scenario building

   1. Scenario: Test Bed
   This is basically Iobox’es current strategy, they use Finnish market as a test bed for their new
   service development. Because they have large customer base they have been able to test how
   scalable their technology is. This strategy has been working well so far.


   2. GPRS
   Second possible scenario is to bet heavily to GPRS. This new technology will make big
   difference to GSM (more bandwidth, always on…). Iobox has strong financial backing (Terra
   Mobile); it allows company to have some more non-profitable years.
   Idea is that Iobox develops service package ready, and when mass market adopts new
   technology, Iobox has services ready. Sonera has announced to open its GPRS network by end of
   year 2000, so mass market might be only one to two years away.




   3. 3G
   Iobox will concentrate all its R&D effort to third generation network (UMTS) applications.
   Normally VC’s would not finance companies, which has break-even point (point when the
   company turns profitable) in so far future. Now with Terra Mobile backing Iobox has possibility
   to stay unprofitable as long as it takes third generation adaptation.



10.2 Scenario selection


Our opinion is that scenario 1 is best scenario for Iobox. This strategy has worked well earlier and we
can’t see why it won’t work in future. It is also most likely that Terra mobile doesn’t want to wait




 Koskinen, Rouhola                               20
TU 91.109 Markkinatutkimusseminaari
21.2.2000



until next generation networks will be adopted by mass markets, we have to remember that here in
Scandinavia we have 1 to 2 year lead over other European countries, mass market here in one to two
years time means mass market in three to four years in Spain.



11 Recommendations for action

11.1 Customer lock-in

At the moment Iobox has about 2 million customers but still it has been only losing money. The
company has to think ways to turn that kind of mass into a positive cash flow. The development of
new and improved services is the essential part of customer lock-in. Naturally the services have to be
state-of-the-art and always a step ahead of competitors in order to get customers to use them. Iobox
could also think of some kind of volume discounts or more free credits to customers who really use
their services.
In the btob side they could consider similar tactic as one of their competitors, making their platform
free of charge. This could improve the sales of their services and make the Terra brand stronger.



11.2 Improve earning logic

Our opinion is that Iobox should try to move from credit based charging to direct operator
independent charging. This improvement would make their services available to everyone and make
the use of their services more simpler. Now customers must first buy credits to buy services, which is
too many steps to many customers. The challenge in direct charging is of course the operator
contracts which maybe very difficult to get.


11.3 Don’t forget Scandinavia

Although Terra Mobiles biggest interest is in the Spanish and Portuguese speaking markets Iobox
should try to use their position in the Nordic countries also. We here have a unique and very
advanced markets, which could be used as a testing area for the most sophisticated services. They
could be introduced to the other markets much later but tested and developed in Nordic countries.




 Koskinen, Rouhola                              21
TU 91.109 Markkinatutkimusseminaari
21.2.2000



11.4 Real challenge is to keep their position

The biggest challenge for Iobox is their position as a part of the new company. The name Iobox will
disappear but the company must make sure that they work doesn’t by doing excellent project and
continually keeping on the sharpest edge of the technology.


12 Conclusion


In the other hand Terra Mobile acquisition is good, but at same time Iobox lost it’s independency.
There is a great danger that Iobox might end up being just the R&D department for Terra Mobile. In
this case Iobox is most likely to lose its position in edge of mobile Internet technology. At any price
Iobox should keep it’s own existing mobile portals, to keep in touch with end user.
Acquisition solved one possible problem; possibility of running out of financial resources. Terra
Mobile backing means that Iobox has financial resources to choose any of scenarios presented in
chapter 10. Unfortunately Iobox is not in position where it can choose freely between these
scenarios. In worst-case Iobox engineers will be busy to implementing their existing technology in
different Spanish speaking countries. And meanwhile other rival companies will catch up Iobox’s
technological advantage.
As a result of our research we are quite confident that Iobox won’t be in Red Herring top 100
privately owned companies list in future.

References:


[1] GSM Association, SMS Forecast May 2000
http://www.gsmworld.com/membership/graph_sms.html


[2] McKinsey Quarterly: M-commerce An operator’s manual, 2000 number 3


[3] Red Herring, The Red Herring 100 50 private companies, June 2000,
http://www.redherring.com/about/release043000.html




 Koskinen, Rouhola                              22

				
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