Smartphones are so last season – the way forward is smartwatches and other wearables. These are touted to be the next consumer obsession and are estimated to create a global $40-billion business by 2020. Mobile service providers will get a 25% slice of these revenues, but need the right business model, value chain positioning and technology enablers to do this. Olivier Engel, EVP Research and Development at Sicap, explains what you need for this winning strategy.
Wearables will help mobile service providers to drive more than $12-billion (€10.07-billion) in service revenue by the end of 2021, following a CAGR of 36%. This corresponds to approximately 25% of the total wearables revenues for mobile service providers. According to research conducted by analyst house, SNS Telecom, (Wearable Technology Ecosystem: 2016-2030) wearable devices are expected to generate a global market worth $40-billion with over 240-million annual unit shipments by 2020.
CAN SMARTWATCHES REVIVE THE FLATTENING SMARTPHONE MARKET?
Smartwatches are the single biggest product category in the wearables range. According to technology analysts at IDC, smartwatches account for 44.6% of all wearables estimated to ship by the end of 2022.
Due to relatively high price points, smartwatches have yet to reach true mass-market appeal. This is however, expected to change in 2019. According to Alan Antin, the Senior Director at Gartner, the overall average selling price of smartwatches will decline from $221.99 to $210 in 2022. This will be because of lower-priced competitors and due to higher volumes, which will lead to reductions in manufacturing and component costs.
As smartwatch prices drop, the market will segment into smaller sub-categories, including the health and sport sectors, payment market, fashion scene, for small children, and for the elderly – and the shipping volumes will continue to grow, due to more use-cases and price points meeting the demand.
Global smartphone shipments have flattened out, and even decreased in 2018. The strong growth trend in smartwatch segment could benefit the mobile service providers’ businesses; but compared to smartphones, this is where a fundamentally different business approach is required.
WHAT IS THE OPTIMAL SMARTWATCH BUSINESS MODEL FOR MOBILE OPERATORS?
A successful smartwatch business model is critical for an operator’s success in the wearables.
The commonly used transaction-based product business model, in which physical smartwatches are sold to consumers is the worst-case scenario for operators – as they could be left without any recurring service revenues. From the operator’s perspective, wearable device sales should always be a combination of a product, services and a subscription.
Smartwatches have a tiny screen, and the applications consume small amounts of data; with periodic location tracking, health checks or calendar updates as typical data transactions. Even if mobile operators are sitting in the bit-pipe service provider role on the wearables value chain, the connectivity-only business model won’t become a gold mine for them and the lucrative 30% share of the $40-billion revenue will remain a distant dream.
In a subscription business model, the wearable device – either a smartwatch or another connected gadget, is sold ‘as-a-service’. Customers can subscribe with a standard recurring fee on a weekly, monthly or annual basis, or pay fees based on their usage or other relevant key performance indicators. In either scenario, the fees will cover the costs of the device itself, and the costs of using it – including wireless data transmissions.
The subscription business model will generate for operators a continuous stream of service revenues, and also provides operators with additional possibilities for bundling smartwatches as companion devices for smartphones – this increases device sales and improves relationships with customers.
Bundling devices and services through a subscription model can allow the device to be sold at a discount – as the real goal is to drive revenue from the allied services.
HOW SHOULD OPERATORS BE POSITIONED ON THE WEARABLES VALUE CHAIN?
The wearables value chain is essentially composed of four components – devices, applications, platforms and connectivity. To achieve a profitable subscription-based business model, operators need to take up the role of both platform and of connectivity provider on this value chain.
This will allow tight bundling of multiple devices, services and connectivity into a single subscription. In telecom standards, a mobile subscription always includes a primary device, which is typically a smartphone, and multiple secondary devices, such as smartwatches. With the right network enablers in place, all these can be bundled into the same subscription and phone number.
WHICH NETWORK ENABLERS DO YOU NEED FOR A SMARTWATCH BUSINESS?
To achieve a sound and sustainable wearables business, mobile operators will need several technology enablers on their network. This starts from a flexible billing and subscription management platform that supports the bundling of devices, to services, subscriptions and companion devices.
SUBSCRIPTION MANAGER DATA PREPARATION (SM-DP+) IS NEEDED FOR SMARTWATCH ESIM PROVISIONING
Smartwatches are increasingly based on an Embedded SIM (eSIM), especially the latest high-end products. Embedded SIMs found in the non-removable and non-accessible software and hardware units inside smartwatches, require the standard functionalities on the mobile network.
Through the Subscription Manager Data Preparation (SM-DP+) functionality, operators can securely encrypt their network credentials to be ready for over-the-air provisioning on the eSIM. Subscription Manager Secure Routing (SM-SR) can securely deliver the encrypted credentials to the eSIM – once the credentials are installed, it can remotely manage the eSIM. Thereafter, all the services can be managed including enabling, disabling and deleting the credentials, as necessary during the lifetime of the watch.
DEVICE ENTITLEMENT SERVER MAKES SMARTWATCH ACTIVATION EASIER
Device Entitlement is a standard device authentication and service activation procedure and one of the enablers needed for the subscription-based business model for smartwatches. The Device Entitlement Server (DES) is the center-piece component of the mobile device entitlement and it authenticates mobile devices, including smartwatches for the network and makes sure the devices can access only the allowed services – Voice over Wi-Fi and VoLTE for instance.
Google Android and Microsoft Windows Mobile are examples of Operating Systems which are based on a standard device entitlement procedure described on GSMA’s specifications. Some device operating systems, such as Apple iOS have opted for a proprietary device entitlement process.
KEY COMPONENT: WEBSHEET SERVER
A websheet server is one of the key components needed by operators to activate smartwatches and other secondary devices. A websheet server provides the authentication login dialog between the device, or the user of the device and the network. It can be used to present the terms and conditions and pricing plan information to be accepted by the users.
The $40-Billion wearables market is a lucrative business opportunity for mobile operators and MVNOs. However, in order to capture the anticipated 30% revenue slice, a prompt implementation of the three-step wearables strategy is crucial.
Operators must master the right technology enablers on their networks; position themselves strategically on the wearables value chain; and embrace the subscription-based business model – or otherwise they will lose out!
LEARN ABOUT SMARTWATCH ACTIVATION AT MWC 2019!
Visit Sicap at Mobile World Congress 2019 at Booth 7K61 to learn about smartwatch device management and Device Entitlement Server (DES). See our MWC agenda and book a meeting!