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Straight Talk Media & Entertainment

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This week's Straight Talk is written by guest columnist Nick Thomas

Even service providers that have successfully built a digital audience through content or communications are still struggling to generate revenue. They should follow the lead of the big Chinese players and accelerate the integration of commerce into their offerings.

Neither scale nor engagement can guarantee revenue

The recent announcement that UK publisher The Guardian is cutting 250 jobs is a sobering reminder that even apparently successful players are struggling to make money in the digital economy.

Over the last 20 years, The Guardian has exemplified how the Internet can create a global audience. Thanks to the Internet, The Guardian has transformed its small but loyal newspaper readership in the UK of around 400,000 into a global monthly audience of more than 160 million. In many ways, the brand has been exemplary in its response to changing consumer taste. Yet it has found that profitability remains as elusive as ever.

And it’s not just legacy media brands which are struggling to convert eyeballs into dollars. Let’s consider Facebook, arguably the most popular global digital brand, with around 1.6 billion users. Its 2015 revenues – at nearly $18bn – were impressive enough, but its ARPU remained less than $1 per month, despite the massive traction the brand has with its audience.

The Guardian and Facebook are the success stories – popular brands boasting some of the brightest digital minds on the planet. But scale alone is not enough. Rather more worryingly, even scale plus engagement might not be enough to guarantee commercial viability.

Often derided as copycats, Chinese players have found the combination that attracts and engages consumers, but also generates revenues. The success of Tencent, Baidu, and Alibaba is partly down to the way they integrate not just communications and content, but also commerce. The big US players – Amazon, Google, and Facebook – typically have two of these elements, but not all three. Offering consumers the ability to purchase more and more goods and services – physical and digital – via their favorite app is creating real commercial opportunities for players, which are able to take a cut of a rapidly growing market.

Facebook and Google have tried to integrate billing and payment solutions in the past, but they are still seeking the formula that will enable them to succeed in this space. There is also a notable opportunity for mobile operators – which fear becoming just “dumb pipes” through which data flows – via carrier billing. Taking even a small share of the trillions of dollars’ worth of transactions that are taking place on mobile devices is a huge opportunity, especially if providers can attract that audience in the first place through communication and content offerings.

Ovum’s digital media coverage in 2016 will focus on monetization opportunities as well as the content strategies that engage consumers. Even if the Chinese model of a one-stop-shop is harder to deliver in more fragmented European or North American markets, we will help our clients find the best way to combine the “three Cs” – communication, content, and commerce – because they will all be at the core of successful next-generation media services.

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