Sunday, February 4, 2007

Could Telcos build a search engine to rival Google?

Europe's biggest telcos, including Vodafone, France Telecom, Telefonica, Deutsche Telekom, Hutchison Whampoa, Telecom Italia are apparently in talks to develop a search service for mobile phones. Cingular is the only American carrier that is involved.

Why?
It's no surprise that minutes are becoming cheaper, probably faster than the increase in minute consumption. Usage of mobile data services is on the rise, and this could be an opportunity for Telcos to create a new revenue stream, potentially in the $300M range (see back of the envelope calcs below)

Search-based advertising is a proven and profitable model that the Telcos could replicate.

Build vs. buy vs. license?

So why would the networks want to build their own? Why not just take a cut from the companies that provide new features? It seems that the Telcos have been operating under such a model where they capture a large chunk of the revenues from add-on services like mobile navigation services (TeleNav). Perhaps some criteria for selection would include:

  • Size of potential user base
  • Frequency of use
  • Value of use
  • Cost to produce

In terms of navigation services, the potential pool of users is small and infrequent. In this scenario, it's probably better to license the service and retain a healthy portion. Search, however, has broader appeal and given the dominance of the biggest players, Yahoo! and Google, it's harder to negotiate favorable margins.

Here's how Search stacks up relative to Nav:

 

Navigation service

Search service

Size of potential base

Small

Large

Frequency of use

Low

High

Value of use

High

Med

Cost to produce

High

Med

Back of the envelop math:

Europe has about 600M subscribers, about 20% use mobile internet services, and each user could monetize for about $3 annually. Potential ad revenues come to about $360M, not necessarily a small chunk of change.

More from the Daily Telegraph:
Mobile giants plot secret rival to Google | Business | Money | Telegraph

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